Letter #39: Michael Brown (1995)

1995 Essay on Entrepreneurs and Luck

Hi there! I go by KG, and I love studying the history of business and investing. I’ll be sharing some notes from one Investor/Shareholder letter per weekday (mostly from my compilations) here.

Today’s notes are on Michael Brown’s 1995 essay Entrepreneurs and Luck. Michael Brown is an entrepreneur who has been in the Canadian venture capital industry for more than 40 years. He is Co - Founder (in 2001) and Chairman of the Board of Chrysalix Energy Venture Capital. Mr. Brown was previously co-founder and President of Ventures West Capital Ltd., which became Canada's largest private early-stage technology fund. This essay was written when he was a partner at Ventures West.

Fun fact: Ventures West is the Canadian VC firm that Mark Leonard (of Constellation Software) spent 11 years cutting his teeth at before starting Constellation Software.

Letter

It's been my good fortune to be involved with entrepreneurs my whole working life, starting with Max Ward almost 30 years ago. Wardair, for those of you who have forgotten already, as it was bought up by Canadian 6 years ago, for 30 years represented most of what was dynamic about the airline business in Canada. Max is a pretty private person. He came from humble beginnings. He had no personal fortune to fall back on, no business training. He was a bush pilot. He built an airline that terrified Air Canada & Canadian - companies many times bigger, run by accountants, MBA's, lawyers, fostered by government or huge organizations like CP. He wasn't the only one. There was something about the post-war bush pilots - their sense of independence, the personal risks they took, their ability to look terrible obstacles straight in the eye and overcome them - that gave rise to many entrepreneurs. Canadian Airlines, PWA, Wardair - all trace their beginnings back to bush pilots.

Max was my introduction into this rather wonderful & often wacky world of entrepreneurs. I like to think of myself and my colleagues in Ventures West in that light, but of course its been through our investments that I've been able to observe so many of them, and wonder about their individual traits.

Just what is it that makes entrepreneurs different? It isn't, for example, just being willing to take risks - if it were, we'd think of those who climb the granite wall called the Squamish Chief as entrepreneurs - in my mind, all they are doing is living a nightmare. It isn't just working hard; it isn't just being a leader, it certainly isn't just being a CEO of a successful firm, it isn't just having great vision, or being imaginative - we can all think of people who are those but who aren't what you would call "entrepreneurial.".

Why do people become entrepreneurs? Entrepreneurs are poor people, and rich people, educated and uneducated, recent immigrants and established families, visible minorities and invisible majorities. I even heard of a CA who became an entrepreneur. But there's no question there's a common characteristic - these are driven people.

What drives them? There are many folks who are driven but you would hardly call them entrepreneurs, and here I can list religious zealots, maybe political activists, or military leaders. Genghis Khan might have been a driven man, but I'm not sure he's on my list of revered entrepreneurs. Raffi Amit at UBC is trying to study this, and trying to see if you can teach people to be entrepreneurs, or maybe more accurately, teach skills to people who want to be entrepreneurs. For sure, for some the driver is money pure & simple, but I'm not sure how many of them actually succeed for any length of time, and anyway, those people seem to compromise their principles rather more often. But just as a contrast, my wife is a director of a charitable organization run by a man who surely has to be one of the most driven, imaginative, versatile entrepreneurs I have ever heard of, and he runs a soup kitchen!

No, the "drivers" have something to do with a combination of building, of putting together, of starting a project with their own vision, and seeing it through. For certain there is no entrepreneur without a vision of the end object, so the word "creation" has a lot to do with it. The best have what I call an "unquenchable desire to win", though sometimes this is confused with another statement "on their own terms". And almost all the time they have an attitude that they can win and they will win, and it's almost as if simply willing it to happen will cause it to happen. One of my colleagues thinks they have what he describes as "reality distortion fields" into which they suck people & race towards totally impossible objectives.

Entrepreneurs often believe in themselves so much that they treat the pursuit of their vision as if it were an elevator that only goes up, and they forget they can also come down. Some, of course, seem like they're riding a couple of elevators at a time, and only one of them is going up! A little like Stephen Leacock's famous line of the man who flung himself upon his horse and rode madly off in all directions.

Many entrepreneurs discover they have to be leaders because they need people to carry out their plans, but leadership & people skills generally aren't their forte. So we come across some dictators, a few real team builders, & many who think they are team builders but are really dictators. Some own all their companies, some insist on their key employees owning a big piece. The good ones create an almost pied piper trust in their people - Max Ward, for example, really was almost a messiah to employees, even though in comparative terms he didn't treat them terribly well.

Those who find leadership a chore, and who find it as difficult to trust as they do to engender it, really do try to keep too much to themselves. These are the entrepreneurs who try to row with a boat with an unknown number of oars, and they try to use them all at once. Or, to put it another way, quite often entrepreneurs aren't managers, and those who fall in this category only win if they understand this.

Entrepreneurs tend to treat obstacles as hurdles and not fences. Every entrepreneur has a time where there's too much month at the end of the money. We call it the "Monday morning crunch", when it isn't clear there's enough money left to open the door on Monday morning. You will notice in the anecdotes lots of cases where the apparently insurmountable Monday morning crunch was miraculously solved. You won't hear so often, of course, about when it didn't get solved, because we don't talk so much about unsuccessful entrepreneurs!

But the apparently miraculous solution is worth talking about.

Good entrepreneurs seem to have a lot of common characteristics:

  • they are single-minded

  • they like putting things together

  • they are determined to win, & know the difference between being right and winning

  • they have to be able to generate loyalty

  • they must have a vision

  • they look at risks differently then others

  • they have to be awfully energetic

  • they look at obstacles with optimism

  • they have to temper all this with at least a modicum of ethics

In my view those are all necessary, but they aren't sufficient.

Just about every successful entrepreneur I have ever met says there is one other factor: call it luck. Luck is where something so unpredictable, so improbable happened on the way to success that on the face of it, nobody, including maybe the entrepreneur could have anticipated it might happen. It simply wasn't in the plan. (Maybe it wasn't in the plan, because even if they have a vision, often entrepreneurs don't have a plan). I challenge you to find a successful entrepreneur who at some stage doesn't tell you that a key event on the way to winning was "luck".

This happens too frequently to be ignored. In fact, I try to insist around our decision table that we only invest in lucky people. This doesn't fit neatly into any model, so the academics and the analytic hate it. You might recall Einstein's phrase when it became clear to him that quantum mechanics didn't give unequivocal answers - only probabilities - he wanted assurance that God didn't play dice when he invented the world. Einstein could never have been an entrepreneur.

But this kind of luck isn't chance. I'd guess that of Los Vegas gamblers only a small % are entrepreneurs, though there is the apocryphal story of Fred Smith, the founder of Federal Express.

If you dig into it a little more this kind of luck has a lot to do with seizing on an opportunity. This to me has two very important implications:

1. Others might have overlooked the opportunity or passed on it because it seemed "too risky". The cool analyst etc. sees only the logical, the rational, the entrepreneur sees it from a different angle. Call this right-side thinking if you like, but here's the main reason why analysts aren't synthesists - and synthesis is the germ of entrepreneurialism. And this is why you can't teach entrepreneurialism - if logic always prevailed, where would the diversity be? Put it another way - entrepreneurs don't think of risk and reward in rigid terms, because they problem-solve by looking at the problem from a different angle. This you can talk about & maybe even teach.

2. The second observation has to do with how the opportunity got there in the first place. We tend to say "the opportunity presented itself" - but did it? Maybe the successful entrepreneur made sure the opportunity was there - we call this "getting ready to be lucky". This is how we hear of people who apparently created something out of nothing. That is, these people have a talent for looking beyond what you or I might see, and who, very importantly, know enough about themselves, and about their vision, to plan out a series of "what-ifs" in a lateral thought process. This is pro-active opportunism, & you certainly can't teach it & probably not even talk about it.

This is the best I can do. Put together a lateral thought process, with a heavy dose of left side practicality, a ton of energy, and a fierce determination to build and win - model and clone it, and my business would indeed be easy.

Annotated Letter

It's been my good fortune to be involved with entrepreneurs my whole working life, starting with Max Ward almost 30 years ago. Wardair, for those of you who have forgotten already, as it was bought up by Canadian 6 years ago, for 30 years represented most of what was dynamic about the airline business in Canada. Max is a pretty private person. He came from humble beginnings. He had no personal fortune to fall back on, no business training. He was a bush pilot. He built an airline that terrified Air Canada & Canadian - companies many times bigger, run by accountants, MBA's, lawyers, fostered by government or huge organizations like CP. He wasn't the only one. There was something about the post-war bush pilots - their sense of independence, the personal risks they took, their ability to look terrible obstacles straight in the eye and overcome them - that gave rise to many entrepreneurs. Canadian Airlines, PWA, Wardair - all trace their beginnings back to bush pilots.

  • Some of the most successful people are the most private — these are the people worth studying (Henry Singleton, Mark Leonard, etc)

  • “Chips on shoulders put chips in pockets” — Josh Wolfe

  • Sometimes not having a traditional background/education is an advantage

  • Pilot <> Entrepreneur overlaps

    • Sense of independence

    • Risk appetite

    • Ability to take on and overcome extreme obstacles

Max was my introduction into this rather wonderful & often wacky world of entrepreneurs. I like to think of myself and my colleagues in Ventures West in that light, but of course its been through our investments that I've been able to observe so many of them, and wonder about their individual traits.

  • Best way to study someone is to invest in them — put some “skin in the game”

Just what is it that makes entrepreneurs different? It isn't, for example, just being willing to take risks - if it were, we'd think of those who climb the granite wall called the Squamish Chief as entrepreneurs - in my mind, all they are doing is living a nightmare. It isn't just working hard; it isn't just being a leader, it certainly isn't just being a CEO of a successful firm, it isn't just having great vision, or being imaginative - we can all think of people who are those but who aren't what you would call "entrepreneurial.".

  • It’s probably a combination of all of them

Why do people become entrepreneurs? Entrepreneurs are poor people, and rich people, educated and uneducated, recent immigrants and established families, visible minorities and invisible majorities. I even heard of a CA who became an entrepreneur. But there's no question there's a common characteristic - these are driven people.

What drives them? There are many folks who are driven but you would hardly call them entrepreneurs, and here I can list religious zealots, maybe political activists, or military leaders. Genghis Khan might have been a driven man, but I'm not sure he's on my list of revered entrepreneurs. Raffi Amit at UBC is trying to study this, and trying to see if you can teach people to be entrepreneurs, or maybe more accurately, teach skills to people who want to be entrepreneurs. For sure, for some the driver is money pure & simple, but I'm not sure how many of them actually succeed for any length of time, and anyway, those people seem to compromise their principles rather more often. But just as a contrast, my wife is a director of a charitable organization run by a man who surely has to be one of the most driven, imaginative, versatile entrepreneurs I have ever heard of, and he runs a soup kitchen!

No, the "drivers" have something to do with a combination of building, of putting together, of starting a project with their own vision, and seeing it through. For certain there is no entrepreneur without a vision of the end object, so the word "creation" has a lot to do with it. The best have what I call an "unquenchable desire to win", though sometimes this is confused with another statement "on their own terms". And almost all the time they have an attitude that they can win and they will win, and it's almost as if simply willing it to happen will cause it to happen. One of my colleagues thinks they have what he describes as "reality distortion fields" into which they suck people & race towards totally impossible objectives.

Entrepreneurs often believe in themselves so much that they treat the pursuit of their vision as if it were an elevator that only goes up, and they forget they can also come down. Some, of course, seem like they're riding a couple of elevators at a time, and only one of them is going up! A little like Stephen Leacock's famous line of the man who flung himself upon his horse and rode madly off in all directions.

Many entrepreneurs discover they have to be leaders because they need people to carry out their plans, but leadership & people skills generally aren't their forte. So we come across some dictators, a few real team builders, & many who think they are team builders but are really dictators. Some own all their companies, some insist on their key employees owning a big piece. The good ones create an almost pied piper trust in their people - Max Ward, for example, really was almost a messiah to employees, even though in comparative terms he didn't treat them terribly well.

Those who find leadership a chore, and who find it as difficult to trust as they do to engender it, really do try to keep too much to themselves. These are the entrepreneurs who try to row with a boat with an unknown number of oars, and they try to use them all at once. Or, to put it another way, quite often entrepreneurs aren't managers, and those who fall in this category only win if they understand this.

  • Learn how to delegate — trust your teammates

  • Reed Hastings: “Democratize Innovation — Don’t depend on a single genius”

Entrepreneurs tend to treat obstacles as hurdles and not fences. Every entrepreneur has a time where there's too much month at the end of the money. We call it the "Monday morning crunch", when it isn't clear there's enough money left to open the door on Monday morning. You will notice in the anecdotes lots of cases where the apparently insurmountable Monday morning crunch was miraculously solved. You won't hear so often, of course, about when it didn't get solved, because we don't talk so much about unsuccessful entrepreneurs!

  • Be careful of confirmation bias

But the apparently miraculous solution is worth talking about.

  • If something works, it’s worth talking about — no matter how crazy

Good entrepreneurs seem to have a lot of common characteristics:

  • they are single-minded

  • they like putting things together

  • they are determined to win, & know the difference between being right and winning

  • they have to be able to generate loyalty

  • they must have a vision

  • they look at risks differently then others

  • they have to be awfully energetic

  • they look at obstacles with optimism

  • they have to temper all this with at least a modicum of ethics

In my view those are all necessary, but they aren't sufficient.

  • It takes a lot to be an entrepreneur…

  • Not any single one of these… but a combination of all of them (For an example… check out this tweetstorm I made on Josh Wolfe)

Just about every successful entrepreneur I have ever met says there is one other factor: call it luck. Luck is where something so unpredictable, so improbable happened on the way to success that on the face of it, nobody, including maybe the entrepreneur could have anticipated it might happen. It simply wasn't in the plan. (Maybe it wasn't in the plan, because even if they have a vision, often entrepreneurs don't have a plan). I challenge you to find a successful entrepreneur who at some stage doesn't tell you that a key event on the way to winning was "luck".

  • Mike Tyson: “Everybody has a plan until they get punched in the mouth.”

  • Reid Hoffman: “An entrepreneur is someone who will jump off a cliff and assemble an airplane on the way down.”

This happens too frequently to be ignored. In fact, I try to insist around our decision table that we only invest in lucky people. This doesn't fit neatly into any model, so the academics and the analytic hate it. You might recall Einstein's phrase when it became clear to him that quantum mechanics didn't give unequivocal answers - only probabilities - he wanted assurance that God didn't play dice when he invented the world. Einstein could never have been an entrepreneur.

  • Investing in lucky people is important — although I’ve heard this as an excuse VCs use for passing on people. “Oh, if they weren’t able to get in touch with me, they aren’t lucky”…

But this kind of luck isn't chance. I'd guess that of Los Vegas gamblers only a small % are entrepreneurs, though there is the apocryphal story of Fred Smith, the founder of Federal Express.

If you dig into it a little more this kind of luck has a lot to do with seizing on an opportunity. This to me has two very important implications:

  • Practice. So when opportunities present themselves, you can jump on them

1. Others might have overlooked the opportunity or passed on it because it seemed "too risky". The cool analyst etc. sees only the logical, the rational, the entrepreneur sees it from a different angle. Call this right-side thinking if you like, but here's the main reason why analysts aren't synthesists - and synthesis is the germ of entrepreneurialism. And this is why you can't teach entrepreneurialism - if logic always prevailed, where would the diversity be? Put it another way - entrepreneurs don't think of risk and reward in rigid terms, because they problem-solve by looking at the problem from a different angle. This you can talk about & maybe even teach.

2. The second observation has to do with how the opportunity got there in the first place. We tend to say "the opportunity presented itself" - but did it? Maybe the successful entrepreneur made sure the opportunity was there - we call this "getting ready to be lucky". This is how we hear of people who apparently created something out of nothing. That is, these people have a talent for looking beyond what you or I might see, and who, very importantly, know enough about themselves, and about their vision, to plan out a series of "what-ifs" in a lateral thought process. This is pro-active opportunism, & you certainly can't teach it & probably not even talk about it.

  • A somewhat non-intuitive belief I have is that Time is not your most important resource — opportunity is.

  • Relevant Mental Models:

    • Second Level Thinking (Howard Marks)

    • Idea Maze (Balaji Srinivasan)

    • Understand how every variable affects every aspect of your business (Buffett, Munger)

This is the best I can do. Put together a lateral thought process, with a heavy dose of left side practicality, a ton of energy, and a fierce determination to build and win - model and clone it, and my business would indeed be easy.

  • Successful investor/incubators (ie Arthur Rock, Mike Speiser) do exactly this — find a model for them that works, then repeat

  • Model

    • Think laterally (see think of why parallel processing was such a breakthrough in computing)

    • Be practical — don’t let emotions overwhelm you

    • Be a missionary and focus your energy

    • Be a cockroach — don’t let anything get in the way of what you’re determined to do

  • Repeat

Wrap-up

If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kgao1412 or my email at kevin@12mv2.com.

Please DM or email me any time — to share non-obvious intel, views and correct or solicit mine. I appreciate your continued support and partnership :D.

All compilations here.

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