What does it take to be a successful entrepreneur?

“People say that entrepreneurs are geniuses who are wonderful at finding new ways to make money. When you look at a list of successful entrepreneurs, you often find only people who were able to exploit their wisdom to beat the market,” wrote economist Tyler Cowen.

By “wisdom,” Cowen seems to be referring to epigrammatic imagery, which is in effect his own definition of genius. But if innovation is driving economies as radically as we believe, then ingenuity should qualify as wisdom, too.

Elemements of success

So it can be relevant to think about the various forms of genius that go into building companies. Whatever their specialties, most entrepreneurs are of at least average intelligence. And a lot of their success, even without the considerable advantage of going to Harvard, can be explained by the same elements that account for the success of most successful students.

Here are five common traits of brilliant individuals that venture capitalists and private equity and venture firms can usefully help achieve in their contacts and the introductions they make.

It has been demonstrated repeatedly in literature and empirical work that a successful entrepreneur is above average (meaning above average marketable) in the following ways:

  • First, he or she does not obsess over the details of issues but rather sets out to create value and solve problems.
  • Second, he or she has robust intuition.
  • Third, he or she systematically uses rather than inserts exogenous information.
  • Fourth, he or she communicates his or her vision to others, including those outside the organization.
  • Fifth, he or she responds to customers and rivals; and sixth, he or she follows his or her market opportunities and responds to their particular needs.

In aggregate, these are all complementary traits; they help determine how much potential can be exploited in markets and submarkets in which the company wants to play.

Become the customer, just like Bezos

In contrast, Jeff Bezos, the Amazon founder, is thought to be exceptionally talented. But this is almost irrelevant to understanding why he has remained so successful. The main difference is that Bezos seeks to influence what customers want. Bezos wants to help them become customers, a decision-making process that adds nuance to his intuition and makes it intellectually more reliable.

Talent is unrelated to success

The prevailing wisdom is that talent, except in the case of some highly successful writers, is unrelated to culture and non-elite talent is far more attractive to the kind of investors who seek to make money on high-octane companies that are disruptive to their competitors. But a competitor in the sense that Amazon is relevant in such a way is a not a superior executor. To the contrary, compared with Amazon, a regular business such as Wal-Mart is much more likely to succeed as a firm because its competitors have, by definition, already solved the real problems customers have raised in their need for low prices and convenience. Amazon is doing very well, partly because it is driving all the competition away from those concerns, but also because its market behavior is not driven by those concerns. Customers are going where their customers are going.

This all adds up to a common set of traits, even if you think they are all unrelated. In other words, wisdom is sometimes easier to find than you might think.

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