Yesterday evening an entrepreneur friend in his early thirties came to see me to persuade me to invest in his business, a hangover cure. What was evident was Michael's total belief in, and commitment to, his business. I was impressed, but not so impressed that I wanted to invest. You see, Michael had the wrong sort of belief - as I will explain later in this post.
In business and in life, even more than in religion, it is belief that counts. Truly, faith - in an idea, in a concept, in a product, in a company, in a team, and in yourself - can move mountains, or at least huge piles of cash. Without that kind of faith, we will never achieve miracles. Without faith, our working life will be barren and unrewarding.
But it must be the right sort of faith.
I first saw this plainly when I was a raw and naïve starter at the Boston Consulting Group. I was 25, and had never known anything like it, except in my teens, when I came across evangelical Christians. At BCG, everyone had faith - in the BCG Box, the matrix of cash cows, stars, question marks, and dogs. The matrix was the Holy Grail of consulting, telling the consultants, and through them, the clients, what to do with every business segment where a company operated. It worked, for clients and BCG. The Box propelled BCG from obscurity to fame and fortune. But perhaps it was not so much the Box, as the belief, that impressed everyone who came across BCG.
As I have mentioned before, my career at BCG was not very successful, and after four years I found myself looking for another job. I talked to Bain & Co, then a small spinoff from BCG. They had belief too - not just in the Boston Box, which they also used, but in the Bain consulting process which was unique. Bain would only work for the very top dog in any firm, and only for one firm in an industry. Through extremely clever means, Bain aligned its interests with those of the group chief executive, and made his life infinitely easier and more rewarding. The Bain process was different than that of BCG, and Bain's practice was magic - it made money for clients, and for Bain, like billy-o. It was magic, and it was based on a profound belief in the way that only Bain, of all consultants in the world, truly understood.
I have since seen the effect of belief in private equity and venture capital firms. Bain Capital evolved a fresh and amazingly powerful way of making investments in young companies. And one other venture capital firm, based in London and operating mainly in Continental Europe, has evolved another approach which is also enchanting and incredibly successful. I co-invest with this firm in certain of their picks, and the results, at least so far, have been magnificent. This firm, too, has belief - in its proprietary approach to investment, from which they never deviate.
For an approach to work, however, requires not just belief. It also requires two other ingredients, which in my experience are rare.
An Elegant Concept
I define an elegant concept or approach as one that is unique, logical, based on powerful economics, and emotionally appealing.
Unique means that no other individual or firm pursues exactly the same concept or approach. This does not mean that you can't use potent ideas from earlier individuals or firms. For example, Bain used the same intellectual ideas as BCG, but deployed them in a unique process. It is combination or mix of ideas that must be unique.
Logical means that the approach can be explained simply and that it has an interlocking and memorable internal consistency. For example, the BCG Box can be explained in a few minutes, and then, if you have listened carefully and "get it", you will never forget it. It hangs together.
The concept must also be based on powerful economics. It is economics that gives depth to any business concept. In BCG's case, the economic substrate of the Box was twofold. First, the market leader should have more scale and experience than its rivals, and therefore should be able to have lower costs, and/or higher prices, and so higher profits. Second, the most interesting businesses are those in high growth markets, because profits can compound quickly in such markets, and in no others.
These remain the two concepts that are the substrate of everything I do in business. I am not interested, unless the economics of a business are unique and highly profitable; and unless the business is, or shortly will be, experiencing very rapid growth.
Finally, the concept or approach must excite - it must be emotionally appealing. This can be different from person to person. For example, what excites me is something that is true, has integrity (it hangs together) and elegance, is simple, and will make a lot of money. A concept that excites you may have some of these ingredients, or others entirely. It is good, however, if the blend of what excites you is unique, because it gives you a unique focus.
(And if you have never stopped to ask yourself what excites you, do stop. And ponder. If necessary, for years. It is not a trivial question. It can take most of a lifetime to really discover what excites you. But once you do, life will be so much richer and more fulfilling.)
Positive market feedback
The other ingredient - needed to validate something you believe in - is positive market feedback. Validation from outside is what distinguishes blind faith from effective faith. As humans, we are greatly disposed to believe what we want to believe. We often rationalize chance events, believing them to derive from our own skill or actions. We are suckers for snake oil, especially if we ourselves are its makers.
Validation from outside is an invaluable check on whether we are deluded or spot on.
Now, I know this is controversial. A lot of people believe that they should try, try, and try again, until they are successful. There are lots of stories about people whose books were mega bestsellers, after being rejected by dozens of publishers. I tell one of these stories myself, about Richard Adams and Watership Down. A book about rabbits? Come on. Thirty-one successful publishers turned it down. And there are similar stories about entrepreneurs who succeeded after being told by investors and customers galore that it would never succeed.
So persevering can sometimes work.
But the hard truth is that it nearly always is a stupid thing to do.
The market is always right.
The market always clears.
And mainly, the market is the grim reaper, the vulture clearing away the debris of failed products and companies, and failed concepts too. Without the market, we would never be able to see the few things that deserve to be seen. The world would be clogged up with failure.
By "the market", I do not just mean the market for goods and services. There is a market in ideas, for example. This market can sometimes clear rather slowly. For example, socialism or communism. This passes the tests for a concept that is elegant and emotionally appealing. But it has never passed the test for what actually works - the market test. At first it seemed to, but the longer it went on, the less successful communism proved to be. Still, it took seventy-two years for the grim reaper to deal with Soviet communism. It would have been infinitely better for mankind if he had not been so tardy.
When it comes to new firms or business approaches, the grim reaper is more on the ball.
Unless something is growing fast, it does not have market validation.
The smart person notices this, and gives up.
For ten years, Michael has put his life and soul, and all his savings and those of his family, into his business. He passionately believes in it. The story he tells is compelling. But he has never experienced sustained positive market feedback.
It was hard telling him to give up. I'm sure he won't. But I'm equally sure he should. Michael (not his real name) is not stupid. He is highly intelligent. But he is so emotionally committed that he cannot break the spell of his own delusion.
Don't be like Michael.
The antidote is to remember the two conditions for something worth believing in - (1) an elegant concept; and (2) external market validation.
Action Implications
1.Find out what excites you.
2.Find a business to work in that is worth having faith in - that has an elegant concept, and is growing fast.
3.If what you are doing is not working, give up. Go back to steps #1 and #2.