Ask any angel investor what they look for in a deal, and they always say-- fantastic entrepreneurs. The challenge is defining "fantastic". For me, a great entrepreneur is: very smart and honest; has high integrity, high energy and lots of drive, ambition and vision; is skilled at dealing with people, is coachable, has good listening skills and a willingness to seek out and utilize help; is persistent enough to kick a door down if needed, prepared for things, focused, possessed of a good sense of humor and perspective; and is experienced in the company's area, or alternatively, street smart and savvy beyond their years.

What surprises many is that gigantic appetite for risk is nowhere on my list. Conventional wisdom paints entrepreneurs as daredevils or wildcatters. Iconoclasts. In Why Great Entrepreneurs Take Risks and Get Fired Ben Smith claims that thinking differently, taking risks and being unafraid of failure and getting fired from conventional jobs are the essence of entrepreneurship:

...entrepreneurs get fired because they: Take risks the rest of us think are nuts. If they don't they aren't going to win; See things no one else does. If everyone did, they would be doing them; Break the rules--many times they don't "get" why the rules exist in the first place; Are often more sure than they are right. Most importantly, though, they get fired because they don't care. I have never met a great entrepreneur who was afraid of failure...

Does this sound right? Not in my experience.

Smith is correct that entrepreneurs need to be original thinkers and see things others don't. They must have a strong bias for action. They need to be skeptical about rules and unorthodoxy in order to visualize different ways of doing things. They cannot be afraid of failure.

But being headstrong, impulsive and having a massive appetite for huge risks does not make a great entrepreneur. Entrepreneurship is not about solitary lightning bolts of inspiration. Innovation and non-linearity will necessarily be involved as critical parts of the ultimate solution, but in my experience great entrepreneurs don't blindly jump into untested, unconnected unrelated business spaces with only a wish and a prayer.

Successful entrepreneurship requires a starting point. Converse to the "wildcatter" image of a speculator blindly drilling with no idea what is down there, many entrepreneurs are masters at collecting data, absorbing advice and re-envisioning the status quo by synthesizing disparate pieces and parts into totally new forms. They are pragmatic masters; incremental in their approach. They chisel away at an idea with determination until what's wrong is gone and what's left is something new and right.

Malcolm Gladwell captured this notion in a controversial piece entitled: "The Tweaker--The Real Genius of Steve Jobs." Gladwell looks at the question of why the industrial revolution began in England rather than, say, France or Germany. His conclusion, based partly on a study by Ralf Meisenzahl and Joel Mokyr, is that England had a human capital advantage: specifically, more "remix artists", whom Gladwell and the authors of the study call "tweakers."

...Britain dominated the industrial revolution because it had a far larger population of skilled engineers and artisans than its competitors: resourceful and creative men who took the signature inventions of the industrial age and tweaked them--refined and perfected them, and made them work...

What Gladwell observes about Apple founder Steve Jobs is that Jobs was less of an inventor, and more of a tweaker:

Jobs' sensibility was editorial, not inventive. His gift lay in taking what was in front of him--the tablet with stylus--and ruthlessly refining it.

There are many echoes of this in what Eric Ries calls "lean start-ups". In his book (which I have recommended before) he defines these as companies that work quickly and cheaply to ship a "minimum viable product" as rapidly as possible, then tweak and reiterate based on market feedback. This reduces time and money spent on products which aren't going to work.

Careful protection of scarce resources? Not exactly the behavior typically associated with massive risk-taking. Which gets me back to the main point of contention I have with Smith's definition of an entrepreneur in his otherwise excellent piece.

Unlike Smith, my angel investing experience hasn't demonstrated that entrepreneurs are massive risk-takers. Instead, it's careful calculators who are more common than bold visionaries. And people with a short attention span need not apply; tending to countless cycles of revision is a significantly harder job. Entrepreneurs need to be gifted at reading and synthesizing data and noticing signs others don't see, hear, or take note of. They look at things in ways others aren't. They are confident in their bold choices because most are based on hard-sought, well-filtered and critically deduced hunches.

This notion is illustrated well in another Gladwell piece, The Sure Thing--How Entrepreneurs Really Succeed. By deconstructing some of the mythology of Ted Turner, he demonstrates that great entrepreneurs are the opposite of huge risk-takers. Instead they excel at hedging risk well. The Sure Thing cites a study by French scholars Michel Villette and Catherine Vuillermot which looked for patterns in business success, such as buying from people who undervalue assets, or selling to people who over-value them. What they found was that entrepreneurial risks are not wild bets based on random chance; they are calculated risks that have been hedged by an insight or informational advantage.

The truly successful businessman, in Villette and Vuillermot's telling, is anything but a risk-taker. He is a predator, and predators seek to incur the least risk possible while hunting.

Great entrepreneurs will always have to place bets. And, each of these bets will put investor capital at risk. However, what many investors and entrepreneurs alike both forget, is that behind all the risk taking and swagger, the truly great entrepreneurs are the predators smart enough to stack the deck in their favor before betting even begins.

Published on: Sep 23, 2014