Rebecca Homkes
Teaching Fellow - London Business School

Entrepreneurs Must Be Comfortable with Discomfort

Takeaways

  1. Building the right business infrastructure, promoting our successes and giving entrepreneurs and start-ups a clear pathway to success will be crucial for the success of Canada’s entrepreneurial ecosystem.
  2. Entrepreneurs must to be able to isolate facts from noise and beliefs. There is a lot of advice, trends and data that can overwhelm a new entrepreneur, but they need to break things down into their simplest form before addressing them.
  3. Barriers for entry are still high for female entrepreneurs: they lack access to opportunities and funding. Reducing these barriers is one of the keys to democratizing entrepreneurship further.

Action

The entire Canadian entrepreneurship ecosystem, including government, academia, industry and the public, needs to democratize access to opportunities, capital and ideas by reducing the barriers to entry for entrepreneurs.


What can Canada learn from the US to boost entrepreneurship in the country?

We need to create a system that supports and promotes entrepreneurship. Infrastructure and institutions are very important for success in any field. As a recent example, if you look at the women’s soccer program in the US as compared to many other countries in the world, you can see how consciously laying an infrastructure can enable you to compete on the global stage. Success begets success. Right now, a venture capitalist in the US cannot name five Canadian companies that have reached unicorn status. But if we can show that the Canadian ecosystem produces world-class entrepreneurs, we will be able to attract talented entrepreneurs and investors from all over the world.So, building the right infrastructure, promoting our successes and giving people a clear pathway to success will be crucial for Canada.

Policy also matters. Some small European countries are leaps and bounds ahead of Canada and the US in terms of entrepreneurship policy. For example, Estonia has fully promoted digital, which has made it easy for entrepreneurs to navigate their system.The ease of setting up a business is critically important. If someone who does not know any entrepreneurs wants to start a business, is she likely to know where to get started, how to register a company and how to set up a business? Can she get plugged into a network even if she does not have a lot of money? We should be offering people opportunities to take a chance and try new ideas through policy, and make it as easy as possible to do so.

“Right now, a venture capitalist in the US cannot name five Canadian companies that have reached unicorn status. But if we can show that the Canadian ecosystem produces world-class entrepreneurs, we will be able to attract talented entrepreneurs and investors from all over the world.”

On the academic lens, there’s also a role. One thing that I have noticed recently in graduating MBA and Master’s students is their perceived necessity for a toolkit, template or framework that they can fit things into. That is not very conducive to entrepreneurship. Academia can really help by developing students’ analytical skills and problem-solving ability. Ideal entrepreneurs are people who can identify and solve complex problems in simple ways and then communicate that clearly and concisely.

Current entrepreneurs can also ensure that there is just as much access to opportunity as there is access to capital.


You have stressed the importance of ensuring that entrepreneurs know how to navigate the market development stage. What is the market development stage and why is it so important to start-ups’ success?

Most accelerators, incubators and VCs focus on finding product-market fit. Then numerous and, frankly, too many VCs claim to be focusing on the growth phase. But, many often forget the crucial step of figuring out whether the product-market fit actually has market acceleration. If you look at the companies that die in the A-round, it is because it was very difficult for them to find traction and grow in the market. That is why my colleagues and I focus on the missing link, which is market development and acceleration.

Market development typically requires a different set of resources than product development. It needs a very tight and constant feedback loop back to product development, wherein entrepreneurs need to start talking to customers quite early. When working with larger companies, I tell them the difficulty of market development is that it’s not selling to new customers but rather recruiting learning partners. And this is a different skill set. They talk to a learning partner that wants to get on board early and help them iterate and learn before scaling. At this stage, entrepreneurs are trying to figure out who their customer is, what the value proposition is, and what the best way to go to market is. It is then also important for start-ups to figure out the cost structure, pricing and revenue streams.

“Whenever you find yourself arguing about whether something is a good idea, stop the conversation, and instead ask: “what has to be true for this to be a good idea?””

When it comes to global expansion, start-ups first need to understand what their value proposition is and whether it applies globally or needs to be customized for each market.One must answer: “Is this a land grab or a focused prioritization strategy?” Secondly, market entry and growth strategies can vary largely depending upon the target market. New entrepreneurs can often struggle with choosing the right markets. And they can often waste a lot of time arguing about what markets to enter, as everyone has a different opinion. But that’s not a good use of time. So, whenever you find yourself arguing about whether something is a good idea, stop the conversation, and instead ask: “what has to be true for this to be a good idea?”So, when it comes to new market entry, ask: “what has to be true for a new market to be great for us?” Agree the criteria, then find the markets that fit that.

And there is a lot of noise around market entry. When examining political uncertainty in the world, companies need to isolate the truth from the noise. For example, although there is a lot of noise around Brexit, companies should figure out how it would impact their business. In many cases, the UK is still a good market for their business; it’s just different. For others, this no longer makes sense, and that’s fine, there are many other markets that do.


What advice would you give to entrepreneurs and start-ups that must navigate the complexity and uncertainty of the current global business environment?

The notions of complexity and uncertainty are sometimes a bit overblown. The very definition of a start-up is trying to find a new value proposition in a period of uncertainty.We sometimes make things more complex than they need to be and whenever I am working with an entrepreneur, I always try to break things down to their simplest form. Regulations have and will continue to be complex, especially at a global scale. If it was easy, everybody would be doing it and we would not be celebrating the ones who actually manage to break through. Also, remember that uncertainty is just a thing, by definition it’s a series of events that may or may not occur – whether it’s good or bad depends on what you’re trying to achieve and what you are set up to do.

I tend to see two dysfunctional reactions from entrepreneurs in the face of uncertainty. The first is to just plough ahead by pretending that there is no complexity and believing that they can overcome any uncertainty. This is borderline delusion and not a good way to go forward. The other reaction that I see is to wait until the uncertainty subsides before moving forward. Paralysis is not a good response to uncertainty either, as you will often be competed out of the market. So, how do you move forward and make good choices when you cannot predict the future?

“The notions of complexity and uncertainty are sometimes a bit overblown. The very definition of a start-up is trying to find a new value proposition in a period of uncertainty.””

When managing uncertainty and complexity, it is important that entrepreneurs declare their key beliefs about the world; what do you believe to be true?. They make assumptions and decisions based on beliefs, so successful entrepreneurs are very clear about articulating them. It is important to test these beliefs, as these are just beliefs and not facts. So while you are executing your priorities, you are simultaneously testing these beliefs, as you’ll get feedback on whether or not the beliefs are true before you get feedback on results from your priorities. If you get feedback that your beliefs might be wrong, you will need to correct them before you make another decision. But if you find that your beliefs and assumptions are working, you can move forward much faster and overcome the uncertainty. For entrepreneurs, isolating what you know versus what you believe is the key to navigating uncertainty and complexity.


Do you identify certain basic skills or traits required to be an entrepreneur? How has the notion of entrepreneurship changed over the years?

Having worked with businesses and their entrepreneurs around the globe, my immediate response is that there are more things that are different across entrepreneurs than the same, which is great news. There is no template or formula that entrepreneurs follow, but there are some innate skills are common among them. Problem solving, opportunity creation, and speed of reaction are three key aspects of entrepreneurship.If you are good are recognizing patterns, data, information or trends, you are very good at identifying and solving problems. That helps you create opportunities for yourself and can lead to entrepreneurial success.

Moreover, most successful entrepreneurs are comfortable with being uncomfortable most of the time. Everything about entrepreneurship at every single stage is hard and uncomfortable. Getting to the idea, growing the idea, funding the idea, scaling the idea, and continuing to innovate as you get to scale, are all difficult and full of uncertainty. Most people cannot handle that much uncertainty, which is fine, but if I had to pick one key characteristic entrepreneurs share, that would be it.

“Problem solving, opportunity creation, and speed of reaction are three key aspects of entrepreneurship.”

But we need it. Entrepreneurship has always been an important facet of the economy. Entrepreneurs develop new ecosystems, grow jobs, fuel innovation and create the change required for progress. What has changed now is that we have better and different means of communication, data collection and information sharing. Information flows much more freely, people move more and there is more access to capital.One of the biggest changes I have seen is that more people just know what entrepreneurship is. 20 years ago, most people did not even consider it a valid career path.However, even though we have made a lot of progress in democratizing entrepreneurship, we could do much better. We now need to provide more access to entrepreneurship to people from non-traditional entrepreneurship backgrounds.


Is it easier to be a female entrepreneur now than it was 20 or 30 years ago?

Not to sound overly pessimistic, but I am not convinced it has gotten much better in the last 20 years. If you look at the US, less than 3% of VC funding went to female-led businesses in 2018 and less than 10% of VCs have a female partner who makes a decision.This creates a negative loop because not enough women become entrepreneurs, so few get VC funding, and even fewer become angel investors, who fuel the next set of entrepreneurs. Most angel investors tend to be male and a lot of the time, they intentionally or unintentionally do not take female entrepreneurs seriously. Women struggle to get meetings because they are not plugged into the same networks and not plugged into the same VC loop. And while it’s an uncomfortable topic, we cannot ignore it. Sexual harassment is also a big problem that deters women from entering male-dominated spaces or pushes them away when they simply cannot take it anymore. This is a massive issue and attracts a lot of lip service, but not enough action. So real progress here is what I’d like to see.

“I firmly believe that women do not need more mentors, they need more advocates.”

I firmly believe that women do not need more mentors, they need more advocates. Every woman in any entrepreneurial program has mentors, which is definitely important. All new entrepreneurs need male and female mentors because they just need to learn as much as they can from people who have experience. But I do not think that more mentorship will be a game changer for female entrepreneurship. Rather, women need advocates. An advocate, for example, is someone who sits in the partner meeting and pushes to give a female entrepreneur a shot so that she wins one of the five slots in an accelerator. Enough people doing the little things could have more traction than some big policy move. For instance, Jason Calacanis, one of the biggest angel investors in Silicon Valley, takes every meeting from a female entrepreneur who reaches out. He also tries to make 50% of speakers at all his conferences female, which is also something I do. Kara Swisher brings the issue up in almost every interview, and we need this. Some European countries have really gone pretty far on the policy front, but I do not think that is the right answer in the US or Canada. Many men and women of influence in the industry are already being advocates for female entrepreneurs.


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