Right Education for Entrepreneurs by Robert Leaver
“So, Walter, what happened?”
“Simple. We defaulted; the bank pulled the plug.”
And another entrepreneur goes down in flames. Why do approximately 80% of start-ups fail? What goes wrong? What really goes wrong? Peel the onion with me because I think we know a lot more than we realize. Having spent 40 years studying human behavior, I’ve concluded that we know enough about the underlying causes of business failure to be able to cut the new venture failure rate by as much as 25%. That may not seem like a lot but the effect would be to double the success rate.
“But your company’s bigger than ever. What happened?”
“The bank sold the loan to a bunch of turnaround guys who showed up in black limos, put in some more money, waited for business to pick up, and sold out to the present owners for $50 million.”
“How could they sell the company?”
“They had our stock. When we refinanced the loan – the year before we defaulted, they made us pledge our stock.”
The initial explanations entrepreneurs give for their failures tend to blame externals: The venture was inadequately financed; the market didn’t materialize; costs exceeded projections. Imagine that? The damn pistol fired the bullet right into my foot!
The question is, what do those external causes have as their causes? When I’ve put this question to entrepreneurs, venture capitalists, and educators, I’ve gotten all kinds of answers – from a shake of the head accompanied by raised eyebrows over closed eyelids, to elaborate market or even economic analyses. Rarely, I may get an aside about the entrepreneur’s psychological make-up. But efforts at psychoanalysis are rare because the fields of business and psychology still view each other with antipathy, or at least a wary tentativeness. It’s too bad because psychology has much to offer business in the area of ethics as well as personal effectiveness.
When I sugar off the reasons given for failure, I come up with something like this: The secret to success in business is to spot the problems and opportunities early and respond appropriately. And when new ventures go under, it’s because the lead entrepreneur has failed to do one or the other - or, as in the case of my friend, Walter, both.
“Walter, baby, what possessed you to pledge your stock?”
“We’d just acquired a competitor, a low-end importer, and I knew the marriage was a winner. I just didn’t realize it would take so long. Plus, Jake (Walter’s partner) had died. Ordinarily, he would have handled the loan negotiations. Plus, our investment banker was in favor of it. Of course he was collecting a fee…Hell, what did I know? I was the design and marketing guy.”
Why do the majority of entrepreneurs either fail to spot the problems and opportunities or, if they do spot them, fail to respond appropriately? You know the answer. It’s about how we perceive and distort reality, how we’re biased. Events occur, our perceptions are biased by our limited senses, and our interpretations of our perceptions are biased by our history. The entrepreneur who succeeds either has fewer biases in the critical areas, or he respects his biases enough to partner with people who’ll counter them. And the ones who fail? The old sales dictum applies – you know you’re in trouble when you start believing your own BS.
To say it another way, whereas the successful entrepreneur sees that “what is,” is, the unsuccessful entrepreneur thinks “what is,” isn’t, as well as the reverse, that “what isn’t,” is. The unsuccessful start out seeing “what could be” and end up rationalizing “woulda, coulda, shoulda.” And, as I’m sure you’ve noticed, the more they do it, the more they deny that they’re doing it.
“But didn’t it occur to you to wonder why they might want the stock?”
“They said they wanted it to make sure I didn’t sell out and vanish in the night.”
“What about your accountants? What did they tell you?”
“The bean counters saw the recession and our lousy cash flow; they wanted to buy time.”
We’re all biased, and we know it, and we deny it, which means we’re deluded in the way we view things and in the way we view the way we view things. The corporate raider sees assets the accountant downplays, the accountant sees liabilities the raider downplays, and both deny their underlying biases. Make no mistake, each of us is deluded in different situations, in different ways, and to varying extents. “…Merrily, merrily, merrily, merrily, life is but a dream.”
Why is it that in certain situations some of us are more biased, more deluded than others? Again, you know the answer. We’re biased in accordance with our underlying assumptions, which assumptions have been developed and refined over our lives. Walter was an easy mark because he was naive, and he was naive because of his sheltered childhood. He went to private school, got 800 on his math boards, then spent 5 years at Princeton getting two degrees. As a result of his particular life experiences, one of his underlying assumptions was that he was smarter than the rest of us - particularly the stodgy old bankers. It’s axiomatic: the smarter we are, the dumber our mistakes.
Our biases reflect our delusions, our delusions stem from our assumptions, and our assumptions are based on how we think we can best survive and prevail. As such, our most fundamental assumptions have to do with faith and fear. Mind you, I am talking only about faith in, and fear for, ourselves. The thing about faith and fear is that we’re born with faith. It’s standard issue; we wouldn’t get out of bed in the morning without it. But we deny our faith in ourselves. As children, we’re frightened by things that go bump in the night, and we recoil, and we then carry that habit into adulthood. And we apply the habit willy-nilly, even when we know rationally that the threat isn’t real. We go along, feeling open to life, an event occurs, we interpret the event as a threat, and – zap! - we choose fear over faith. You might say we Judas our own inner Jesus. It all happens on a millisecond-to-millisecond basis, from one tiny, incremental action to the next. And it’s always either/or, either faith or fear, because the two are mutually exclusive.
We all do it, entrepreneurs probably no more or less than anyone else. We do it and, having done it, it makes us anxious, and the more anxious we get, the more we seek reassurance. And when we can’t get enough reassurance from others, we reassure ourselves by slanting our interpretations of events. Walter was terrified when Jake died. He and Jake had built a business worth $40 million. But suddenly Walter was alone, and he had to protect both families’ entire net worth by seeing to it that the company continued to thrive. In his fear, he couldn’t bring himself to dilute the families’ stock in order to recruit a partner to replace Jake. Nor could he trust a mere employee with Jake’s authority. The way Walter interpreted events, he had no choice, he had to trust his own judgement. It was a “no-brainer.” In reality, he slanted his interpretation of the situation because (A) he wanted to appear strong and decisive, (B) he couldn’t bear the prospect of the dog and pony show necessary to find an alternative to his investment banker’s financing, and (C) he had a lifelong tendency to the easy way out. Such sensitivity and self-delusion worked for him when he was the creative partner, but it was the kiss of death when he became lead entrepreneur.
So much for missing the problems and opportunities, for failing to interpret events “objectively” or phenomenologically. As for responding appropriately, you can’t respond on point if you don’t see the point to begin with. And as far as skill is concerned, if we don’t see things clearly, we’re not going to acquire genuine mastery. And even if we acquire a degree of mastery, the chances are we’ll misapply it. If Walter had been able to see the problems for what they were, the chances are he’d have long since assessed his own aptitudes accurately and acquired the complementary skills he needed. But he was looking through the wrong end of the telescope, preoccupied with “what” at the expense of “why.” Like a lot of entrepreneurs who fail, he was myopically ends oriented.
The Root Cause
We’ve traced the causes of entrepreneurial failure from external exigencies to psychic idiosyncrasies, to the assumptions that cause those idiosyncrasies, and on down to the role of fear in the development of the assumptions. But there are still more layers of the onion. We can understand the root cause of fear. We can understand it and, by doing so, we can learn how to help entrepreneurs manage it.
The root cause of fear is inexperience and the lack of understanding, particularly self-understanding. In the first place, the majority of us haven’t experienced genuine appreciation. Our parents, while they all did their best, either couldn’t appreciate us because they didn’t appreciate themselves, and therefore didn’t know how; or, if they knew how, they miscommunicated their appreciation. And they were that way because their parents were that way with them, and on back it goes. The thing about self-appreciation is that we emulate our parents and if they can’t appreciate us, we don't appreciate ourselves. And when we don’t appreciate ourselves, we start feeling vulnerable, the feeling makes us anxious, our anxiety causes bias, and the bias contaminates our interpretations. If you don’t have confidence or faith-in-self, you don’t embrace new adventures, the foremost of which is self-exploration. The result for entrepreneurs is that they lack genuine self-understanding, and because of that they zig when they should zag.
And in the second place, we’re not taught how to go about increasing our self-understanding. We live in a society in which there is, as Alan Watts so succinctly put it, “a taboo against knowing who you are.” Culture wants us to accept its external authority over our own, internal authority. Culture doesn’t want us listening to what Gandhi called our “still, small voice of truth.” And when we yield to culture, to the extent we yield, we forfeit our inclination to listen to ourselves. It’s the essence of the process known as “dumbing down.”
If you think my characterization extreme, consider this. The following premises have been asserted, accepted as truth, and passed down through history. Their truth is generally conceded, but the chances are you weren’t taught the premises at PS 143. As you read them, you might consider why you weren’t.
No one really knows what's going on here on Planet Earth. We pretend we know because conceding that we don’t know makes us anxious, but the fact is, we don't know because we can't know, because we’re limited creatures.
Simply stated, we function in the following way: An event occurs. We perceive the event, which is to say we register and record our sense data. We then interpret our perception of the event. And, finally, we respond to our interpretations of our perception of the event. And yet we tell ourselves that we respond directly to events. We tell ourselves (a) this is this, (b) this equals that, and finally (c) this, therefore that. Failure is shameful; shame is unacceptable; therefore I must commit seppuku. And that’s just the beginning. Having assumed those premises, we then ignore the truths that contradict them. The following are some of the truths we ignore or selectively forget as we cycle from events to responses:
We forget that while we are created by the universe, upon our creation we thenceforth create “our universe.” Our brains are created but, having been created, they then create.
We forget that our perceptions of the world and ourselves are limited by our senses and by our assumptions about our senses. We assume we have 5 senses, and so we do. We don't have the sense to realize that we have more than 5 senses.
We forget that things are not separate and autonomous, that light depends on darkness, hard on soft, prickles on goo. We forget that all is related and therefore relative. And we forget that while we seem to be separate and autonomous beings, in fact, as the ancients knew, we are not two.
We forget that the stars we see are not really the stars but their long, curved tails of light. We forget that everything is like the stars, always changing, always ahead of and different from what we see. We forget that everything is constantly new and unique, that we can't step into the same river twice.
We forget that as we experience events we compile, classify and store our experiences in an effort to achieve meaning and control. In the process, we simplify and generalize; we abstract. We forget that whatever we say a thing is, it isn't; that the finger pointing at the moon not only isn't the moon – it isn’t even the finger.
We forget that our language makes us what we are, that we have a 10-cent vocabulary with which to describe a $10 interpretation of a $1000 event. What we view as objective reality is an illusion. The word, fact, from the Latin, factum, means “that which is made.” We forget that events do not determine experiences, experiences determine events.
We forget that in this habit of selecting and organizing the details of our perceptions and interpretations, our goal is to experience the world as patterned and coherent. We forget that we try to stabilize our world by recreating it. We ignore differences and assume similarities. We kill with reductionism, that we may live thus reduced.
All aspects of perception and interpretation are grounded in our genetic and/or experiential past. Our instincts are inherited; our capacities for feelings and thought are inherited; the ways in which we feel and think are partially inherited and partially learned; and what we feel and think is largely learned. This being the case, our responses to (our interpretations of our perceptions of) events are completely reactive.
And, although it appears that everything that happens is predetermined, our requirements are such that we must assume free will. It is possible to stop the event-perception-interpretation-response cycle after interpretation, reflect on alternative courses of action, and choose a non-indicated response. We say that to do this is to respond proactively rather than reactively. (Pro-, from the Greek, means for, before or in favor of. Re-, from the Latin, means backward or again. Hence, to pro-act is to be future oriented; to react, past oriented.)
Do you suppose it would have helped Walter if he’d understood the above? If he’d paused and reminded himself of the process by which he made his choices? Of his perceptual and reasoning limitations, his illusions of convenience, the imprecision of his abstractions, the fallacy of his objectivity? Would it have helped him to remain aware of the influence of his childhood on his choices as an adult, and how, though he was ordinarily reactive, he could choose to break free and respond pro-actively?
I am not suggesting that entrepreneurs need to achieve enlightenment in order to succeed. I am, however, asserting that the in-depth understanding and acknowledgement of one’s limitations is possible and substantially increases one’s odds for success. The acceptance of weakness is the beginning of strength.
Conventional thinking is that the bifocal vision I’m recommending is, if not impossible, certainly dangerous. The common criticism is that it’s like asking an athlete to consider failure during competition. But conventional thinking is wrong, for that’s not what we’re proposing. It is possible, through genuine self-understanding, to achieve a quality of personal integration in which one is demonstrably more aware and effective. In sports, they call it getting into the “zone.” In art, it’s described as “getting out of one’s way.” Freud called it integration; Jung called it individuation; Roberto Assagioli, the psychiatrist who originated psychosynthesis, called it achieving harmony within oneself; and Abe Maslow called it self-actualization. The point is that when the individual gets there, when he achieves such inner unity or consensus, his values tend to be better reasoned and clearer, his effectiveness enhanced, and his life more fulfilling. As they say about the great ones, he “makes it look easy.”
An example may help. I palled around with Ted Turner when we were in college together. One of the activities we particularly enjoyed was poker. We played in a weekly game with some tough kids from the coal mines of Pennsylvania. Now mind you, Ted was a southern boy at an Ivy League college, and we New Englanders were even more provincial back in the late 1950s, with the result that no one paid him much attention. Plus, he had distractions on the home front. I recall him mentioning his affection for a terminally ill sister and his father’s unremitting remonstrations about his academic pursuits - or lack thereof. I sensed he’d been through some hard times and was probably wiser and tougher than the rest of us because of it. Plus, he seemed determined to get thrown out of college – which, as I recall, he did with some regularity. So, he wasn’t the Ted Turner we know today. I don’t know what he’s like now, but he was great fun to hang out with then. He possessed a Confederate officer’s dignity and sense of honor, along with a Rhett Butler charm.
He liked to dress for the games – I recall an embroidered vest and wide-brimmed planter’s hat, and he smoked long, thin cigars and sipped a glass of bourbon. (I should add that he usually didn’t finish his single glass of bourbon until the game was over and he stood up to leave. He’d toast the rest of us, drain his glass, place it gently on the table, turn on his heel – he’d been to military school - and walk out.) He played as if he was leading troops in the field and each hand was a skirmish. He was careful not to put his chips in harm’s way unnecessarily during his hit-and-run sorties, but he used the gamut of tactics, from finesse to brute force. (No matter how small his poke, he insisted on table stakes games.) I should add that we thought the Pennsylvania boys might be cheating us, but Ted wouldn’t call them on it, much less respond in kind. His attitude was that if they were cheating, it was their problem. We’d have to work harder to beat them, but we would because, in the long run, honor always prevails over dishonor.
“Right, Ted,” I’d chide him, “and the South will rise again.” Little did I know.
Ted almost always won. At the time, I thought it was because he bluffed well. He charmed us into playing along in the hands he figured to win, with the result that they were usually the largest pots. As I say, at the time I thought it was his skill. But later, as he went on to a succession of business successes and I came to understand these things a little better, I realized it was more than skill. While he won because of what he did, his actions were dictated by who he was. While we Yankees laughed at his attire and manners, to him they symbolized the kind of man he wanted to be, and would become. When his draw had potential, he withdrew from his public persona and went into an egoless, hyper-attention mode in which his logic and intuition operated at a heightened efficiency and in near perfect harmony. In that dingy dormitory room, seated at that blanket-draped table, he was able to get free of his distractions and inner conflicts. He was able to will himself from fragmentation to focus and integration. And when he achieved that inner consensus, he was a formidable adversary.
And that’s what he subsequently did in business. At the crunch time of critical decisions, he was able to attain to a level of awareness that enabled him to see things which those around him missed. He was able to spot the problems and opportunities and respond appropriately.
Ted had two other characteristics that bear on my thesis. The first was his friendship with another college pal, Peter Dames. Dames was another big, good-looking galoot, but he was also a no-nonsense, practical balance to Ted’s more intuitive nature. Dames was too sensible to bother learning how to play poker, never mind waste his evenings with a bunch of coal country hooligans. But when Ted was thrown out of college the final time, Dames was by his side, and he joined Ted in business, and eventually took over Turner Outdoor Advertising. While I’m sure their friendship has had its normal stresses and ups and downs, I know each considers the other one of his most trusted associates. Even as young men, each was insightful enough to know he’d benefit from the other’s alternative perspective. Their long and successful collaboration speaks to both men’s level of self-awareness.
And, second, Ted and Dames had a habit of reciting quatrains from the Rubaiyat of Omar Khayyam. They competed with each other to see who could give the more expressive rendition, but they also recited to others to remind us of the lessons in the text. At the time, I thought they were simply extolling the delights of debauchery, but I’ve come to view the recitals as their way of reminding themselves and each other of the transcendent perspective. Yes, they seemed to be saying, there is work to be done and responsibilities to be assumed; and, life is short and of uncertain duration. Even as young men, they were aware of the value of such bifocal vision.
The Appropriate Response
To restate my premise, the problem is that 75-80% of startups fail within ten years. The opportunity is that we understand why and what to do about it. New ventures don’t fail because of external circumstances, but because of the mistakes of the entrepreneurs who start them. The entrepreneurs either miss the problems and opportunities, or don’t respond appropriately. And the reason is because the individual entrepreneurs lack self-understanding and the resulting ability to get integrated – i.e. to become optimally effective - when and as they want to.
I believe the appropriate response to the opportunity consists of four steps, as follows:
Assisting in the process of self-selection. It goes without saying that we as a society should become more involved in helping young people choose the best careers for themselves. In entrepreneurship (as opposed to, say, brain surgery), the objective should not be to preclude the apparently unsuited as much as to give interested individuals the best information on which to make their choices. Aspiring entrepreneurs should know enough about themselves, as well as business and entrepreneurship, to either self-select with maximum commitment, or self-exempt before wasting a lot of personal, as well as venture capital. Better selection will have a direct, positive effect on the success rate of the new ventures the selected entrepreneurs create.
Declaring ourselves. Institutions offering entrepreneurship education need to state up front that personal qualities are more important than professional skills for success in business. Knowledge of self is more important than knowledge of things. Personal integration is the cornerstone of institutional integration. The extent of the former determines the extent of the latter. This statement and commitment will encourage those who are interested in pursuing personal as well as professional growth, and discourage those who aren’t.
Practicing what we preach. The institutions then need to teach what they advocate. We need to teach the importance of the balance between the art and science of business, between intuition and reason. To say it another way, we need to have the grace to address T.S. Eliot’s challenge, "Where is the knowledge that is lost in information? Where is the wisdom that is lost in knowledge?"
Ongoing support. And finally, we need to develop a system for providing continuing support for our entrepreneurs. I’m talking about the whole gamut of support, from personal mentoring to the entire range of business counsel, but I’m particularly concerned with the former. It’s a tough and dangerous world out there; our students need to be able to come home, network with like minded entrepreneurs, and get their bifocal vision recharged.
To summarize, the appropriate response to the opportunity of training entrepreneurs is to help them develop increased self-understanding and the ability to achieve inner consensus when and as they choose to, and to then provide them with ongoing support. To do this would be to provide right entrepreneurship education.
Incidentally, this idea of “right education” isn’t new. For Socrates, right education was teaching that asked more than it asserted. For Krishnamurti, the Indian philosopher and educator, it was education that helps students get free from all external authority, to the end that they acknowledge and take responsibility for their own, inner authority. For John Dewey, the term referred to education that enables the individual, his vocation, and society to be integrated to each’s benefit.
For entrepreneurs, right education should be those things and more. At this time, as competition is increasing and nations are depleting their basic resources and degrading their environments to keep up, as controls are removed or fall behind - and, as a result, confusion, anxiety, and corruption are rampant, we need a more enlightened capitalism. Since entrepreneurship is the core of capitalism, and individuals are the heart of entrepreneurship, that means we need to develop more integrated entrepreneurs.
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Robert Leaver has had careers in business, mental health and education. In 1980, he embarked on a solitary retreat and spent ten years studying, writing and meditating. Since 1990, he has been teaching The Course in Self-understanding and Personal Integration. Leaver is a fellow of the Price-Babson Seminar for Entrepreneurship Educators. He is available to speak or conduct seminars and workshops, and can be reached at Box 307, Bradford, Vermont 05033. E-mail: firstname.lastname@example.org. Phone: (802) 222-9022.