The risk-taker’s guide towin­ning­in­busi­ness

Sir Ron­ald Co­hen made a for­tune by in­vest­ing in com­pa­nies with po­ten­tial. In the first of three exclusive ex­tracts from his book, The Sec­ond Bounce of the Ball, he re­veals what it takes to be an out­stand­ing en­tre­pre­neur

The Jewish Chronicle - - FEATURES -

THE FUN­DA­MEN­TAL in­sight that I would take from my ex­pe­ri­ence in build­ing private-eq­uity in­vest­ment group Apax Part­ners, and from my ob­ser­va­tion of the hun­dreds of com­pa­nies in which Apax has made in­vest­ments, is that en­trepreneurs, if they are to be suc­cess­ful, must seek out and take ad­van­tage of sit­u­a­tions of un­cer­tainty. If you want to build a thriv­ing busi­ness, you have to see be­yond to­day’s cer­tain­ties to to­mor­row’s un­cer­tain­ties. You have to look at what is go­ing to hap­pen next in your field and put your­self in a po­si­tion to take ad­van­tage of it.

It is like a bounc­ing ball. If you were look­ing to­day for a phar­ma­ceu­ti­cal op­por­tu­nity, you might guess that the cur­rent bounce is the obe­sity mar­ket: that is where the drug com­pa­nies are di­rect­ing much of their re­search. But the smart phar­ma­ceu­ti­cal en­tre­pre­neur is al­ready think­ing be­yond that — to the next bounce of the obe­sity ball. The next bounce could be the op­por­tu­nity on which to build a thriv­ing busi­ness.

Obese peo­ple are ex­tremely un­fit. Hav­ing been obese for years, they have not had the op­por­tu­nity to ex­er­cise. So the next bounce of that ball might be to en­able obese peo­ple to be­come fit, by spe­cial­is­ing in the par­tic­u­lar mus­cu­lar and cos­metic prob­lems from which obese peo­ple suf­fer.

But how valid is that ob­ser­va­tion? And, if it is valid, how do you take ad­van­tage of it? What prod­uct or ser­vice is likely to prove pop­u­lar and prof­itable? How can you be sure that the prod­uct you de­liver will be com­pet­i­tive?

Th­ese ques­tions are all an ex­pres­sion of the same thing: un­cer­tainty. Un­cer­tainty and op­por­tu­nity go to­gether. For­tu­nately, the fu­ture has its ori­gins in the present. That is why I use the anal­ogy of the bounc­ing ball. We can all see where the ball is bounc­ing to­day; we know it has to bounce some­where to­mor­row. But few of us try to an­tic­i­pate where to­mor­row’s bounce will be, and even fewer will at­tempt to take ad­van­tage of it.

By look­ing closely at the ball and its tra­jec­tory, you can re­duce the el­e­ment of un­cer­tainty: what seems to other peo­ple to be very un­cer­tain seems to the in­formed en­tre­pre­neur much less un­cer­tain.

What lessons can you draw from my per­sonal story? First, that you must find an op­por­tu­nity that matches your skills and am­bi­tion. When I started out, there were op­por­tu­ni­ties in hi-tech, but I am not a hi-tech per­son. I could not have built an In­tel or a Google. The op­por­tu­nity that suited me — that used my skills and sat­is­fied my am­bi­tion — was the op­por­tu­nity to bring money and en­ter­prise to­gether.

Sec­ond, your busi­ness will grow to match the size of your vi­sion. Once you have de­cided on the busi­ness you want to build, fix­ing the vi­sion is the big­gest con­straint on the scale of your fu­ture suc­cess. I could have worked only in the UK, but I wanted to be in­ter­na­tional.

Third, you have to un­der­stand the en­vi­ron­ment around you. When I started, in the early ’70s, the Bri­tish econ­omy was in a mess, tax­a­tion was high, and few in­vestors were pay­ing at­ten­tion to en­trepreneurs. This meant that my jour­ney was go­ing to be a long one. I con­stantly sought to im­prove our chances by tak­ing ini­tia­tives ear­lier than my com­peti­tors, by do­ing things that oth­ers would not do. I de­lib­er­ately chose the “North Face” — as in the North Face of the Eiger, the great­est chal­lenge in Alpine moun­taineer­ing — be­cause I felt that it was the route to some­thing re­ally out­stand­ing that few oth­ers would be tempted to try.

This speaks to the fourth les­son: per­se­ver­ance. If you have matched the op­por­tu­nity you have cho­sen to your skills and am­bi­tion, and if you have a clear vi­sion of your goal, you must stick with it. It might take years. Busi­ness in­volves a lot of hard grind. I could have aban­doned my quest when two of my orig­i­nal part­ners dropped out in 1975. There were sev­eral mo­ments there­after when I could have said “enough”. I did not. I stuck with it, con­fi­dent that I would even­tu­ally reap the re­wards.

Suc­cess­ful en­trepreneurs are not like most peo­ple: they do not fear fail­ure. They know that it is part of the process and they are not afraid of it. They know that they will even­tu­ally suc­ceed, de­spite set­backs along the way. It is im­por­tant for you to know that there will be set­backs on the way to en­tre­pre­neur­ial suc­cess. Some will be your own re­spon­si­bil­ity, oth­ers will be out of your hands: un­ex­pected shifts in un­der­ly­ing eco­nomic con­di­tions, volatile in­ter­est or ex­change rates, or sud­den changes in the com­pet­i­tive en­vi­ron­ment.

For a long time, your ven­ture might not thrive in the way you had hoped. But if you have what it takes to be an en­tre­pre­neur, you will know that the road ahead can be trav­elled even if the go­ing gets tough.

Not mind­ing if you fail once or twice be­fore you get it right is a fun­da­men­tal as­pect of be­ing an en­tre­pre­neur. You must have the con­fi­dence to use the lessons of set­backs to full ad­van­tage.

I have ex­pe­ri­enced set­backs in my own ca­reer, not only in terms of un­suc­cess­ful in­vest­ments — of which there have in­evitably been many — but in terms that threat­ened the very ex­is­tence of my firm. But I never doubted my chances of achiev­ing even­tual suc­cess, and I never wor­ried about ul­ti­mate fail­ure. The de­gree to which you fear fail­ure of­ten re­flects the val­ues of the fam­ily you come from. There are many fam­i­lies where fail­ure, whether at school or at work, is re­garded as the worst thing that can hap­pen. Some­times this is an ex­pres­sion of timid­ity. In such a fam­ily, you do not set your­self up for a fall, you do not take risks. In­stead, you ap­ply your­self dili­gently to the achieve­ment of re­spectable, but lim­ited, goals. If you come from that type of fam­ily, you are likely to be too con­ser­va­tive to de­cide eas­ily to be­come an en­tre­pre­neur.

I n o t h e r c a s e s , f e a r o f f a i l u r e r e f l e c t s an in­abil­ity to cope with the pos­si­bil­ity of loss of face or re­jec­tion. Again, if you come from that type of fam­ily, you might be too in­hib­ited to be an en­tre­pre­neur.

If, by con­trast, you come from a fam­ily where there has been an aware­ness of en­tre­pre­neur­ial suc­cess, where the dis­cus­sion of risk has been part of ev­ery­day con­ver­sa­tion, where set­backs have been over­come and where the pos­si­bil­ity of a set­back is re­garded as part of the ter­ri­tory, it is more likely that you will have the con­fi­dence to be­come an en­tre­pre­neur.

It is log­i­cal that im­mi­grants are heav­ily rep­re­sented among the ranks of suc­cess­ful en­trepreneurs. They have to over­come hur­dles in es­tab­lish­ing them­selves in their new coun­tries and their ini­tial suc­cess gives them con­fi­dence to go fur­ther. They take risks be­cause they have done it be­fore and they have suc­ceeded. Ini­tially, they may have very lit­tle to lose and they have an ex­pec­ta­tion that, as long as they ap­ply them­selves en­er­get­i­cally to the task in hand and per­se­vere, they will be suc­cess­ful.

My own pro­fes­sional life has prob­a­bly been gov­erned by three driv­ers. First, as an en­forced em­i­grant from my home­land, I felt a drive to prove my­self. We lost ev­ery­thing in Egypt. Such an ex­pe­ri­ence pro­vides a pow­er­ful mo­tor for am­bi­tion. My aware­ness of the need to pro­vide for my par­ents prob­a­bly had the same ef­fect.

Sec­ond, I was suc­cess­ful aca­dem­i­cally. At school, I soon rose to the top of the class. At Ox­ford and Har­vard I did well. This suc­cess was re­in­forced by the en­dorse­ment of my fam­ily and teach­ers. The com­bi­na­tion of my de­sire to suc­ceed and my con­fi­dence in my abil­ity to suc­ceed drove me to be very am­bi­tious.

The third driver was the en­vi­ron­ment pro­vided by my fam­ily. My fa­ther was in busi­ness and my mother has a pos­i­tive, en­tre­pre­neur­ial mind­set, so the dis­cus­sion of busi­ness is­sues, of risk, of en­tre­pre­neur­ial prob­lems and op­por­tu­ni­ties, was the stuff of din­nertable con­ver­sa­tion.

This com­bi­na­tion of driv­ers pushed me to­wards a com­mer­cial ca­reer. I chose en­trepreneur­ship rather than the se­cu­rity of a well-paid job be­cause I was con­fi­dent I could rise to the chal­lenge. I re­alised that, com­pared to most peo­ple, I have a pow­er­ful de­sire to achieve and an un­usual ca­pac­ity for hard work.

You have to ask your­self, deep down: do you think that you are cut out for the en­tre­pre­neur­ial life? Are you suited to liv­ing with the stress of un­cer­tainty, of be­ing re­spon­si­ble for the per­for­mance that pays your em­ploy­ees’ (and your own) wages?

The first set of char­ac­ter­is­tics that I have ob­served in the suc­cess­ful en­trepreneurs backed by Apax over the last three decades is that they are good lead­ers, that they have an in­spir­ing vi­sion, and that they are able to at­tract and man­age tal­ented peo­ple.

The sec­ond set of char­ac­ter­is­tics is that they are driven to suc­ceed and are ob­ses­sive about their busi­nesses. Far more than most, they are per­se­ver­ing and ca­pa­ble of ex­tra­or­di­nary ef­fort to achieve their goals. In­vari­ably, they are self-con­fi­dent, op­ti­mistic and com­pet­i­tive, and the mi­cro­cosm of the world they have in their heads cor­re­sponds to re­al­ity.

In ad­di­tion, they have some un­usual tal­ent for their cho­sen op­por­tu­nity, as well as a deep fas­ci­na­tion with it. As a con­se­quence, they de­velop a deep un­der­stand­ing of their mar­ket and their busi­ness.

Most of all, suc­cess­ful en­trepreneurs have an ap­petite for un­cer­tainty, which is kept in check by an in­cli­na­tion to take cal­cu­lated risks rather than to “bet the shop”. In my ex­pe­ri­ence, suc­cess­ful en­trepreneurs tend to be ex­treme per­son­al­i­ties. In fact, the more ex­treme their per­son­al­i­ties, the more am­bi­tious they will be and the higher they will aim.

Hav­ing asked your­self if you are cut out for en­trepreneur­ship, your sec­ond ques­tion is: how hun­gry am I? Am I pre­pared to de­vote my­self whole­heart­edly to the task of build­ing a busi­ness? If you can­not an­swer “yes” im­me­di­ately, am­bi­tious en­trepreneur­ship is prob­a­bly not for you.

Age is a very im­por­tant fac­tor. En­trepreneur­ship is de­mand­ing. It is not easy to start a ven­ture when you have three chil­dren at school and a mort­gage to pay. It might be eas­ier when you have emerged from that, when you are older and have plenty of work ex­pe­ri­ence.

My gen­eral ad­vice is to start early rather than late. If you start young, you have plenty of time in which to be suc­cess­ful; and to make, and learn from, mis­takes. What is the worst that can hap­pen? If you fail, you will learn from that fail­ure.

As a ven­ture cap­i­tal­ist, you ex­pect to lose money on 20 per cent of the com­pa­nies in which you in­vest, not 50 per cent or 80 per cent. You also know that you sel­dom find some­body to­tally sur­pris­ing be­ing hugely suc­cess­ful. You take peo­ple through this sieve — the dis­ci­plined process of due dili­gence and busi­ness plan­ning — and you end up with some good jock­eys start­ing the race.

I re­mem­ber visit­ing Richard Bran­son on his house­boat in Lit­tle Venice, in West Lon­don, in the 1970s. Young as he then was, he had ab­so­lute faith in his own abil­ity. He was sure he would suc­ceed.

Many years later, the ra­dio DJ Chris Evans came to see us, want­ing funds with which to buy Vir­gin Ra­dio. He was 30 with no pre­vi­ous busi­ness ex­pe­ri­ence, but he had tremen­dous faith that he could make it work. We backed him in ac­quir­ing Vir­gin Ra­dio for £180 mil­lion and he did make it work.

We backed Sir Ste­lios Haji-Ioan­nou, the founder of EasyJet and mul­ti­ple en­tre­pre­neur, in his ven­ture Easy Ev­ery­thing. Again, he was an en­tre­pre­neur who set his sights high and had a clear sense of what he could achieve. All three had enor­mous self-con­fi­dence.

So long as you are fright­ened by the prospect of fail­ure, you will prob­a­bly not get started, and even if you do get started you will not go as far as you would if you were less trou­bled by fear. You have to have faith in your own abil­ity to suc­ceed, both in or­der to start and in or­der to go far.

My ad­vice is: stop wor­ry­ing about fail­ure. It causes grave anx­i­ety and con­sumes a lot of en­ergy. Put that en­ergy into win­ning the race.


Ron­ald Co­hen made money back­ing Richard Bran­son ( and Ste­lios Haji-Ioan­nou ( cen­tre), but he re­jected the chance to in­vest in James Dyson’s do­mes­tic-ap­pli­ance busi­ness — a mis­take, he ad­mits now


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