How Must Entrepreneurs Treat Failure?

A Practical Solution

By Shlomo  Maital   

    failure

  Last evening, I spoke to a group of Brazilian entrepreneurs, here in Sao Paulo, at an accelerator, Startup Farm, run very well by Alan Leite.  In the latest round, over 130 projects have been through Alan’s capable hands.  

   In my brief talk, I tried to practice what I preach, and listened carefully to precisely which messages I brought resonated.  The key one, by far?  About failure.  Entrepreneurship is less about success than about failure, how you perceive it, how you relate it, and how society relates to it.  There are cultures where failure is treated as a personal crime; those cultures will never ever have entrepreneurs.

    My wife Sharona, a psychologist, listened to my talk and gave me valuable feedback afterward. She reminded me of work by Stanford Psychology Professor Carol Dweck, who has done pioneering work on ‘mindset’.   

  Here is a brief summary, in the context of startup failure.

   Mindset is a mental attitude that determines how you respond to situations. There are two types of mindsets. One is a fixed mindset, which assumes that intelligence is a fixed trait, and that all our qualities and capabilities are fixed, constant and constrained. The second is a growth mindset, which assumes that intelligence (and other capabilities) are qualities that change, grow and develop, especially when we work hard at it.  Why don’t we see unmotivated babies? Dweck asks. Because when babies learn to walk, stumbling is not failure, it is a vital step on the road to success…and because you have to learn to walk, you have to stumble and fall luntil you do.   Absolutely true of entrepreneurs, too.

   Entrepreneurs should have a growth mindset.  And they should use it to shape their perception of failure. 

     Failure can be regarded as personal:   I personally have failed. Or worse, I myself AM a failure.  My startup failed; I am a failure.

  1. Wrong. Wrong.

     Failure can be regarded as a learning experience; my startup failed, but I am a brave and courageous entrepreneur, because I attempted something very challenging, and did not succeed, but learned a great deal, and eventually I WILL succeed to change the world. 

      This is how entrepreneurs, and all of society around them, should, can and MUST interpret failure.  It is part of a growth mindset; failure is a step toward success.   Thomas Edison actually said that, when he tried 10,000 experiments to invent the filament of a light bulb, and each failure brought him closer to the final successful answer.

     Here is how Carol Dweck advises us to develop a growth mindset: 1.            Learn learn learn  2.   Realize hard work is key   3.  Face setbacks.     Focus on effort, struggle, persistence despite setbacks. Choose difficult tasks. Focus on strategies. Reflect on different strategies that work or don’t work. Focus on learning and improving. Seek challenges. Work hard.

    Thank you Professor Dweck!

 

China: Big Nation, Big Worries

By Shlomo  Maital    

China debt

   A new survey shows that half of Americans believe the recession is still alive and well,  despite the booming stock market.  And close analysis shows that the world’s second biggest economy, China, also has big worries.  So when the world’s two largest economies are struggling, global managers need to be on their toes, to daily track events and manage risk. 

    My friend Clyde Prestowitz, formerly President Reagan’s trade advisor and now head of Economic Strategy, has provided us with some quality insights into China’s current predicament. “This is the start of a new ball game with China,”  Clyde warns.    Here is a summary:

  • Xi Jinping’s two major goals are: 1)Restore the power of the center and ensure the sustainability of the Party’s rule. 2) Restore China to its historical position of prominence of the world stage.  This marks a departure from the line of Deng Xiaoping who urged : “observe calmly, secure our position, cope with affairs calmly, hide our capacities, bide our time, maintain a low profile, and never claim leadership.”   ●  Two schools of thought now contend in Beijing – one advocating the low profile approach, the other saying that this low profile has encouraged Japan and other Asian countries to push their claims in the North and South China Sea, and arguing that it is now time to show a more assertive posture. ● Xi seems clearly to be leaning toward this latter approach: What he is now basically saying to the US is rather something like:” We still have to catch up with you in many domains but from now on we intend to deal with you on an equal footing basis.  …While Xi Jinping is the most powerful Chinese leader since Mao, is his grip on power already beyond the risk of a backlash or not and how far are we from a fully stabilized power landscape in Beijing?   ● China’s high nominal GDP growth rate is not necessarily a good sign. It arises from an eventually unsustainable system that has already taken China’s total debt to about 250 percent of GDP while continuing on a path to much higher levels. Much of this debt has been contracted in the course of building enormous excess capacity in the real estate, manufacturing, and infra-structure sectors. Since excess capacity does not generate income for the paying off of debt, the debt load will eventually be shifted to some sector capable of paying.  ● Regardless of how it is paid, a shift in the structure and direction of the economy would entail at least a temporary slow-down of the Chinese economic growth rate to something like 3-6 5 GDP growth. Such a reduced growth rate would actually be a positive sign. However, because it would be seen negatively by many, and because it would be costly to vested interests, there will be enormous opposition to taking the steps necessary to achieve the temporarily slower growth rate.  ● This is obviously a crucial moment in China, during which a number of shifts are occurring, with major implications for the country itself as well as for the global economic and geopolitical balance. ●  While trying to decipher the developments it is important for decision-makers and China watchers to think outside the usual obsolete templates of “moderates” and “hard-liners” “reformists” and “conservatives” which serve only to blur the picture and distort judgment. The present reality in Beijing is too complex to be encapsulated in simplistic labels.
  • This is the start of a new ball game in dealing with China. It will keep us on our toes for years to come.

Technology comes LAST

By Shlomo  Maital     

Tangle

  My wife and I are in Brazil; yesterday I gave a seminar at Univ. of Sao Paulo, titled “Technology Comes Last, Not First”.  This was hutzpah, impudence, because it was a seminar for Management of Technology.  When you see a surgeon with a medical problem, they often recommend surgery. Naturally. When you study Management of Technology, they teach you – well, how to manage technology. 

   But the audience got the message and understood.  And it is so simple.

   Great startups begin by identifying an unmet need.  This is done not by asking people what they need, but by keen close detailed zoom-in observation and listening – not a skill engineers tend to have.  Only after a clear unmet need is identified, should technology be pulled in,  and only technology that can simply, quickly and appropriately be applied to meet the need, as part of a sustainable business. 

   I’ve seen countless startups driven by genius engineers, who create magical technology (recall Arthur Clarke, “truly advanced technology is indistinguishable from magic”),   and launch a startup, and – their technology meets needs that do not exist at all.

    How do you find a true need?  Maybe, you YOURself need it.  And if so, others do too.  Spanx started when Susan Blakely needed something to tuck in her bottom. The technology?  Spandex.  She made a batch and knocked on doors until it began to sell. She’s now a billionaire.  Lady Gaga records new songs after exhausting performances, in her bus.  Technology? Her engineers insist, you cannot record high-quality sound in a bus.  Lady Gaga?  DO IT!!  Because she needs the inspiration and immediacy of her audience.  Sound studios are sterile.   

    The paradox is:  Technology-driven startups cannot be led by, driven by, and directed by, technology, even though they are generally led by engineers.  The principle is:  Start with Why!  Why make this?  Who needs it? Why do they need it?  Only if you have very strong clear answers, can you proceed to the technology that will satisfy it.  This is so simple. Yet violated by many businesses and entrepreneurs,  for big and small companies.

  Think B I G

By Shlomo  Maital

think-big_

 Yesterday I spoke to a group of entrepreneurs, at University of Sao Paulo, hosted by Prof. Fabio Kon.  The gathering was initiated by students, and it was organized in an interesting manner.  Each participant identified himself or herself in one of three categories, using colored badges:  criacao (creative ideas); negocios (manager or business person); and desenvolvedor (developer, or entrepreneur).  There were very few “criacao’s”, but lots of negocios and desenvolvedor.

   My main message to them was “think big”.  If you’re going to invest years of your life in working on implementing an idea,  it should be a big one,  not an 8 per cent improvement in something that already exists. 

   There are three avenues for ‘thinking big’.   I illustrate it using diagrams:

       X axis:   number of people you affect.   Y axis:  amount of value you create for each, on average.

    One:   Make a huge improvement in life, create huge value, for a huge number of people.   Example:  Jack Noyes inventing the integrated circuit. Or a cure/preventative for malaria.

               #########################

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 Two:  Make a huge improvement in life, create huge value, for a relatively small number of people.  Example:  Vaccine for a rare disease.

              $$$$

              $$$$

              $$$$

              $$$$

              $$$$

              $$$$

              $$$$

 

  Three:   Create fairly small value for a very large number of people. Example: iPhone.

            **************************************************** 

            ****************************************************

 In other words:  a huge fat rectangle;  a thin tall rectangle; or a short wide rectangle.

    But somehow – SOMEthing needs to be big, either the value you create or the number of people you affect, or both.   Why?

   Because big ideas attract people with big abilities. Because big ideas generate energy and passion you need to implement them.  Because we need big ideas to fix big problems, when small ideas will just not do the job.

   Persuaded?  Do you have a big idea?

  Weapons Kill People

By Shlomo  Maital

police armored car

Anaheim Police Armored Car

 

 Weapons kill people.  The more weapons, the more people will be killed. Many of them will be innocent.  Conclusion:  Somehow, stop making so many weapons. Pretty simple. But, in a world with $1.8 trillion in defense spending, it seems impossible.  Too many countries make too much money for too many companies.

  Here is what Bloomberg Business Week reports, on the massive amount of weapons sent home by America from Iraq and Afghanistan – what do you do with all that great useful weaponry?  Give it to the cops, of course!  Genius.  Ferguson, Missouri erupts in rioting, as an unarmed black teenager is killed by police –

   ” The heavily militarized police force in a St. Louis suburb is hardly an anomaly. Local police departments across the country deploy not just military-style equipment but actual castoffs from the U.S. military.  Federal grant programs fund the police acquisition of military weapons and vehicles, and a U.S. law has sent more than $4 billion of surplus Pentagon gear to law enforcement over the past 17 years. Now protests following the fatal police shooting of unarmed teenager Michael Brown in Ferguson, Mo.—and the heavily armed response by local police—seem likely to spark a national debate on the militarization of law enforcement. Do local cops from from Maine to New Mexico need military rifles and armored personnel carriers to do their jobs?

    Once, believe it or not,   British police, called “bobbies”, were unarmed, using only a truncheon.  And they kept the peace.  Now, they are heavily armed, many of them, and there is more violence in British streets, not less. 

     Weapons are like addictive drugs.  If they are out there, they will be used, and they will kill people.  And when one side gets more of them, the other side has to have more of them, too, and then the first side needs more, and the other side, and soon…..

 

 Anat vs Eric: Take Your Pick

By Shlomo  Maital

  Cantor      Admati

Eric Cantor                                             Anat Admati

  Yesterday’s (August 10) New York Times has an editorial, along with a business section article, that offer stark contrast between two people, two world views, and what is wrong and right about America today.

   Eric Cantor is the former Republican House Majority Leader.  He lost a primary election in his district last June, in a stunning and almost unbelievable upset, despite his high visibility and infinite money.   Why did he lose?  Because from Day One, says the Times, he “courted the favor and donations of Wall Street”, becoming the “top congressional recipient of its generosity”. In other words, the top money raiser in Congress lost a PRIMARY (not even an election).  His close ties to big money led to his defeat, apparently, as his opponent focused on that issue.

    Now, Cantor is about to cash in.  He resigned his seat as of August 18, even though he has several more months to serve until the new Congress convenes in January.  Why?  He’s going to work for the same Wall St. firms that he helped so much, as House Leader. He’s going to make money.  He has little real financial genius. But connections?  Infinite.  And Wall St. will pay big money for that. Eric Cantor will be a multi-millionaire faster than you can say,  Public Service?????

   Admati is a Stanford University finance professor, and an Israeli.  She did complex financial modeling until 2008, and published in academic journals.  When the financial system collapsed (or WAS collapsed by the banks, and Wall St.),  she became a powerful advocate of tighter government regulation, battling weak regulators and the incompetent Obama administration.  Admati, says the Times, even took a course on how to write opinion articles that people understand.  She has lunched with Obama and has a powerful simple explanation of what is broken on Wall St. and how to fix it.  And Wall St. despises her.  Guess why.

      Here is what she claims.  1.  We the people lend money to the banks by depositing it.  We don’t worry about how the banks use our money, because the Federal Deposit Insurance Corp. insures each deposit account for up to $250,000.  FDIC is of course the government, which is us.  And FDIC uses OUR money; when it runs out, in bad times, the government refills the coffers.  2.  The banks take large undue risks with our money when they lend and invest it, as they did during 2001-2008,  investing in sub-prime mortgages for instance, because they are “too big to fail” and because if they get in trouble, as they did in 2008-10, they know the government will bail them out.  They get the profit from their risk taking, if it works out; and they dump the losses on us if it doesn’t.  Good deal.  And nothing really has changed in this crackpot system since 2008.   3. The solution?  Regulate not how banks lend and invest their money, but how much they borrow (from us).   

Wall St. absolutely hates that idea, because the money machine that borrows from us at 1 per cent and lends at 5 per cent is a sweetheart of a deal, especially when government bears the risk of that 5 percent. So they deeply dislike Admati as well.

      Admati vs. Cantor.  From public service to millionaire overnight; and from academic professor to public advocate, serving the public, also overnight.

       Take your pick.  Which do YOU prefer?    

    

 Noona the Mind Reader – What About Us?

By Shlomo  Maital   

  Noni very small

  In Orit Gidali’s new children’s book, Noona the Mind Reader, illustrated by Aya Gordon-Noy,  a little boy says to Noona, “You have the legs of a flamingo!”   And Noona, “even though she does not know exactly what a flamingo is, she is insulted.  A lot.”   (For now, it is only in the Hebrew language).

     Her mother hugs her, and goes to find “a magical device”, for days when there is not enough magic.  

    “Noona picks up the magic device that her mother gave her, and suddenly she can see behind everything people say, what they are thinking, but not saying”.

     Noona sees that people do not always say what they think.  Or think what they say they are thinking,  or say what they think they are saying.  

     “I understand!”  Noona shouts.

     “You have the legs of a flamingo!”.   The little boy means, according to Noona’s magical device, “when you’re around everything is rosy”,  and “wow, am I smart, to know how to say ‘flamingo’ “.  

     “Nya, who wants to be friends with YOU!”, means “I do”.   “I don’t want to play soccer” means “I don’t want to lose again.”

      And so on.

      Years ago, Harvard psychologist Chris Argyris pointed out that people have two columns on their pages.  In the right hand column,  what they say. In the left hand column, what they mean.  And he ran clever exercises, getting people to reveal their left hand column – which many people found very distressing. 

     What if we all had Noona’s mother’s magical device?  What if we knew what people really meant, not just what they said?  What if we knew BOTH their left hand and right hand columns?    People would then have to tell the truth.

     It’s not necessary to injure or hurt people by always saying what  you think.  You don’t have to say,  Yuk, that’s an ugly dress!    You don’t have to say it.  But maybe the world would be better, maybe there would be more trust among people, if we pretended that we all had Noona’s device.  If we built trust by telling the truth and saying what we mean. 

     There are countries where it is regarded as polite to be oblique, obtuse or even say the opposite of what you mean, to spare people’s feelings.  I live in a country where people are usually quite blunt.  Those who don’t understand us find this very rude, sometimes.  I think, in the end, it is good.

        What if Noona’s device were replicated and distributed, say, to the European Parliament or the U.N. General Assembly?    Or to the press at Obama’s press conferences?     What would we hear?  What would we understand?  And how would politicians and politics change forever?!

Paul E. Singer and U.S. Hedge Fund Rules the World (And May Destroy It)

By Shlomo  Maital

           Singer

 If you believe as I do that increasingly, money rules the world, not ethics, policies, governments, or ordinary people,  then this week you got confirming decisive evidence.

  A hedge fund manager named Paul E. Singer, right-wing libertarian and Republican, who runs Elliott Management, a $25 billion hedge fund,  bought up large amounts of Argentine government bonds after Argentina defaulted on its bonds in 2001 (because the IMF wanted to impose stringent conditions on a bailout loan, a huge mistake).    Then he went into U.S. District Court in Manhattan (like a fixed prizefight, he got to choose the venue most convenient and most likely to get a favorable decision) and won a decision from a judge, stating: “unless Argentina pays up the face value of bonds bought by Singer, it cannot legally pay interest on its bonds to its main bondholders”. 

   The result:  Because a $539 million interest payment was not made (it could not be made, because of that District Court Judge, who by the way is ELECTED!), by Argentina,  S&P rating agency declared Argentina in default.  This likely means that the government of Argentina is barred from raising capital in global capital markets.   Argentina’s economy is in recession,   in large part due to the Sterling law suit.  You cannot run any business, or any country, without borrowing money in capital markets.

    Singer has won.  Argentina and its 41 million people lose, and so does the world. Why?  Because investor panic regarding Argentina will impact other nations, like Portugal, and make their borrowing more expensive. 

    Argentina’s President Cristina Fernandez de Kirchner has made many mistakes.  But this time, the villain is not her but Singer.   And America, whose courts allow him to do whatever he wants for personal gain, damn the whole world.

     If we do not get control of our lives and our money  back from capitalists like Singer,  some day Occupy Wall St. will seem like a kindergarten birthday party.  

Alexandra Scott & the $80 m. Lemonade Stand

By Shlomo  Maital

Alex ScottAlexandra Scott

   The next time you think about tackling a hard problem you really care about, but hesitate because the odds are long – I hope you’ll remember this story.

       Alexandra “Alex” Scott was born in Connecticut in 1996.  Before she turned one year old, she was diagnosed with infant neuroblastoma,  a type of childhood cancer that attacks nerve cells and is hard to treat. 

      In 2000, just after turning 4 years old, she informed her mother she wanted to start a lemonade stand to raise money for doctors to “help other kids, like they helped me.”   

       Her first lemonade stand raised $2,000.  It led to  Alex’s Lemonade Stand Foundation.     Alex continued her lemonade stands project throughout her life, and eventually she raised over $1 million toward cancer research!

      Alex lost her fight.   She died in August 2004;  she was only  8. Today, Alex’s Lemonade Stand sponsors a national fundraising weekend every June called Lemonade Days.

    Each year, 10,000 volunteers at more than 2,000 Alex’s Lemonade Stands around the nation make a difference for children with cancer.  Some $80 m. has been raised so far.   As they say – that’s not chopped liver.   

    Life gave Alex lemons…and she literally made lemonade, giving new meaning to that old cliché. 

The March of Folly Never Ends: A $1.8 Trillion Travesty

By Shlomo  Maital   

   Folly

 Barbara Tuchman’s book The March of Folly, about historical stupidity of leaders, starts at Troy and ends at Vietnam.  But the March continues, unabated, ever stronger.

   In 2012, according to the Stockholm Peace Research Institute,  the world spent about $1.8 trillion on weapons and defense spending.   Imagine what we could do with those resources, if the world declared peace instead of war? 

   According to TIME magazine, America’s new Ford class aircraft carriers cost $13.5 billion each!  They are outfitted with F-35 fighters, which each cost….$160 million! 

   And they are probably worthless.

     Because these carriers are built to stand against China.  China has DF-21D missiles that have a range of 1,500 km. and can easily sink a carrier.  So the carriers have to stand off China, out of range.  But that puts their F-35 aircraft out of range of China, because F-35 planes have a range of 1,100 kms. 

     So, where is the folly?   We are building very very expensive aircraft carriers, which have even more costly airplanes, that from the outset are of no use. 

     The March of Folly continues.

     And we are all culpable, because we all pay taxes, and support those leaders who see wisdom and caution in folly.   

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
August 2014
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