Street Smarts Usually Trump Academic Brilliance

Street Smarts Usually Trump Academic Brilliance

Philip Anderson
Philip Anderson | INSEAD Alumni Professor of Entrepreneurship
Philip Anderson is the INSEAD Alumni Fund Professor of Entrepreneurship at INSEAD, in Singapore. He is also director of the 3i VentureLab and director of the International Centre for Entrepreneurship, which includes the Caesarea Rothschild Entrepreneurship Centre in Israel. His undergraduate degree in Agricultural Economics is from the University of California at Davis, and he received his Ph.D. in Management of Organizations from Columbia University. Manoj Khatri caught up with him on his visit to India.

How would you define entrepreneurship in the modern business context? What are the different aspects of entrepreneurship?

That’s an interesting question because different people have different answers. For example, is the self-employed owner of a one-man repair shop an entrepreneur? Is the founder of a venture-capital backed start-up whose stake has been diluted to five per cent an entrepreneur? If you identify entrepreneurship as owner-management, only the former is, but economic policy is oriented toward creating more of the latter kind of enterprise.

For us at INSEAD, entrepreneurs build companies that are specifically crafted to exploit a particular opportunity. This gives them an advantage over older companies that were designed in response to challenges of the past and must change to adapt to today’s requirements. Entrepreneurs can build new companies. They can also rejuvenate existing companies via buyouts and turnarounds. They can also build new companies inside existing companies, which we would call corporate entrepreneurship.

There are two key aspects to entrepreneurship. The first is forming or reforming a company. The second is that entrepreneurs behave like owners, not like people who are maximizing some other shareholders’ value. They may or may not have ownership stakes that are actually significant, but their interests are completely aligned with those of the owners. They behave like principals, not agents.

What are the key forces that govern the success of entrepreneurial ventures? What makes a successful entrepreneur? Can entrepreneurship skills be learned or are they always innate?

The single most important factor is quality of management. Most ventures do not end up doing what their business plans envisioned. High-quality managers adjust to unforeseen situations; because they build the company as they go along and behave like owners, they win by being more nimble and adaptive. The next most important factor is that successful ventures attack real problems or needs that people are willing to pay them to address. Far too many entrepreneurs create value propositions that customers find "nice to have" but not "must do." After quality of management, the best predictor of success is whether a venture is attacking a problem that is causing pain for an attractive group of customers they can reach without burning too much cash.

The will to spot opportunities and take risks in order to realize them is part of a person’s overall makeup, which is partly innate and partly a product of his upbringing. The best way to learn how to be an entrepreneur is to work at the side of a successful one. The problem is that entrepreneurs are understandably reluctant to hire those who cannot help them immediately. Therefore our role in business schools is not to teach people how to be entrepreneurs. It is to impart skills and insights that allow our graduates to hit the ground running and make an immediate contribution to an entrepreneurial venture. That allows our students to learn from a veteran entrepreneur those lessons that can only be conveyed by working together.

Can you bring out the significance of the role of entrepreneurs in a developing nation like India? What lessons can we learn from the entrepreneurs of the developed world?

It is difficult for a company in a developing country to do exactly what a rival in a developed country does, because it is not a level playing field. Foreign companies have access to capital, technology, human resources, and infrastructure that often give them an advantage. Of course, Indian firms can compete on cost, but such strategies will keep Indian wage levels at subsistence levels and run the risk of foreigners pitting India against China to see who will work for the least pay. Therefore, the best way for Indian companies to create value is by seizing opportunities that foreigners have not spotted or cannot use to their advantage. Often, existing companies are not optimally configured to exploit such opportunities. Even great companies like Tata or Biocon can’t be in every business and can’t pursue every economic possibility. India needs entrepreneurs who can build companies that either do something foreigners are not doing, or that do the same thing in different ways.

There are many lessons India can learn from entrepreneurs in other countries, and it is fortunate that so many great entrepreneurs are of Indian descent and passionately desire to give back to their mother country. One of the most important is that savvy, toughness, and high energy usually count for more than sheer intellect. The most highly educated person who does well on tests often does not make the best entrepreneur. Indians are used to the idea that you need to be a top student from a top university to make it into the most prestigious companies or the civil service; the rules are different for entrepreneurs. Street smarts usually trump academic brilliance.

Another important lesson is that risk-taking and opportunism can go along with frugality. Really good entrepreneurs squeeze as much as possible out of limited amounts of cash. They leverage the money of others, and never invent the wheel when a good, cheap one is available in the marketplace. By keeping the rate at which they burn cash low, entrepreneurs can try a lot of ideas, most of which do not work, without losing because they ran out of money before they hit upon a workable value proposition.

What are the unique challenges that entrepreneurs face in a vast, multi-faceted country like India? How should an entrepreneur prepare to counter these?

Indian entrepreneurs often look to America for examples, and quickly realize that the relative homogeneity of the US can be a great advantage. Something that works in one part of the country can often be rolled out to others without much modification. The US is a national market; build a better mousetrap and you can sell it without having to reinvent your business every time you enter a new city or state.

India is a more diverse mosaic. Sometimes, expanding a business within India can be as challenging as expanding it across borders. Also, India’s infrastructure is improving, but more progress is required before it stops being a hindrance. In some parts of India, it’s easier to travel to, say, Singapore than it is to get to another domestic hub.

The most important thing to get right is the people you have representing you when you expand beyond your home region. You need key employees representing you who are in tune with other regions where they represent you, but who are still in touch with your values and ways of doing business. Pay close attention to the calibre of the people who help you expand outside your initial home base, whether you expand domestically or overseas. It is really difficult to run a growth venture in India centrally; you need to hire people you can trust and listen to what they say if you want to expand.

How does a successful entrepreneur become a successful business manager, once his entrepreneurial venture succeeds?

The real breakpoint seems to occur when a company gets past 60 or 70 employees. The company makes a transition from one where the founder/
managers know everyone personally to one where many employee relationships are impersonal. At that point, the successful entrepreneur has to make a transition from "do-er" to "orchestrator." That is not to say she or he takes a hands-off approach to the business. It means using information and control systems to supplement personal observation, and being able to communicate purpose and direction to people who do not see or work with you every day.

Someone who has never worked this way, where one has to control an enterprise indirectly instead of directly, can only survive the transition with help and mentoring. The entrepreneur has to hire and trust people who will operate on his behalf. After the breakpoint occurs, the most important skill for the entrepreneur is no longer knowing how to do everything or what to do next – it is the ability to size up people, hire the right ones, retain them, and motivate them. That’s hard to do without trusted advisors, whether they are part of senior management or provide counsel from the outside (as friends, service providers, or directors).

What are the difficulties that intrapreneurs face? What are the benefits of encouraging an intrapreneurial culture in an organisation?

On the plus side, intrapreneurs usually start with an infrastructure, working routines they can transfer from the parent company, and perhaps a well-known name on their business card. On the minus side, they often don’t have the freedom to build an organization that is precisely configured to exploit the opportunity they are pursuing. The more they have to conform to corporate guidelines and policies that were designed for different businesses, the more they are handicapped. The most subtle and difficult burdens are often cultural. It is extraordinarily difficult to build an organizational culture that fits your opportunity when the people in your organization bring with them a culture that was designed for other settings and other challenges.

There are three important benefits of encouraging an intrapreneurial culture. First, a company is more nimble when individual employees see it as their job to spot opportunities and pursue them with a sense of urgency. Many opportunities disappear in the time it takes to bubble them up to the apex of an organization and gain senior management’s assent to exploit them. Second, a company is better able to attract and keep talent when employees see that bright, opportunistic people who make money for the company are encouraged and rewarded for being proactive. Intrapreneurs are usually result-oriented, and if they are not given an alternative to corporate politics and career ladders, they usually leave before they create a fraction of the value they are capable of generating. Third, intrapreneurship is one of the great general management training grounds. Someone who has built a company inside an existing company has garnered knowledge and skills that will be invaluable when s/he takes on broad responsibilities, such as running a plant or a division. Intrapreneurs are a crucial part of your talent pool, and their experience often makes them the best choice to open a new office, launch a joint venture, turn around a troubled operation, pioneer an innovation, or undertake similar challenges that cut across functions and change mindsets.

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