LUCKY OR SMART?: Chapter 2

Bo Peabody

Below is the second chapter of entrepreneur and VC Bo Peabody’s book, LUCKY OR SMART: Secrets For An Entrepreneurial Life.

Before you read this chapter, you might want to read a quick overview of Bo’s experience of founding his first company, Tripod: How To Start A Company In Your Dorm Room And Make $580 Million.

You might also want to read the Introduction and Chapter 1.

Chapter 2

In 1998, the persona of the “entrepreneur” — a relatively young term, coined only 150 years ago — skyrocketed into the global consciousness. Thanks in large part to companies like Ebay and Yahoo!, kids that previously would have aspired to become astronauts and doctors now wanted to be Internet entrepreneurs. At the same time, thanks to countless cable-television shows, the persona of the celebrity chef and restaurant owner – or “restaurateurs,” as they are called — was likewise capturing the imagination of the American psyche. Irrespective of the industry, starting your own business was suddenly very hip.

When I was growing up, “entrepreneur” carried roughly the same connotation as “inventor.” The word conjured images of your wacky uncle doing science experiments in his basement in search of a new species of peanut butter. But by the late nineties, “entrepreneur” meant millionaire and celebrity. And that meant that everyone wanted to be an entrepreneur. The problem is this: Very few people are entrepreneurs.

People often ask me, “When did you decide to become an entrepreneur?” I never decided to be an entrepreneur. It just happened. I started mowing lawns when I was 10. I moved to snow-blowing the driveways next to those lawns when I was thirteen. And finally on to sealcoating (sealcoat is a sticky, tar-like substance used to preserve pavement) those same driveways when I was sixteen. My logic: I had the customers, and the more distasteful, dirty, and degrading a task it was to maintain a square foot of their property, the more they were willing to pay me to do it. Pretty simple.

Entrepreneurs are born, not made. One does not decide to be an entrepreneur. One is an entrepreneur. Those who decide to become entrepreneurs are making the first in a long line of bad business decisions.

The most egregious example of people deciding to be entrepreneurs takes place in the restaurant business. The conventional wisdom is that anyone who can cook can open a restaurant. Simply add a few attractive college students to serve your yummy fare to the horde of salivating customers waiting at your door on opening night, and boom: Just like that, you’re in the restaurant business. Ironically, despite the fact that this is indeed the conventional wisdom, when I tell people that I’m in the restaurant business, they always say the same thing: “Wow, that’s a tough business.”

The truth is, both statements are correct: Anyone who can cook can open a restaurant, and it is a tough business. Indeed, the restaurant business is a tough business precisely because anyone can open a restaurant. Let me explain.

The restaurant business, as businesses go, is not difficult to understand and analyse. In fact, it’s quite easy. It’s one of the few businesses in which you get near-perfect data every single day on your customers’ likes and dislikes. If the customers like the scallops, leave them on the menu. If they don’t, take them off. If the customers tip the waiter well, continue to employ him. If they don’t, let him go. Pretty simple. Gathering and preparing food are the most basic tasks of humans. When we outsource those tasks, we are, like hungry infants, in a vulnerable and difficult-to-please state. Restaurant-goers are, therefore, not shy. They are all too happy to tell you what they think, and invariably, they vote with their wallets.

Compare this to the software business, where it might take two years to get a product ready for market and then another year to make the first sale. Only then, more than three years later, after your customers have been using the product for a few months in an actual business setting, will you know what they really think. Thankfully, using software is not a human’s most basic task. But for collecting feedback on a product, I’ll take the scallop situation any day.

When people say “The restaurant business is a tough business,” what they mean to say is “A lot of restaurants fail.” This is entirely correct. Four out of five restaurants fail, but not because the restaurant business is a tough business. It’s because four out of five people who open restaurants shouldn’t be in the restaurant business at all. These people follow the conventional wisdom that anyone can start a restaurant, and they get into the business for all the wrong reasons:

1. They like food and know more about it than the average sustenance-driven slob.

2. They like to cook for friends. And these same friends have always told them, “You know, you should really think about opening a restaurant.”

3. They want more friends, and giving away free food is a great way to make more friends.

4. They like to be the centre of attention.

5. They’ve always wanted to design a restaurant.

None of these things have anything to do with actually running a restaurant: necessary tasks such as negotiating a lease, bringing a building up to code, obtaining a liquor licence, managing inventory, and motivating staff. All this, however, never stops these would-be restaurateurs. These unfortunate folk have decided that they are going to be entrepreneurs, rather than trying to understand whether or not they actually are entrepreneurs. This is why four out of five restaurants fail.

It may not be immediately apparent to you whether you are or aren’t an entrepreneur. Just because you never had a lemonade stand doesn’t mean you won’t be the next Bill Gates or Emeril Lagasse. And just because you hawked some sugar water to the nice old lady next door doesn’t mean you will be.

Here s a simple multiple-choice question to help you assess your entrepreneurial aptitude:

When you look up at a cloud, which of the following best describes your thoughts?

A. Wow, that cloud would make a great painting.

B. Hmmm, how would I describe that cloud to someone else?

C. What a silly question. I never look up at clouds.

D. Let’s see. I wonder if I could manufacture an environmentally friendly chemical that instantaneously creates or dissolves clouds within a perfectly defined geographical area?

E. Gee, I wonder exactly how a cloud is formed.

If you answered A, good luck with your career as a painter, graphic designer, floral arranger, architect, interior decorator, or makeup artist. You are aesthetically minded. Starting a company will just corrupt that very positive quality.

If you answered B, good luck in your profession as a writer or a teacher. We need more people like you. But we don’t need more people like you starting companies.

If you answered C, good luck at basic training. You have no time for cloud-gazing. The military is a good place for you to exercise your extraordinary focus.

If you answered D, go directly to chapter 3. You are most likely an entrepreneur.

If you answered E, read on. There is still hope.

In the business world, answering E is as good as answering D. You may not be an entrepreneur, or even entrepreneurial, but you most likely have a knack for managing a business. You are interested in fully understanding the details: What are clouds? What substances are they made up of? What causes them to appear? What causes them to disappear? You’d be a great chemist in my little make-believe start-up, managing the team of chemists that will discover that revolutionary, environmentally friendly chemical. Or you might be the lawyer that will help sort through the patent and Department of Environmental Protection issues. You could also be the sales-and-marketing professional who gets excited by the intricacies of the product rollout plans, the channel distribution strategies, and the inevitable customer-service challenges.

If you answered E, chances are you are a manager, not an entrepreneur. You should go to a training program at an investment bank like Morgan Stanley, or to a management-consulting firm like Bain. You should then go and spend three or four years working inside a big company. You might then consider attending law school or maybe even medical school. At some point, you should certainly go to business school. You should do whatever you can to expose yourself to the best practices and classical training of the business world.

But don’t start a business. You will most likely fail. Not because you aren’t smart but because you are too smart.

Reprinted from Lucky or Smart? Secrets to an Entrepreneurial Life by Bo Peabody.