As I write this, the TV is showing the first reports of the Boston Marathon bombings.  Such events are now commonplace around the world and are so frequent in some countries that they barely make our news.  Then we have car accidents, disease, muggings… there are plenty of things to be afraid of if we’re prone to fear.  For most of us, these events are just risks we live with.  We shrug, take some precautions, and carry on.

Starting a business offers a substantial up-side in financial security and in a sense of accomplishment.  The down-side is unpleasant; bankruptcy, anger from investors and family, perhaps some ridicule… but that’s all.  So why are so many people who want to start businesses prone to paralysing fear?

Unlike things which can happen to us, like muggings and car accidents, starting a business is a matter of personal action and presumed control.  We think we are totally responsible for the outcomes, and our egos become hugely invested in the process.  Failure is a sign of personal inadequacy.

Although that response seems to be the norm, it’s not rational.  We can’t stop competitors from innovating and making our products redundant, we can’t predict sudden changes in market preferences, we can’t be sure suppliers will deliver on time, or staff will be honest… the list of factors outside our direct control is endless.  Those who succeed as entrepreneurs are lauded for their success and attributed with developing the new great product.  But more often than not, their greatest achievement was in struggling through against all the unforeseeable hurdles which threatened to destroy their dreams.  Were they fearless?  Perhaps some were, and some others were so afraid of failure that they daren’t give up.  The fear or lack of fear was not the key issue; it was their persistence in the face of adversity (along with some good fortune) which brought them success.

And what of those who did fail?  Some slunk away and swore never to start another business.  Probably, their businesses failure had serious financial consequences for them, their families, and their investors.  But, giving up on business was probably more a reaction to emotional responses; angry investors, disappointed wives/husbands, disapproving parents.  Those reactions can chip away at our self-worth if we let them.  Those who give up after experiencing the great learning curve of a failed business have often taken too much responsibility for things outside their immediate control.

Feeling fear of failure is okay when we start a business… it can make us focused and determined.  But we should also recognise that there are genuine factors outside our control.  If we’ve done all we could do, and the business still failed, there is no reason to suffer a shattered ego.  Business failure is a small issue when set against all the things on this planet that can do us, and our families, real harm.

It’s great having so much technology to help build business.  I’ve got tools like PCs, smartphones, and iPads; business systems from Payroll through to Microsoft Office; connectivity through Blogs, Facebook, Twitter, Google Drive, and LinkedIn.  My business is loaded with useful technologies!  The trouble is, I’m becoming more and more dependent on other people to keep them all working.

The consequences of technology failure are such that any smart entrepreneur puts a lot of effort into backup systems, password protection, and intrusion detection.  I have data backed up on portable hard drives, and in the Cloud.  I have a password-protected system for storing all my passwords, and my intrusion protection systems are thorough enough to make updating software a nuisance.  But I’m still vulnerable.

I’m neither technologically competent, nor interested in technology for its own sake.  That makes me dependent on the people who configure and maintain my systems.  In engineering we measure the probability of failure of the system by multiplying the reliability of each individual component.  So a system with two components, each with 99%reliability will have 98.01% reliability (.99 x .99).  Thus, the more components that are added, the lower the system reliability.  A system with four components, each 99% reliable, will have an overall reliability of only 96.06%.  My business has many technology components, each with an inherent reliability which relates to its design robustness, how it inter-relates with the other technologies, and what happens when a software provider does an update.  With so many factors, I get many failures, most of which can be fixed by software patches, system reboots, or throwing a tantrum. But there is yet another source of system failures… other people.

Now that I run so much of my business through the internet, I have a raft of people supporting various systems, and every one of them has limited ‘reliability’.  Recently, my website lost the ability for people to subscribe to my blog.  After some investigation, it turned out that a piece of third party software, installed by the marketer who had configured some of my systems for me, had not been licensed to me.  After a couple of years, I suddenly lost the use of the software.  Remedying the problem was easy.  I just bought a license.  But, in the process, the system reset my blog feeds to zero… and here’s where my system failed.  Despite my numerous backups, it had not occurred to me to export and backup a list of my blog subscribers.  I had relied on someone else to set up the system with appropriate robustness… and I was wrong.

I hate it when my technology lets me down.  And I hate having to be responsible for ensuring the whole system is backed up.  But losing two years of subscribers has reminded me that I have to be across every technology issue if I wish to create a reliable internet-based business.

I noticed that the entrepreneur was taking a long time to get out selling.  There seemed to be lots of issues that needed to be addressed before she would be ready to start.  Eventually I realised that she was avoiding selling because it scared her.  I talked with her about what she needed to do, and gave her a little training.  But she still found it difficult to get started.  So I suggested that we go selling together.

She arrived at my house with good information on 100 or so businesses in the main street that we could target.  We talked through how we’d manage the day, then set out.  I found myself standing in front of a small business and preparing to do cold call sales for the first time in 30 years.

I ran through my pitch in my mind.  This was no corporate sale.  This was sales at its most basic.  I thought of the cheerful young people who had breezed into my office over the years to sell me various products.  They had charmed me with their enthusiasm, and often amused me with their ignorance of sales.  A hoary middle-aged relic like me was not going to charm the shopkeepers!

We worked one side of the road each, and I found it wasn’t as hard as I’d expected to get interest from the shopkeepers.   My sales companion, meanwhile, was becoming more and more confident and more and more able to handle the rejections which are always part of sales.  Despite my greater experience, she closed five sales before I had closed one.  I like to think it’s because a pretty young woman is easier to buy from than an aging man.  But maybe it’s because I’m just not that good at cold call sales any more!!

Whatever the reason, it’s great to see my young associate getting competent at sales.  And it was a great experience to get back out on the road again.

One academic suggested that entrepreneurs are timid because we often focus on markets we know and contacts we can leverage.  An advisor from a large consultancy firm supported that view, arguing for more market-focused planning to ensure we find and understand the best market to address.

Their views reflect a common opinion of entrepreneurs.  We’re seen as unstructured and often undisciplined, like hounds chasing rabbits in a field of opportunities.  The evidence cited is the lack of a complete plan, and a tendency to abandon opportunities when better ones come along.  But that’s not what I see happening.  Entrepreneurship is more like surfing, and the more innovative the business opportunity the more a surfing analogy applies.

The surfer gets his gear together (assembles the resources he can use), and heads in the general direction of the waves (gets into business).  He has a clear goal to catch a wave (get sales), but he’s not sure which particular wave (sales opportunity) will be the one to chase.

So he sits on his board, feeling the swells and watching the waves forming (immerses himself in the industry and observes opportunities developing). He selects a wave that he thinks will turn into something big, and starts paddling furiously in the direction the wave is moving (focuses his resources on a significant emerging opportunity).  If the wave peters out, he quickly abandons his paddling and looks for the next one (quickly drops opportunities which aren’t going to deliver results).

When the big wave comes along, the surfer is ready for it.  He’s expended a small amount of energy ‘trying out’ other waves, but has abandoned the failures quickly enough to avoid being diverted by them.  When the wave arrives, he’s already moving fast, but he isn’t yet successful.  He’s just earned a place on the wave…. He can still fall off, but at least he’s in the right game!

No-one would suggest that a surfer should write a surfing plan, calculate the ideal point to sit to wait for a wave, model the desired wave shape, then enter the ocean to wait for that perfect wave to arrive.  There are too many variables in an ocean to allow such detailed planning.  Better to get out on the water, move fast, keep altering a dynamic plan, and change direction as circumstances change.

Entrepreneurs do need to identify the big goal, but we are flexible as we chase it.  Rather than being hounds chasing rabbits in a field, we’re surfers trying out one wave after another until we find the one which will give the great ride.

I did a risk assessment.  The biggest problems were the quantity of loose material which would give a false impression of safe footholds, and an overhang.  Otherwise, it was a pretty small, simple cliff.  I felt pleased with myself.  I have been accused in the past of undue recklessness but I believe I’m mellowing with age.  I knew I should have gone for ropes, but I had enjoyed free climbing when I was young;  and this was such an easy cliff…

My wife went to get the chain saw, while I worked out the details of how I’d descend, and how I’d get back up. Then, down I went, methodically and carefully working my way toward the trees; find somewhere to wedge the saw, move a foot, move a hand, the other foot, other hand, then the saw again.

Finally I was in position. Apart from the potential drop to rocks below, I was very stable as I could now brace my foot against the base of a tree which was hanging determinedly onto the cliff and which I intended to cut off about a metre from the base.  I started the saw, and began to cut. The saw spluttered and died, less than half way through the tree.  I had been so focused on getting down the cliff that I hadn’t thought about my wife’s role in this mission.  Whenever I use the chain saw, I fill the oil and petrol tanks, and check the blade before I take it out.  That’s so much a habit for me that I didn’t think to remind my wife that she would need to fuel the saw.

My first reaction was anger at my wife but, fortunately, before I could call out any inappropriate comments to her, I realised that this situation was entirely my fault.  I did all the chain sawing.  How could I expect someone who had never used the saw to know how to prepare it.  I should have trained her in chainsaw management if there was any chance of her needing to know how.  So now I had wasted a lot of effort and taken substantial risk, with zero chance of success.

In this case, the problem was easily remedied.  I spent some minutes carefully climbing back up, and returned the next day with ropes to finish the job.  And I trained my wife in belaying technique before I started to climb down! But I realised that my experience was a metaphor for poor cross-training in a start-up company.

When we’re busy building companies it’s often important to focus all effort on tasks which deliver immediate results.  So no-one ends up knowing anything they don’t need to know.  That’s fine when it’s business as usual.  But in times of crisis, of which there are many in start-ups, this high-risk strategy can fall apart.  If the CEO has travelled internationally to close a sale, and is in front of the customer when the technology fails, it pays to have someone who can fix the problem on the fly. It’s no use saying, “The CTO has the flu today, we can carry on with my pitch when he’s better.”   You’ve made all the effort, and taken all the risk to be there, and it’s all wasted because there was no-one backing up a critical role.  I should have thought of that before I asked my wife to fetch the chain saw!

1. One partner beginning to dominate, or
2. The partners dividing subjects into specialist areas, and each ruling in their area, while no longer challenging their partner, or
3. A ‘groupthink’ developing, which stifles examination of other ideas.

And many entrepreneurs don’t have partners to dialogue with at all.  But, if entrepreneurs are to develop as businesspeople, they should continue to reflect on what they’re bringing to the business, and a demanding, invested, entrepreneurial partner is the ideal person to ask the difficult questions like, “Why do you think the sales style you used for the small business will work in this corporate sale?” or, “Do you think keeping everyone reporting to you is still the best way now our staff numbers are growing?”  When the real answers are, “Because I only know how to sell one way.” and, “Because I’m afraid to give up control.” The entrepreneur is likely to try to fob off their partner with glib technical excuses. So, I‘m hoping these two entrepreneurs will want to work together.  My own motivation is simple… I think they can build value in the company quickly, and the overall risk profile of the company will be lower with both of them working in it.  But perhaps their motivation now includes the chance to help each other develop their self-knowledge and skills.

You do not have to earn  an online MBA to be a successful entrepreneur, but the knowledge gained can certainly help along the way.

The problem was simple.  I had prepared a strong case for good governance in start-up companies, and clearly identified the differences between governing young companies and governing more established ventures.   But I had glossed over the biggest ‘real world’ issue …. Most start-ups I’ve come across would have been better off without a Board than with the Boards they assembled.  It’s hard to promote something which is theoretically valuable but which has so often proven to be useless or even harmful to the start-up.

Yet, the most successful start-ups I’ve worked with ALL had effective Boards.  I revisited what I was planning to say.  It had to be less about why a Board was necessary, and more about how to get an effective one.

A founder who is focused on getting the product ready and getting early customers typically spends little time choosing a Board.  The entrepreneur often takes people based on availability and general credentials rather than because of what they will bring to this specific business.  Thus, the founder finds Board members from the three most easily accessible groups:

1. Friends and family
2. Professional advisors
3. Professional directors

Although each source can provide great directors, they can just as easily deliver people who are not appropriate to the start-up.

Friends and family are often engaged because they have been successful in their own businesses, are enthusiastic, and are free.  I have often had to sort out Boards where well-meaning Uncle George has brought his farming skills to the Board of a high-tech company, only to discover that the skills which built the $25M farming business are less helpful than he thought.

Professional advisors, including accountants, lawyers, consultants, and business establishment specialists typically have very appealing skills when a Board is being assembled and, because they surround the embryonic company, they seem to be logical choices as directors.  However, being a great accountant does not automatically qualify you to serve on a Board, even with the explicit role of ‘keeping an eye on the numbers’.  A Board member must be there to move the business forward, not just to stop the founder making silly financial decisions (the accountant can do that in his/her advisory capacity).

Professional directors are an appealing bunch from a start-up’s point of view.  They bring credibility through having sat on many Boards, and they often bring great connections for the company as well as mature governance skills.  Unfortunately, many professional directors have little start-up experience, and become hand-brakes on the company as they try to treat it like a corporate business.  I have also often seen them treat the start-ups disrespectfully, arriving at Board meetings without having read their papers.  Although I can understand how it’s hard to come from the Board of a $100m company to the Board of a start-up and take it seriously, it’s still not appropriate (either ethically or legally) to give the start-up less than full attention.

When I get involved with a struggling start-up Board, they may have had a few energetic meetings, but the energy has now gone.  Uncle George calls in half an hour before the meeting to say he’s busy today and to go on without him.  The accountant has become obsessed with the lack of good information and is requesting more reports.  The professional director, who has taken the Chairman role, sweeps into the meeting right on start time, opens his papers and says, “Now then, let’s see what this one’s all about.”

The founder wants to talk about strategy.  The accountant mentions the reports.  The Chairman looks patronisingly over his spectacles at the founder and says, “I know you’re in a hurry, but you’ve engaged a Board to ensure we do it right.  Let’s get these reports sorted.”

After a few such meetings, the founder has probably started running the business alone (one founder said that he kept the Board meetings going because it looked good to investors, but “these idiots” never have anything useful to say.”).

The cure for this problem is to start by working out what skills, experience, and contacts the company needs from its directors, and not to start recruiting directors until it is clear what is required from them.  As directors are recruited, the expectations regarding director contributions can be spelt out clearly, and non-performance can then be identified quickly in future.  Most of the directors will probably still come from the three easily-available sources, but they will take their roles more seriously if their level of accountability is agreed up front, and they will be better suited for the role if selected for start-up governance skills rather than for other credentials.

I was invited to the Board of a start-up which became successful.  The founder, in his capacity as controlling shareholder, took me for a coffee and explained exactly what he wanted from me.  Apart from generic governance skills, the founder wanted me to help him achieve particular goals (including managing Board structure).  I agreed and, in exchange, extracted a commitment from him that he would accept the Board’s instruction, in his role as CEO.  He could sack us at the AGM, but the Board was the final decision place until then.  Board meetings were productive because everyone understood what was required of them and everyone treated the company as respectfully as they treated governance of larger entities.

When I had finished lunch, I went to the Master of Entrepreneurship class with much greater clarity about the need to focus on the way to assemble an effective Board rather than on whether Boards are necessary.

Six weeks later he was back to report the first $30,000 or so in sales…. A good start!

The entrepreneur signed our papers, committing him to the deal.  Before the investors would sign, I analysed the actual costs against budget.  The costs were much higher.  The entrepreneur explained that the model he had originally proposed wouldn’t work, and he had modified it.  The modified model had a gross margin of 22%… not enough to build a profitable business.

The investors had a hurried meeting.  I was delegated to search for a viable business model.  A few days later I had a model which would give the margins and profits we had expected, but it would take us three years to get there.

The entrepreneur remained bullish throughout the discussions.  He seemed unconcerned about the failure of his business model, and I became suspicious at his lack of engagement.  I asked him some probing questions.  Eventually he conceded that he was expecting to exit the business within a year.  He pointed out that it was a simple business, and we could get a General Manager to run it… or I could do it!

So now I was being offered a business which would take three years to get ready to exit, and wouldn’t break-even until the end of the first year… okay so far… but one without a committed entrepreneur to run it.

Although the business is straight-forward and still appealing, it isn’t going to deliver eight digit returns.  I have plenty of such opportunities.  What I’m short of is motivated entrepreneurs to run them.  I’m focusing most of my entrepreneurial time on a business with, potentially, 9-10 digit returns.  So, unless I find a young entrepreneur with the drive to take on the smaller one, I guess it’ll become just another good idea that didn’t happen… all because the entrepreneur hasn’t the patience to finish what he started.

Ordinarily this all wouldn’t be such a big issue, but I had a major deal closing today at the other end of the country, and I won’t now make it.  I’m sure my team will do a great job but it’s not good to miss the meeting where the two teams convene to hammer out the details of the proposal.

This all highlights for me the ease with which a small failure can stop a major plan from happening.  If the plane had been okay I would have made my meeting; if the information system had performed I would have made my meeting.  But the two failures together by the airline were too much.

They’ve cancelled planes before, but have always rung me, and I’ve made other arrangements. So, should I start ringing before each flight to check it’s still on?  No, because there are too many points of potential failure to cover all of them off.  The only viable response is to ensure the business never hinges on one connection.  In this case, there will probably be enough senior people from my team at the meeting to get the job done… I hope!!  Still, it’s been a useful reminder that the plan can always break down, and I and the company must always be ready to adapt.

Sales rejection is fine… that’s part of the process. But I find it hard when people I expect to ‘get it’, don’t get it at all… or appear not to.  I’m talking about Angel Investors and Entrepreneurs.  These are the peer groups I look to with puppy-dog optimism for validation that the horses I’m backing are winners.

This week I asked an investor who I respect for his frankness to give me an opinion of a startup I’ve just begun backing.  “Dog-tucker” he said.  I was wounded.  I’d enthusiastically pitched the business concept, and shown him what we’d achieved already.  He furrowed his brows at me to show he wasn’t just making throw-away comments; “The horse is fine.  You should shoot the jockey, but he’s attached too tightly to the horse…so shoot the horse.”

The entrepreneur did have significant weaknesses, but I thought I’d structured the business to manage those.  I was deflated and concerned.  When I got home, the company’s founder (the jockey stuck on the horse) rang me to tell me sales were going very well.  We should hit break-even within the next month.  That’s not bad for a company that’s two months old.  I felt okay again.

A cup of coffee, and a few minutes’ navel-gazing led me to the root of my emotional turmoil.  Although I no longer have the driving fear of imminent poverty to motivate me, I still have significant fear drivers… enough to keep me sharp in the game.  I know a proportion of my start-ups will fail, but I care passionately about each.  Even when I’m a minor investor (which I usually am) I feel responsible for the success of the company’s rollout.  If I’ve invited friends to invest with me, that sense of responsibility increases even more.  I don’t want to let down the other investors or the founder. So, when someone I respect tells me to ‘shoot the jockey’, I take it seriously.

Occasionally I consider retiring from the game; becoming a passive investor, or not investing at all.  The thought of leaving the game is more of a downer than any bad news or negative feedback I get in a week.  This week’s ‘ups’ included a couple of major sales results, an important new technology acquisition, and enthusiasm for one of my companies from investors.  Where else would I get so many cool ‘ups’!!  So, I’ll enjoy the ups, and continue to try to learn from the downs.