Venture Capital: A prof delves into the mind of the entrepreneur

Saras Sarasvathy is trying to crack the entrepreneurial
code.

The University of Washington business professor has been
studying the mind-set of entrepreneurs for more than half a decade. Her work
culminated last year in a paper titled, "What Makes Entrepreneurs
Entrepreneurial?"

By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER

It’s a tough question to answer and one that involves a number of factors,
including environment and upbringing.

But the 43-year-old professor, who was involved in several start-up ventures while
living in India before receiving a doctorate from Carnegie Mellon University in 1998,
has found some interesting patterns in the way entrepreneurs work, think and
make decisions.

Some of her results will be presented this morning at the Alliance of Angels
Investor Forum in downtown Seattle, 7:45 to 9 at 1301 Fifth Ave., Suite 2400.

She also plans to publish a book this year based on her analysis of 30
entrepreneurs who started companies that now range in size from $200 million to
$6.5 billion. One of the entrepreneurs is Icos and Amgen founder George
Rathmann.

When Sarasvathy first started getting interested in the subject matter in the early
’90s, she was told by colleagues that studying entrepreneurs was a "non-area,"
an oxymoron and "can’t be done because it is like art."

But being an entrepreneur herself and knowing several people who started their
own companies, Sarasvathy believed there was something common and
systematic about their experiences.

"It was very clear in my mind that entrepreneurs think differently," said
Sarasvathy. "Anybody who has worked with entrepreneurs to any extent knows
that there is something different or funny about them. So I started with that
premise."

Instead of simply interviewing the entrepreneurs, Sarasvathy created a fictitious
business plan and asked the 30 subjects to talk aloud as they attempted to solve
10 problems that arose. The test lasted about two hours.

After analysis of transcripts from each individual, a common theme appeared.
Entrepreneurs were not goal-oriented, rather they used the materials at hand to
create opportunities. Sarasvathy compares this to a chef, who instead of working
from a set recipe, combs the cupboards looking for ingredients in hopes that
something tasty can be created.

"Entrepreneurs are much more flexible on goals," she said. "They will start with
their means and say ‘What can I do?’ It is a completely opposite way of thinking
about problem solving in general."

While that fits into the common perception of entrepreneurs who "fly by the seat
of the pants," Sarasvathy believes there is a logic to the decision-making
process.

In many cases, entrepreneurs thrive on the unpredictable nature of business.

"Seasoned entrepreneurs … know that surprises are not deviations from the
path," Sarasvathy writes. "Instead they are the norm, the flora and fauna of the
landscape, from which one learns to forge a path through the jungle."

For example, she said entrepreneurs tend to ignore market research — typically
one of the first steps in business creation — because it wastes time and money.

"They don’t start with some kind of existing market and then try to go capture it,"
she said. "They imagine new markets and go create them" — often one customer
at a time.

One entrepreneur quoted in the study said that instead of doing market research
through targeted mailings or other techniques he/she would "just try to take it out
and sell it."

Expanding on that thought process, another said: "I always live by the motto of
Ready-fire-aim. I think if you spend too much time doing ready-aim-aim-aim-aim,
you’re never going to see all the good things that would happen if you actually
start doing it and then aim."

In the process of the research, Sarasvathy also discovered how entrepreneurs
dealt with failure — a common occurrence in start-up enterprises. They view the
world as a series of successes and failures that happen at all levels, she said.

"The science of entrepreneurship, if there is one and hopefully one of these days I
actually figure it out, has to be failure management," she said. "When you are an
expert entrepreneur you become very, very good at outliving failures and
accumulating successes over time."

In addition to building off past failures, entrepreneurs often learn to have smaller
failures that do not cost as much or destroy the entire business, she said.

As far as her research goes, Sarasvathy said much has changed in the past six
years. For one, there’s been a newfound respect in academic circles. She’s been
on a "road show" recently promoting her findings at universities and has been
inundated with different ways to use the information.

Sarasvathy also feels as if she is well on her way to defining what makes
entrepreneurs tick, saying she has the skeletal structure of the concept in place
and now must work on the flesh and bones. Next step, she said, will be analyzing
early-stage entrepreneurs who have not yet made it and comparing them with the
expert entrepreneurs.

The research is also having an impact in the classroom.

"The interesting thing for me and the real validation is that entrepreneurship is
teachable," she said. "You can talk to my students, it is teachable. Even people
who do not naturally think that way are able to learn the .. value of thinking
differently."

For more information, visit depts.washington.edu/bapub/research/saras.html

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