Today, I spoke to Scott Shane, who is a Professor of Entrepreneurial Studies at Case Western Reserve University and the author of Fool’s Gold?: The Truth Behind Angel Investing in America. In this interview, Scott talks about how entrepreneurs can discover new opportunities, advice for young entrepreneurs trying to make it in this economy, and some other big ideas around personal branding and entrepreneurship.
How can entrepreneurs discover opportunities and find their fast-track to success?
People tend to discover opportunities related to what they know. When they don’t know about something, new information on the topic is lost on them and they don’t see opportunities. For instance, a lot of people missed the opportunity to start an internet search company even though the information about the opportunity was in plain view. The catch was that you had to know something about computer science and internet space to see the opportunity and not everyone had that.
Most people, unfortunately, won’t discover opportunities that put them on the fast track to success. If what you know a lot about is a declining industry, you are faced with a problem: you won’t see most valuable opportunities and the ones you see aren’t as valuable. If you’re in that position, you are better off not being the “idea guy” for a new business but are better off joining up with someone who sees better opportunities than you do.
In a horrible economy, what three pieces of advice do you have for young, emerging entrepreneurs?
- Don’t worry so much about the economy. I will blog about this soon and show people precise charts, but failure rates of new businesses are no different in recessions and expansions. So the odds that your new business will be around in five years are no worse now than if you started two years ago. What matters far more than the economy is the quality of your business idea and your entrepreneurial talent. Entrepreneurship isn’t a macroeconomic phenomenon. It’s very micro. What matters is generating more value for your customers than they pay you for your product or service.
- Watch your cash like a hawk. Money IS harder to raise in this economy than in a boom time. The good news is that people are more realistic about the fact that it will be hard for them to raise capital from others in this economy. The smart ones will make sure they have enough of their own.
- Start a business because you have a solution to a real problem that some customers have. Many people start businesses because they don’t want to have a boss. And in an economy like this one, more of those people are getting laid off, reducing their opportunity cost of starting a business. But people who start a business because they want to be an entrepreneur and not because they have solved some customer problem are just going to go from one problem, losing a job, to another problem, losing a business.
Is it a better idea to work for a company until you can launch your new business?
Absolutely. One of the biggest predictors of success as an entrepreneur is years of experience in an industry. For the first ten years, the slope is very steep. On average, entrepreneurs are much better off if they get a decade’s worth of work experience in the industry they want to start a business before they start their own company. You can do it with less, but the less experience you have the better the idea you are going to need to make up for your lack of experience.
How has your personal brand changed in the past ten years with the emergence of social media?
Ten years ago people like me didn’t have a personal brand. Now, because of social media, now I do. Blogs, Facebook, Twitter, and YouTube all let me get my message out to a much wider audience than would have been possible a decade ago.
How can your personal brand make or break you or your new business?
It depends on what kind of business you have. Some businesses have little to do with their owners – if you start a biotech company with a drug that cures cancer, it isn’t going to make that much difference. But if you have a business that is influenced by you and your personality or your social contacts, then it matters a lot more. If you get a lot of attention to you and your business cheaply your business might take off.
You should be careful, though. Social media can break a person’s personal brand. Just as you get a lot of good attention to you through social media, you could get a lot of negative attention too.
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Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Fool’s Gold?: The Truth Behind Angel Investing in America; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company. Most recently, he started blogging for the New York Times on their “You’re the Boss” blog.
