All entrepreneurs are crazy.
Nuts. Cuckoo. Certifiable dingbats. Need evidence? How about this: According to a study published last year, only about 25% of companies that take venture capital are able to make any money off it -- the other 75% lose at least some and perhaps all of the money.
Need more? According to the US Bureau of Labor Statistics, only about a third of all small businesses make it for longer than 10 years and 30% fold within the first two years! You have to be crazy to go up against those odds...
Intelligence analysts live to forecast and one of the easiest forecasts you can make, or so it seems, is the sooner-rather-than-later demise of a new business.
Easy but worthless.
It is a situation that is sort of like the 1990 National Intelligence Estimate on what is now the former Yugoslavia. It was completed just before the war broke out in full force. It turned out to be extremely accurate but was virtually useless to the policymakers of the day. In fact, it was probably counterproductive as it validated the inertia that was prevalent in Washington regarding the issue at the time.
You see, it was in the US's interests -- heck, it was in everyone's interests -- to keep Yugoslavia from breaking up or, if it had to break up, to do it in a way that was neither bloody nor lengthy. Saying, as the NIE did, that the breakup was inevitable and that there was nothing policymakers could do about it was singularly unhelpful. The policymakers needed to try and they could have used some intelligence insights to help them.
So it is with entrepreneurs. Telling them that they are likely to fail probably isn't going to dissuade them from trying; its just going to make them think that intelligence isn't going to be very valuable. This is a shame, since entrepreneurs probably have more questions about things that are critical to their success or failure but are outside their control (the essence of an intelligence question) than most businesses.
For the last several months I have been busy starting my own company and working on a number of games (one of them - Widget - is about ready to launch. You can find out more about it here if you are interested). I know intelligence has a role to play in entrepreneurship but am just beginning to understand what that role is and how it is both different and the same as more traditional notions of intelligence in business. As I learn new things and gain understanding, I intend to explore these ideas in an occasional series of posts on the topic.
Wednesday, February 6, 2013
Entrepreneurial Intelligence (ENTINT?)
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6 comments:
professor, before I forget, kind of outta topic: http://www.informationisbeautiful.net
you'll like it, ciao!!!
An interesting topic, and one I look forward to your thoughts on.
Some years ago I was lead investigator looking into irregularities at a large financial institution that was almost solely run by a very charismatic individual; with trusted advisors making up the management in an attempt to give the impression there was some corporate governance. This individual, despite being caught out on the wrong side of the law, was in my opinion a true entrepreneur, and he got to where he was by acting on intelligence. To explain, consider the following traits:
Open source intelligence
1. He constantly used detailed and wide ranging open source intelligence to seek out the next new opportunity industry, market, service or product across an eclectic mix of subjects. He undertook this task himself, as well as delegating to his smartest employees (who reported back regularly and were chastised if they missed something he did not). He did everything he could to overcome any cognitive or cultural biases over what he thought could/would be important or likely, and regularly conducted brainstorming sessions on even seemingly trivial new business ideas (when I met him he talked about a TV show covering the rise of British computer and console game design, a week later he knew more about that industry than anyone I’d ever met).
2. What he was interested in were the unrealised / unexploited opportunities to make money... what was the new trend and how quickly would he need to move to become one of the top twenty companies mining that trend? Which way were discrete markets moving: would a well developed industry that was hard to break into suddenly have an opening? Would under resourced industries suddenly become receptive to a cash injection to get really started?
Other sources of intelligence
3. He used closed sources wherever he could... these ranged from leaks from competitors, as well as confidential info from non-competitor businesses that were up and downstream from his own range of companies (eg suppliers and clients). He liked to poach leading lights from any business he thought might become interesting, even if it meant pretending they’d have a future with his business... often he would get inside corporate procedural and commercial information by simply talking to competitors, or even going so far as to go into business with them as customers to gain insight he’d later use for his own businesses (even if it wasn’t always obvious how that data could be used).
4. I also suspected that he may have used covert and possibly illegal means to obtain certain information, though for the most that is mere speculation on my part... He certainly used advanced IT information gathering techniques that did circumvent if not break many of the laws of the UK, quickly paying any of the ‘slap on the wrist’ fines for breaches to settle individual cases, whilst updating / changing to the way he collected data to make it harder to detect / take action against in future.
Staffing his corporate empire
5. While he had his core staff of very profit motivated sales teams and managers, he also set up business in one of the most economically depressed parts of the UK, and consistently hired young college and university graduates who had no other real job prospects – often paying low fees with the promise of extensive bonuses. He indoctrinated them into his work ethic which completely perverted simple regulatory concepts of right and wrong, and placed a heavy emphasis on never questioning the routine, remaining loyal and reaping the rewards of hard work.
6. He also compartmentalised his employees. Only the best and brightest progressed, but even then very few knew anything other than the immediate business they worked in, especially when they were operating hand in glove with colleagues sitting only a few meters away from them. Nothing was labelled secret, but instead was treated in such a dumbed down irrelevant manner that no-one questioned what was going on. Managers who knew more, were often un-qualified with families and debt, and were constantly fed a mantra of personal loyalty in exchange for financial stability and bonuses.
7. The upper echelons of any of the businesses were staffed only by those personally proven to be loyal and trustworthy. Defectors and traitors were silenced by threats of violence, actually assaults, protracted legal action, or even payoffs. Trying to uncover this aspect of the business proved exceptionally difficult.
Intelligence to policy etc.
8. In terms of what he did with the data, he would first set up a company for each new idea (or find an existing company that already did something similar), and then pay the minimum amount to get the idea and the company off the ground. He would fill it with a team of hard working and intelligent staff – often under the guidance of an outside industry / market / product expert brought in to provide the business, commercial and regulatory experience needed to make it work. He would often use his existing business empire to support the enterprise getting off the ground, but only if it could provide an equal or greater benefit to the rest of the group... he would never allow a successful company to support a failing one. The entire process was constantly and very carefully monitored to check for opportunities and threats, with a raft of expert advice being brought to bear.
9. He would then make a judgement call if the business had a future. If it did he would move in a different team who would look at cutting all the corners making it more lean and cost efficient. Using industry specific examples as well as wider know-how and their own group experience they would then look for ways to utilise the business to assist other businesses he controlled (and vice versa), and he would ultimately look at how best to exploit the customers, business partners and even competitors to maximise profits. However, if money was needed, he didn’t stint on supporting a winner, often utilising the best advertising practices, obtaining cutting edge technology, and employing business practices that were state of the art (his team were constantly on the ball looking for what was new and innovative, as well as for what was tried, tested and sure to deliver). If the best company needed more money he’d raise it and spend it knowing he’d recoup this in the near to mid-term future.
10. Throughout the early life cycle of the business from pre-incorporation, to initial trading, the flow of intelligence product and intelligence requests / requirements was both fluid and responsive to market factors as well as business needs. It was also carefully managed through a flexible yet well structured process that played to the group management’s strengths.
Impact
11. Ultimately he would start up several such enterprises like this every couple of years, and unless a company was a hit within 24 months he would not hesitate to put it into mothballs, on indefinite hold until market conditions improved. While looking at his corporate holdings I resolved that he was either director, shadow director or de facto director of 50+ live companies, and a couple of hundred liquidated and dormant companies. In private conversation he admitted that he spent up to UK£50K per year on each enterprise, and only one out of ten would even look promising... and only one in three of those would actually perform well enough to take off.
12. So the handful of businesses that did work for him were very few in number, but they were: at the cutting edge of their respective markets, financially and commercially linked into a diverse family of related and unrelated sister companies, led by a core team of profit motivated professionals, and staffed by under-paid over qualified bright and desperate kids who’s limited experience came only from his corporate empire. The result was a corporate group that posted a multi-million pound profit... with the actual off the book figures and foreign income streams likely to double what was declared.
Keeping it all going
13. Because of a deep seated disregard for the law, and the rights of others, his many businesses regularly ran afoul of consumer protection groups and regulators; but he was quick to respond to these, and used whatever means he could to: discredit complainants, undermine complaints groups (even having staff pose as wronged consumers to gather intelligence on other complaints and to put forward easily discreditable evidence), pay off anyone who looked like they might be successful, and use political influence to undermine the work of the authorities (including corrupting or nullifying the effect of local officials through successful disinformation). Ultimately he exploited the fractured and ineffective nature of government regulation to great effect, playing on our incompetence and lethargy to keep his money machine going for nearly a decade. All the while constantly reviewing everything within his empire, maintaining constant checks on media, regulators, pressure groups, as well as running a highly sophisticated cash flow analysis and predictive modelling programme. Any business that might slow down or become a loss maker, got a small cash injection to make it look healthy, then got sold at a profit with a (X) year guarantee that usually ran out just a couple of months before the business collapsed.
14. He never became complacent with a well performing company. That’s not to say he meddled for the sake of meddling, rather he was always on the lookout for ways to improve, often play-testing new ideas across the group, and implementing policy trials for new technology in one team then rolling it out elsewhere.
Conclusion
15. There was nothing about his empire that he did not know, or try to know. He hated the uncertainty, because that was where he lost money – but he still took calculated risks, the likes of which would have seemed fool hardy to all but the most reckless of gamblers, and yet in the end his approach won him millions over a ten year period. What caused his corporate demise was that he could no longer spend as much time as he wanted chasing the small details, so when the irregularities mounted up, he had nowhere to go.
16. What is sad about this is that if he had only made a few simple changes, and not go so far in breaking the law, his business empire (despite being a bit smaller and maybe *slightly* less profitable) would still be around today. In the end and due to the specific nature of his quasi criminal activities - he only lost most of his corporate empire (selling it at a small loss) and walked away with the millions he had awarded himself in dividends. No gaol time, no official sanctions, no fines, no worries. What is sad about this is that if he had only made a few simple changes, and not gone so far breaking the law, his business empire (despite being a bit smaller and slightly less profitable) would still be around today.
17. Such experiences, have provided me the briefest of insights into the minds of entrepreneurs, and one thing is certain – the clever ones try to know everything they can, the successful ones do know everything. Whether you call it Predictive Business Intelligence, Market / Industry Estimates, or something else entrepreneurs do use some sort of ENTINT.
Sorry for the length of this post, and I look forward to your conclusions on this area of inteligence.
RY,
Wow! Thanks for the detailed post with your thoughts! Some real grist for the mill here...
Kris
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