by Derek Lidow
Sam never felt the need to reward or distinguish himself with objects; he cared far more about people. He liked being with his friends and playing sports, activities where having fun and feeling good didn’t cost anything. Sam was an extrovert supreme, and he felt good being around people and being respected by people. He was such an extrovert that he would sometimes introduce himself to everyone he’d cross paths with to make sure they knew who he was. Sam loved his childhood and aspired to live a similar life; he did not dream about making lots of money, nor did he dream about moving far away.
But Sam was driven to excel at whatever he did. He especially enjoyed tasks and activities that were tied to some ultimate goal. He loved being part of a team, and being respected for helping his teams succeed. He felt especially good when he was elected captain of a sports team, and he felt even better when his sports team won a league championship (both his football and basketball high school teams won state championships). But football and basketball were not enough. Sam also loved being a member and leader of church youth organizations, and running for elected positions in the organizations he was a member of. He had more energy than any one group could handle.
To Sam, money had nothing to do with fun, happiness, or success. Money was an enabler of things that he felt he needed to do. Sam needed to pay for his own tuition, books, and clothes, and he wanted to buy a car so he could feel good about taking girls out on dates. To pay for college and the things he needed for college, Sam kept his newspaper delivery routes going till he graduated, routinely hiring young local kids to actually make his deliveries on his behalf.
As he neared graduation from University of Missouri, Sam had no special role model or mentor, nor were his parents expecting him to do anything specific. In looking for a job, Sam, along with many of his fellow seniors, applied for positions with the companies that interviewed students on campus. Even though Sam hadn’t been a top student—not a shock considering all his extra-curricular activities—he went on just two interviews and got two offers to be a management trainee from the most successful and prestigious retailing companies of the era: J. C. Penney and Sears Roebuck. He accepted the position at J. C. Penney, and that’s how Sam Walton chose retailing, or perhaps, how retailing chose Sam Walton.
Sam was trained and tutored at the Des Moines, Iowa J. C. Penney store by one of the retail chain’s best managers. Unsurprisingly, Sam was quickly molded into an excellent department store salesman. But Sam couldn’t help himself from wanting to be in front of the customers—he felt the recordkeeping piece of his job should come second to a customer’s needs. That attitude made him terrible at paperwork, so bad that a personnel supervisor from headquarters recommended he be fired. While the job gave Sam great confidence about his sales abilities, it also made him question whether he wanted to deal with corporate hierarchies. Within eighteen months, Sam resigned from J. C. Penney to try and sign up for World War II.
But World War II didn’t turn out for Sam Walton the way he wanted—he soon found that a heart irregularity would keep him from active duty. After leaving J. C. Penney, Sam worked at a gunpowder factory in Tulsa so that he could feel good about his contributions to the war effort. But he had plenty of time for himself when he wasn’t working, which translated into time to make friends and meet people—he wasn’t into being alone. On an outing to a bowling alley, Sam tried to pick up a pretty girl. “Haven’t I met you somewhere before?” It wasn’t original, but it got the conversation going. And he didn’t care one bit that she was on a date with another guy. Helen Robson was the daughter of a prominent rancher and lawyer in a small town outside of Tulsa. Sam couldn’t believe his luck in meeting such a smart, attractive, and ambitious young lady. (She had been valedictorian and a varsity athlete at her high school.) They quickly started discussing their future plans, and soon started planning their futures together. Helen and her entire family fell in love with Sam’s energy and ambition; Sam was ecstatic about being part of a family that could help him succeed.
Sam treated Helen as a full partner from the start. He admired her different and thoughtful perspectives on people, plans, and family. It’s hard to tell the exact moment when Sam decided he wanted to be his own boss. I suspect the idea was already percolating when he was working at J. C. Penney and bristling at the rebukes he received for spending too much time with customers and not enough time on paperwork. Sam likely had dreamt out loud about the possibility with Helen and probably even Helen’s dad. We know he was focused on starting his own retail business by the time the war ended, because immediately upon his discharge from the army (he had been finally called up for the last two years of the war to organize and supervise efforts to guard government facilities), Sam drove to St. Louis to see his childhood friend, whose dad had owned the local department store in the small town where they grew up. They met and concocted a plan to go 50/50 in buying a franchise to open a department store in St. Louis. Sam didn’t have the money, but planned to borrow it from his new father-in-law.
Sam likely had been aligned with Helen, and even her family, about owning a retail business, but the specifics of Sam planning to go into partnership with his friend was clearly news to Helen, who quickly vetoed the idea. Her family had suffered setbacks from frayed partnerships, and Helen didn’t want her and Sam to endure any similar setbacks. Furthermore, Helen hated the idea of starting a business in St. Louis—she liked small town life, and a small town is where the business would be. Sam immediately dropped his St. Louis plan and focused instead on buying a small-town Ben Franklin–franchised variety store.[4] Within a couple of months, backed by a $20,000 loan from Helen’s dad, the couple found and purchased a franchise in Newport, Arkansas.
Retailing is the most common of all entrepreneurial businesses. And opening a franchised retail outlet is a popular way to this day for nascent entrepreneurs with little relevant experience to break into retailing. Borrowing money from family to open the business is also extremely common. There was nothing exotic or unique about what Sam decided to do. He went into a business where the only competitive advantage would be him.
Ideas Are Not a “What”
Vidal may have been the first to offer private autopsies, but being a pioneer had nothing to do with why Vidal started 1-800-AUTOPSY. He just wanted more customers once his contract with the VA was under control and spinning off extra cash. Entrepreneurship is often fantasized as an ability to think up entirely new businesses or come up with ideas that disrupt existing industries. This is never the case. Ford did not think up the combustion engine or automobiles, Edison did not think up incandescent light bulbs, Larry Page did not think up search engines. Disney didn’t think up animated films, or even amusement parks. These great entrepreneurs succeeded by working tirelessly to tune existing ideas and inventions in ways that excited vast numbers of new consumers.
Ideas are not the keys to entrepreneurial success. Even a once in a lifetime, an unprecedented, world-changing, patent-protected new idea won’t guarantee success. The true story of what was arguably the most brilliant idea of the twentieth century, the transistor, illustrates this perfectly.
The invention of the transistor made the New York Times. People knew it would be world-changing, and they were right. Transistors have given rise to computers, modern communications, the Internet, smartphones, and all the ubiquitous electronics that we have come to rely upon. The transistor was co-invented by William Shockley, a man universally recognized as a great scientist (and, along with his co-inventors, later rewarded with a Nobel Prize in Physics). Wanting the transistor to be his legacy, he formed a startup to commercialize the device and easily found a wealthy businessperson eager to underwrite the company with as much money as might be needed. Shockley then recruited the smartest people he could find with the skills he thought were necessary to produce these revolutionary devices.
Despite all this brainpower, a deep understanding of this new technology, and a world waiting with bated breath to buy transistors, nothing
happened. Shockley routinely belittled his recruits in front of their peers. He instructed lab technicians to ignore their bosses and secretly report to him. He took credit for everyone else’s ideas and he changed his mind constantly. Within a year, the smart people started to flee. They went on to create pioneering companies like Fairchild Semiconductor, Intel, and venture capital firms like Kleiner Perkins. The Shockley Semiconductor Laboratory never produced a single product. Shockley was a leadership disaster, and as a result the electronics revolution was set back by years. Poor leadership and poor execution can sink even the greatest ideas.
No new idea comes formed ready for delivery to the market. The more unique the idea, the less any human is able to predict or assess all the complexities of how supply and demand will evolve. Nobody has ever shown they have infallible, let alone reliable, instincts for anticipating how customers and markets receive new ideas. Sure, you can do a ton of research to forecast how customers and suppliers will react to an incremental change to an existing product or service. Established companies attempt to do that with their new product introduction (they call it NPI) processes. All ideas change significantly as PhD marketing experts at large companies, or entrepreneurs, come to understand the reaction of real customers, suppliers, partners, and investors. Steve Jobs and Steve Wozniak initially tried to sell PC boards to hobbyists, which almost nobody wanted; then they sold Apple 1 computers that only a couple of hundred people wanted, before Steve Jobs knew enough to convince Wozniak to design what became the wildly successful and profitable Apple 2. No idea is a good entrepreneurial idea until it has been prototyped, sold to real users, modified extensively, and iterated to the point that it appeals to significant numbers of customers.
Ideas are not the “what.” The real “what” is doing something different that makes customers so happy they gladly give you money. But that difference that customers look for to choose who they’ll do business with is rarely ever patent protected—it’s more often the case that improved service, convenience, or some variation on an existing product or service convinces initial customers to buy from a new company.
The Unifying Principle of Entrepreneurship
The substance of Stephanie, Vidal, Jordan, and Sam’s businesses could not be more different. But despite all the differences in these entrepreneurs’ paths, they are all ultimately doing the same thing.
Stephanie’s business requires getting other businesses to license her software and to stake their business success on using her programs. Beyond buying rights to use Advent’s software, customers invest many thousands of dollars to install the software and to train their staff to use it properly. To succeed, Stephanie has to ensure that her customers use her software for a long time.
Vidal’s business gives comfort and closure to families that have questions about the sudden death of a loved one. Other than the VA, Vidal’s initial customers were all one-time users of his services. Jordan Monkarsh sells fun food that tastes really good in a fun place. He initially sold his sausages to people on Venice Beach who happened to be passing by, and quickly got customers who loved his sausages enough to make repeated trips to his stand.
But all these entrepreneurs, like all successful entrepreneurs, ultimately operate under the same guiding principle: They make their customers so happy that they gladly give them money in return.
This statement embodies three essential truths. First, it describes the earliest and most basic form of all entrepreneurship—trade. “I will give you the fur from the antelope I killed (my product) in return for you giving me a basket full of grain (your currency).” The antelope fur will make one person happy, while the other person will be happier with the basket of grain. Trade is at its core the entrepreneurial transaction, whether you’re trading real estate, products, or services.
Entrepreneurship has not changed. Often today’s more complex entrepreneurship terminology—phrases like “value proposition” and “product market fit”—can obscure what it has always been about. Students and other aspiring entrepreneurs I counsel get distracted by such terms, particularly when these terms are introduced before the aspiring entrepreneur knows what they want to do. But aspiring entrepreneurs know intuitively how to answer when I ask, “What can you do to make some group of people so happy that they’ll give you lots of money?”
Second, this unifying principle of entrepreneurship conveys an essential insight: emotions drive all actions, including the actions required to complete a transaction. Clearly, then, the positive emotions associated with delivering a product or service must be big enough to swamp the negative emotions associated with handing over money. Entrepreneurs who overlook or forget this principle become frustrated and distracted when somebody doesn’t buy their product or service even though they said they liked it. A person who likes something that you do or make may not like it enough to actually want to part with their money to buy it. Building a product or service to be more positively emotive will increase the chances people will want to pay real money for it.
Third, understanding the emotional state of your potential customer pre- and post-sale is critical. Stephanie succeeded because she knew exactly what would excite someone who ran an asset management business, which was not having to train, supervise, and pay so many bookkeepers. The jargon of value propositions causes many businesses and entrepreneurs to neglect monitoring or measuring the emotive responses of customers once they have received the product or service. Our prehistoric entrepreneur could see that antelope fur kept his customer warm in the winter and therefore knew he could barter away the furs of all the antelope he could kill. A modern developer of Android apps has a much harder time knowing whether his or her app actually made the person who downloaded it happy enough to recommend it to others so that her business can grow and prosper. Most don’t even care to find out—and most app developers fail. Further, to sell a product or service to a business, you usually have to make many people simultaneously happy. And because business people may feel pressured in different ways at work and at home, making businesses happy enough to buy can be enormously challenging.
Entrepreneurs who cease to control or care about how they deliver happiness will ultimately fail. And when you cease to control or care about being rewarded for delivering ever more happiness to ever more customers, it’s time to sell or retire.
Making a business customer happy to hand over hundreds of thousands of dollars to rent software is typically more complex than making a passer-by happy to hand over $6 for a spicy sausage, which may or may not be as tricky as dealing with a bereaved family contemplating spending $1,500 to feel more settled with the unexpected loss of a loved one. We’ll discuss more about how you can make customers happy later, but first we need to understand the psychology of being in business serving others.
“What” You Do is About Social Status
Almost every industry is undergoing change, every industry has weak players, every industry has disgruntled or unsatisfied customers, and every neighborhood needs its hangouts.
But many aspiring entrepreneurs decline to take advantage of the lucrative opportunities that surround them. That’s because most aspiring entrepreneurs, consciously and subconsciously, attach a social status to the entrepreneurial opportunities they decide to pursue or reject. We’re all social beasts who can’t help ourselves: we want to know where we rank socially among those whom we consider peers and those whom we think are essential to our well-being. We want to know where we rank among the people our parents care about, where we rank with our boss, and where we rank in the social order at work or among our friends. While it’s often difficult to know for sure where we rank, we mostly gauge our ranking based on the feelings and opinions of the people we spend time with and read about.
When we consider entrepreneurship we can’t help asking ourselves, “What will my friends think? My parents? My neighbors?” And we have our perceptions of which types of entrepreneurial endeavors will raise our status and which will diminish it. You
may privately barbeque the best ribs anyone has ever tasted, but people with degrees from expensive colleges may feel humiliated opening a BBQ restaurant because their parents and sorority sisters would not approve. Our social rank precludes many of us from delivering the greatest happiness we’re able to generate.
The lower someone’s perceived social status, the more willing they are to consider more diverse entrepreneurial opportunities. Vidal wanted to do something that utilized his skills and could make him a decent living. Stephanie, of higher economic status than Vidal, did not consider the unglamorous idea of starting a temp agency for bookkeepers, though that can be a lucrative, low-risk venture.
We all have our perceptions of what conveys social status and what diminishes it. Media coverage is a big shaper of those social perceptions. Nobody is writing cover stories about how cool it is to own a franchise, despite top franchises like McDonald’s contributing to the success of thousands of entrepreneurs. Sam considered being a small-town operator of a retail franchise a socially acceptable occupation, and used the experience to increase his chances of success while simultaneously learning how to run his own store.