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 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