Building on Bedrock

by Derek Lidow

  In order to align their objectives to those of their venture capital partners, high-risk entrepreneurs must set as their primary objective increasing the value of their company’s stock, regardless of whether it aligns with their core motivations. Entrepreneurs with such a mindset have shifted their end objective from making customers happy to pleasing investors. These high-risk entrepreneurs greatly increase their personal risks that in time either customers or investors will rebel against them. Growing fast and potentially failing fast makes complete sense if it’s all about making massive amounts of money quickly.

  Many VCs claim to offer expertise and contacts that are valuable and that lower risk. However, relatively few entrepreneurs acknowledge that VC expertise and contacts were critical to their success. Using VC expertise and contacts is a bit of a catch-22: an entrepreneur who needs the help of a VC to succeed is not someone VCs will feel comfortable letting lead a company of any value.

  The point of this book is that all entrepreneurs are responsible for preparing for their journeys and navigating their journeys responsibly. Do not try it just because it sounds fun or even to prove something to yourself and your parents. There is too much at stake from a human perspective, even if you might not have much at stake financially. Vidal Herrera had little money at stake when he started 1-800-AUTOPSY, but he and his family had a great deal at stake personally. But Vidal was prepared for the entrepreneurial opportunity when he spotted it. If he had not thought about how he could lessen the pain he would feel while performing autopsies, and if he hadn’t been prepared by being a highly skilled and efficient coroner’s assistant, he would have failed at making the VA happy, and the failure would have literally killed him and destroyed his family.

  Whether you should try to become an entrepreneur has nothing to do with any special traits, or charisma, or whether you love to take risks, or are great at computer programming. Those are myths. Ignore them.

  The question is whether you have taken the time and invested the energy and thought in preparing, and whether you understand which entrepreneurial path is the best path for you. Anything short of responsibly preparing is a clear sign that you are not serious about your commitment to make other people happy.

  CHAPTER 12:

  So What

  Except for emergencies, the president of the United States does not travel on short notice. There are thousands of people involved in planning the travel of the president outside of the Washington, DC area. An exception, however, was made in March of 1992. Sam Walton had been awarded America’s highest civilian honor, the Presidential Medal of Freedom, and George H. W. Bush directed his staff to arrange for him to fly down to Bentonville, Arkansas in just a few days’ time to personally bestow the honor. Even though Sam was confined to a wheelchair by that time, he couldn’t help but beam at the event in front of a crowd of more than a thousand friends, family, and associates. The president spent almost fifteen minutes talking about Sam and Helen. When it came time to receive the medal, Sam, always determined to do the right thing, rose from his wheelchair and stood while the president tied the medal around his neck.

  Sam always wanted to do the right thing, which to him meant making things better and better. Not just for Walmart’s customers and its employees, but also for his family and community. Unlike many other entrepreneurs, Sam never let his success come at the expense of those around him, and he never pretended he did it all by himself; he always credited Helen as being his full partner, and he was quick to give credit to others. What made Sam happy was making others happy, and that’s why he is such an enduring and all-encompassing role model—he is what entrepreneurship is all about.

  Sam may never have used a personal computer, but he made sure Wal-Mart used computers early on to stay at the vanguard of retailing. He never used a mobile phone either, but he made sure Wal-Mart had access to its own satellite communication links almost as soon as they were available so that he and his team could monitor the performance of his stores in real time. If Sam were still alive, he would surely be using the latest technology to help him supervise his stores and better serve his customers. Today’s increasingly sophisticated technologies and tools may change the techniques entrepreneurs use to make customers happy, and ask for money, but nothing has changed the who, what, when, where, how, and why of entrepreneurship—the things you have to do and think about before you decide on the specific tools and techniques that may help you.

  Nor has the pace of entrepreneurship changed, even though a great deal more information is instantly available today. There might be much more data for the CEO of a fast-growing company to review, but the pace of entrepreneurship is limited by the ability of the people affected to accept and implement that change, not by how fast software can do A/B testing on websites. No entrepreneur has ever achieved a faster pace of continuous improvement on such a large scale for as many years as did Sam and his team. The entire management team discussed and outlined proposed improvements every Saturday morning, and Sam expected the improvements they approved to be implemented the following week. Sam inspired his management team to want to change, and he spent his time making sure there were no impediments. Sam Walton is a timeless role model.

  Stephanie DiMarco and Ken Marlin are contemporary role models who also exemplify timeless aspects of entrepreneurship. They are savvy about the latest ways of extracting money from their happy customers (i.e. business models) and what tools are available for doing that extraction most productively (i.e. technology). But, as we’ve seen, Jordan Monkarsh, Vidal Hererra, Estée Lauder, Walt Disney, Ray Kroc, and Sam Walton all shared strong implicit motivations for succeeding as entrepreneurs and all developed the skills and deliberately accumulated the assets their businesses would require to grow and prosper. The lessons of entrepreneurship are timeless.

  Pioneering the Future

  These lessons are more pressing today than ever because our future is shaped by how we think entrepreneurship works. The fundamental principle of entrepreneurship makes entrepreneurship a core component of the well-being of our society. Entrepreneurs must challenge the status quo to get any attention and to get any business. By improving the customer experience they set new standards and expectations in both big and small ways in almost all fields. And large corporations copy the techniques and methods that entrepreneurs prove work—where entrepreneurs go, many soon follow. Successful entrepreneurs change what we do and what we want. Because entrepreneurs create and get us to accept change by offering us products and services that make us happy, they bear a large responsibility for the direction of our society.

  Entrepreneurs get us to change by offering us a choice and then convincing us that it’s the better one. Our diversity of choice, today and in the future, is contingent on the different backgrounds and ambitions of large numbers of nascent entrepreneurs, each undertaking a different journey to get what they want, as well as to deliver to us what we want. We need large numbers of entrepreneurs, but the number of entrepreneurs we’re getting is actually shrinking.

  Successful entrepreneurs also need to convince us that the choice they offer is enough of an improvement on what was previously available. They can convince us with facts and demonstrations, or they can convince us by manipulating our desires. “Mmmm, that looks good.” Jordan Monkarsh made me think that when he waved his Jody Maroni sausages at me thirty years ago—I could not resist trying one. It was pure manipulation by someone with great marketing instincts. Fortunately for me Jordan is a very ethical guy, and there was nothing unsavory about his savory sausage.

  Entrepreneurial Responsibilities

  We must nonetheless realize that the fundamental principle of entrepreneurship necessarily places our society on a trajectory toward more and more hedonism, with more and more focus on satisfying short-term and fleeting desires, many of which we are being manipulated into wanting in the first place. Why? Because it’s far easier, less costly, and faster to manipulate us into having a fleeting desire than it is to offer
products and services that create the type of happiness that comes from a sense of well-being. It’s very profitable business to push the limits of desire.

  Entrepreneurs and corporations alike have gotten so good at understanding the science of manipulation, the science of creating desires, the science of trust, and the science of habit formation that they can get many people to feel fleeting happiness with temporary goods and services and still want to give money in return. And with good marketing people and great lobbyists, the entrepreneurs and corporations that make money off this hedonism can make sure society doesn’t think too much about the waste and the by-products of all this fleeting happiness.

  There will always be some entrepreneurs willing to exploit our hedonistic tendencies as long as there are many of us willing to hand over our money to feel fleeting, superficial, manipulated happiness. And when the laws remain silent on these actions, the large corporations who feel their priority is to appease shareholders irrespective of their products’ overall impact on society will soon follow.

  Some entrepreneurs succeed by appealing to our baser instincts. We outlaw prostitution and gambling in many places and drug-dealing in most places, but immoral entrepreneurs still offer these services and use their cunning to evade the law. Although the insights we’ve discussed could serve equally well as a guide for someone starting an enterprise that distributes illicit drugs, we all have to hope this book will not be used to do so. While not illegal, recently, entrepreneurs have learned how to make large numbers of mostly men happy by making pornography available for free so that a small percentage of users will give money to see more. Many parents worry about the effect all this free pornography is having on their children and on our society. Now families with children must invest time and resources to monitor what their children are watching on the Internet at home or even at a friend’s home. Entrepreneurs have repeatedly shown that it’s good business to make food more appealing by making it sweeter and sweeter—consider the enticing smells of Cinnabon and hence our society’s problem with obesity. Whatever it is that we can be made to want is what some entrepreneurs will help us get. Because of the impact of entrepreneurship on our society, we have an obligation to help our entrepreneurs succeed, but also to be our society’s moral compasses.

  The media hype surrounding high-risk entrepreneurs who are suddenly worth a billion dollars distorts the perspective of large numbers of would-be entrepreneurs. The implication that becoming rich, fast, is the objective of all “real” entrepreneurs has driven some aspiring entrepreneurs to do whatever it takes to succeed, which sometimes includes circumventing or breaking laws. Why not cut corners, use unethical suppliers, falsify records, or rush products to markets before they’re fully tested? Why not exploit the naiveté of users seeking bliss? Why not capture the personal information and profiles of children and sell them to other companies? The misguided hype about entrepreneurship encourages entrepreneurs to justify socially questionable behaviors in the name of innovation and disruption.

  Entrepreneurs can help us find our better self and help us help others. Entrepreneurs have brought us better medicines and medical treatments and amazing prosthetics. They have made education more accessible to those without it. They have made us safer in our cars. And entrepreneurs have made food that’s good for us and tastes good too. But these are not the entrepreneurs we read about because they didn’t become wealthy quickly.

  Entrepreneurs don’t have to be driven by profit when they ask for money in return for their services. They can ask for money from donors or foundations in return for providing happiness in the form of food, education, or medical services to those without it.

  We need to understand that whenever we discuss entrepreneurship, we are also discussing morals and values—what makes us happy by making our lives and our society better.

  Ensuring Ethical Entrepreneurs

  Nearly all of our educators, policy makers, media pundits, and even politicians say that we must become more entrepreneurial in our lives and at our jobs. The problem is that we all use the word “entrepreneurial” differently, each of us having some, perhaps unconscious, motive for wanting entrepreneurship to be what we want it to be. Nobody in our society can force entrepreneurs to accept the expectations that others set for them. But in glorifying entrepreneurship or disdaining it, we are nonetheless attempting to manipulate entrepreneurs into doing what we want. This is true whether you are a parent arguing for or against your grown child considering entrepreneurship, or you’re a billionaire wanting to look cool to loads of aspiring entrepreneurs so you can get first pick at investing in future billionaires.

  But our entrepreneurial fantasies will lead to fewer benefits and more adverse consequences for all of us. Our society’s future well-being depends upon inspiring a large percentage of the population to be moral entrepreneurs who create long-term good without needless waste.

  Laws won’t make that happen. There will always be plenty of entrepreneurs cunning enough to circumvent any law. We must understand and accept the magnitude of the impact of entrepreneurship on our society and make it a priority to educate our children about how entrepreneurship really works, and the imperative of moral entrepreneurship. This education should be integrated into the high school curriculum, perhaps with existing civics or modern history courses. Teaching the basics of entrepreneurship in high school will help ensure that we educate students not only about the skills but also about the ethics of entrepreneurship. The morals of our society are ensured only when we pass down our beliefs to the next generation. Only if we teach the basic tenets of entrepreneurship in high school will entrepreneurship be perceived as a powerfully moral act of helping others by making them truly happy.

  The focus of our entrepreneurial education should rest on three tenets:

  Entrepreneurs make other people happy and ask for money in return. By doing so, entrepreneurs play an essential role in shaping the future of our society.

  Entrepreneurship may or may not be right for everyone, but it is a critical choice we all have to make. If you do want to be an entrepreneur, then choose thoughtfully between the two possible paths: bedrock and high risk.

  Chances of being a successful entrepreneur are greatly enhanced by understanding the Who, What, When, Where, How, and Why of entrepreneurship.

  These tenets summarize the cause and effect of entrepreneurship. Teaching these tenets to older teenagers as they begin to visualize and experiment with their place in the world will be highly relevant to them and therefore memorable. By studying the cause and effect of entrepreneurship along with history, social studies, and literature, students will appreciate how entrepreneurship has helped make the world “better.” The ethical dimensions of history, literature, and social studies encompass the morals we want to pass along to our children—teaching the tenets of entrepreneurship at the same time would be teaching our children how to shape a more moral future.

  Undermining Our Bedrock

  There’s another extremely worrisome problem with the direction of entrepreneurship. The hype around entrepreneurship is making our society less entrepreneurial, not more. Entrepreneurship as measured by how many new companies are created each year and also by the number of people considering starting a company is in long-term decline. Entrepreneurship is still big: more than 600,000 new companies a year are born in the United States, and more than ten million people are considering starting a company. But twenty years ago there used to be 800,000 new companies a year. And at times there have been thirteen million people aspiring to launch their own businesses.

  Bedrock entrepreneurship is declining, and so is the success rate for aspiring high-risk entrepreneurs. The hyper-charged interest in our current herd of billion-dollar unicorns will certainly fade with time, just as it did when we hyped railroad entrepreneurs, or automotive entrepreneurs, or entertainment entrepreneurs, or even savings and loan entrepreneurs. But this time the hype, buttressed by an active and wealthy venture capital industry f
ocused on high-risk entrepreneurs who aspire to make it big, fast, has seduced aspiring entrepreneurs to pursue more risky ventures in the few business domains where big numbers can accumulate quickly.

  And hundreds of thousands of ambitious and energetic young people are out to prove that they are special and that they deserve to be billionaires after a couple of years of showing their ideas around. They fill hundreds of new incubators and accelerators with thousands of teams, and they make up the tens of thousands of startup teams applying to join. But as we saw in the “What If” chapter, venture capital is funding no more new high-risk entrepreneurs than it had before, so virtually all of the growing numbers of aspiring high-risk entrepreneurs fail or are going to fail.

  Why are these aspiring entrepreneurs being led on? Because it is in the best interest of venture capitalists to have as large a flow of ideas and as large a number of ambitious people as possible coming to them so that the VC firm can choose the best. And if the aspiring entrepreneur doesn’t understand the “How To” of scaling up an idea, then the VC can always replace the entrepreneur with someone who does.