Starting a company isn’t a one-time decision. Entrepreneurs don’t just make a bet and hope they can defy the odds. Their job is to manage risk, which means controlling what they can and finding ways to grasp the gains while guarding against losses.
To learn more about the crucial decisions facing entrepreneurs, I met with Brad Mattson, a Silicon Valley veteran with twenty-five years in the semiconductor industry, as well as experience in venture capital. Today he’s chief executive of Solexant, a thin film PV company that uses nanoparticle technology to bring down the cost of solar panels.
Aside from running his company, one of Mattson’s chief interests is to help a new generation of entrepreneurs. We met at Solexant’s offices in Santa Clara, in one of the many low-slung buildings that stretch along the corridor of Highway 101, from San Jose to Redwood City. The names on the doors come and go, as ventures spring up and many fail, but as a whole the ecosystem remains vibrant and healthy.
Brad Mattson explained that starting a new business demands clear analysis with an ability to manage risk. "What I tell entrepreneurs is, ‘Your job is risk management. If you can reduce or eliminate the key risk, you can succeed.'"
New ventures face three kinds of risk: market, technical, and financial. Mattson commented: "The one I try to avoid is market risk. You can’t control markets. You can’t force customers to change. If your solution depends on the customer changing what they’re doing, you’re just adding risk." It makes little sense to pursue a speculative market where demand doesn’t already exist. Also beyond an entrepreneur’s control are the actions of competitors and government policy.
Technical risk is a different matter. Not only is technology something we can influence, but improvements are very likely crucial for the new venture’s success. Only with superior technology is there a chance to prevail. For this it was essential to take large risks.
As Mattson put it: "You can’t expect the market to adopt your product if it’s 5 percent better; it needs to be 20 percent better." In a crowded market for new technology--whether semiconductors or solar panels--only those who set their sights on very high performance will be in a position to succeed. When performance is relative and payoffs are highly skewed, an absolute advantage is necessary to achieve high relative performance.
The key to success is to set aggressive technical goals, then pursue them with confidence. The greatest danger is not to worry about an illusion of excessive control, but the reverse. It's to set sights too low. Mattson described one company that successfully created the product it set out to build, but failed as a business because the product wasn’t ambitious enough. The company had reached its (absolute) target but ultimately collapsed because it fell short in relative terms. The moral: "Don’t fail because you succeed."
Of course there is no point in attempting what is clearly impossible. "Don’t try to invent unobtanium," was Brad Mattson’s advice. "It can be demoralizing to find out something cannot be done." Yet he also said, "I’ve never yet been disappointed with a technical team, to be creative and to come up with amazing things."
Regarding the role of the leader in a startup, with so many uncertainties it is essential to identify the critical success factors and provide a road map for success, and then to communicate it with confidence. Broad goals have to be broken into smaller goals, each of which is feasible.
Mattson explained that the leader’s job is to say, "There are the six to eight critical elements. If we do these things, we win. If you believe we can achieve these elements, then you can believe the total." Sounding much like Gene Kranz, Mattson commented that employees are constantly watching the boss. "They’re reading your confidence of what’s achievable. You have to have credibility."
Phil Rosenzweig is a professor at IMD in Lausanne, Switzerland, where he works with executives from leading companies on questions of strategy and organization. He is a native of Northern California, where he worked for six years at Hewlett-Packard. Prior to joining IMD, he was an assistant professor at Harvard Business School. Rosenzweig’s PhD is from the Wharton School, University of Pennsylvania. He is the author of numerous case studies and has published articles in journals including Harvard Business Review, California Management Review, Management Science and Strategic Management Journal. His 2007 book, The Halo Effect . . . and the Eight Other Business Delusions that Deceive Managers, was described by the Wall Street Journal as "a trenchant view of business and business advice" and lauded by Nassim Nicholas Taleb as "one of the most important management books of all time."