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October 2, 2012 4:11 pm
Do highly rational individuals make better entrepreneurs? I’m not so sure. I think a strong emotional quotient can matter more.
Motivating staff is the most important task any leader carries out. This requires human skills rather than cold logic. The ability to persuade and inspire is a rare gift, and not one that can be acquired through classroom study or looking at a computer screen. From Napoleon to Steve Jobs, certain people have been able to command others to do their bidding. This is force of personality in action, usually a mix of cajoling and bullying.
Successful business builders know that for most companies, the core of any achievement will depend on personal relationships – with employees, customers, bankers, shareholders, suppliers and others. Managing these interactions is more dependent upon charisma than calculation, in my experience.
One might think that someone who starts and operates a big business should depend on data rather than intuition. Surely organisations are so complicated that things go wrong without constant knowledge of the details and relentless concentration on the facts? For that reason, aren’t powerful IT systems at the heart of every successful corporation in the 21st century?
But statistical analysis cannot handle the multiple issues involved in a start-up. Managers who lack charm will not gain true loyalty from their team. Selling is not a science – it is an art; many new product breakthroughs have worked despite research, not because of it. Computers and robots will not choose the right partner for a new venture or convince backers to fund it. It requires passion to persuade and generate excitement, which is what makes an entrepreneur and their idea stand out.
Sometimes I sit in board meetings with executives and a founder and study the differences. The latter will often exhibit the most volatile and unpredictable behaviour. Perhaps it is simply immaturity, possibly just showing off – or perhaps it is the fact they rely on feelings, sensing what is important, rather than getting distracted by the minutiae. The very essence of entrepreneurship involves rebellion against the status quo, ignoring irrelevant rituals and judging priorities by instinct rather than by received wisdom.
I have found that ever more due diligence does not necessarily lead to better decision-making when it comes to acquisitions. One can get lost in the hundreds of pages of verbiage and spreadsheets, and forget about critical issues such as culture and the big picture. When I bought Patisserie Valerie it was barely profitable, but the brand and business model felt valuable. On strict criteria it was hard to justify the purchase price. Yet it has turned into one of the best investments I’ve ever made.
Being able to cut through the noise can be one of the great entrepreneurial characteristics. I find finance professionals often get buried by floods of information, and miss the key insight that transforms an opportunity.
In a recent book called Heart, Smarts, Guts and Luck: What It Takes to be an Entrepreneur and Build a Great Business, the authors identify the traits they think mark out winners. Of the four determinants in the title, only one relates to IQ – the others are emotional or external factors. Indeed, the writers say, “pure brain-based IQ is the least essential quality for business success”.
Of course, gut instinct is all very well but not everything is susceptible to what might be called “right brain thinking”. While innovation, strategy, HR, marketing and sales might benefit from more creative input, production and finance require rigour, exactitude and a methodical approach, rather than shooting from the hip because “it feels right”. Many of the effective founders I’ve partnered have recruited key lieutenants who compensate for their intuitive bias. They are pragmatic enough to see their shortcomings and understand that not everything can be managed on the basis of intuition.
The most successful entrepreneurs are frequently unreasonable people who refuse to give up, even when the evidence and odds are very much against them. Such tenacity is yet another emotional response.
Entrepreneurs are very much animals, not machines, which can make their company more dramatic – but also much more rewarding.
The writer runs Risk Capital Partners, a private equity firm, and is chairman of StartUp Britain
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