Beware of the Eccentric Entrepreneur

Image by Gerd Altmann from Pixabay 

One of the major attributes of entrepreneurship is innovation. Entrepreneurs frequently disrupt the older ways of working and introduce the new, perhaps revolutionary, way of doing things. Obviously, this requires the entrepreneur to be unconventional with his outlook. He should be able to spot opportunities or trends that may not be readily visible, keep faith in his idea and be rigorous to implement it. If he is successful, unimaginable riches may be in the offing.

Selectivity bias causes us to overestimate entrepreneurs. We are naturally drawn to those who are successful and don’t even have an idea of the countless that fail. This makes us see the successful ones as demigods. Even if they are entirely reckless, we don’t see that as a problem but as a part and parcel of entrepreneurship. This is a mistake. Today, quite a few eccentric entrepreneurs have captured the limelight. The CEO of an American electric-car maker doesn’t spare an opportunity to stir controversy and sensation. For some reason, investors have bought into his vision, not minding the company’s financials, his behavior, exposure to multiple cash-guzzling businesses and so on. It’s only a matter of time before the moment of reckoning arrives.

A major factor that has increased the acceptability of the eccentric entrepreneur is easy money flowing into startups. Startups defy business sense. With scant regard to profits, they want to grow large first. This encourages risky business practices and unfortunately crowds out smaller sensible businesses. This is a shame. A Japanese billionaire runs a huge fund that invests in such startups. It has yet to be profitable and has attracted flak due to its recent goof-ups. Covid-19 has muzzled the supply of this easy money, thus resulting in a crisis at startups run on easy money. If the situation continues, many will perish. 

Business is a serious business. It’s not about risky, stupid or senseless actions. While entrepreneurs do take risks, they are also conservative and don’t want to lose money. They understand that many people’s lives depend on their businesses. They feel the weight of this responsibility and quiver at reckless business practices. Warren Buffett is a staid businessman and investor. If you read his annual letters, you will realize how conservative he has been, yet that has not stopped him from being immensely successful. 

Unconventionalism may be an attribute of entrepreneurship but sensibility lies at the heart of it. Real entrepreneurs never lose sight of this fact.