What It Takes To Start A Startup Entrepreneurs with the right stuff don't think much about taking risks or getting rich. Instead, they are obsessed with building a better mousetrap.
By Brian O'Reilly Reporter Associate Natasha A. Tarpley

(FORTUNE Magazine) – Getting the entrepreneurial bug, are you? Tired of reading about all these pubescent little CEOs who did nothing more clever than sell books or airline tickets over the Internet and made a billion? Meanwhile, you, despite 15 years at that same desk job, have been nursing this fabulous idea that could make you the richest and most powerful person in the entire brake-shoe industry.... Whoops. Better not tip your hand, or someone will steal the idea. But it's big. Big, big, big.

There's just one problem: Every time you think about pursuing that dream, your palms sweat. No steady paycheck! No dental plan! No time for golf! And those hungry venture capitalists expect you to take a second mortgage to help fund this scheme. If it bombs, you and Martha will spend your golden years in a trailer park, caddying at the country club. How, you wonder, do these entrepreneurs summon the brass ones to risk everything--income, lifestyle, self-esteem--on one crazy idea that probably won't work anyway? Are they thrill-seeking lunatics?

Better hunker down at that day job, bub. Entrepreneurially speaking, you ain't going nowhere.

Despite their image, entrepreneurs are not the Evel Knievels of the business world. Nor do they think much about risk, sweaty palms, wealth, power, or failure. All of that may come eventually, but words like "risk" and "failure"--even "power" and "money"--don't preoccupy the nascent Michael Dells or Larry Ellisons beavering away in the garage next door. If you are terrified at the prospect of becoming an entrepreneur, or are busy dreaming of the money and power that success will bring, you're probably not cut out for this line of work.

People who spend time around the types eager to start the World's Next Great Company describe a very different person. Unlike Mr. Brake Shoe, he or she is wildly enthusiastic about the idea and utterly convinced of its success. Failure? Yeah, it's a theoretical possibility. But the consequences are insignificant compared to this great, great idea that will change the entire industry and maybe the world, and change how people live and create great value and a great company and...(breathless enthusiasm usually continues for several minutes).

One reason entrepreneurs--the ones most likely to make it, at least--behave like men and women possessed is that they have experienced a flash of understanding known as "entrepreneurial insight," says professor Ian C. MacMillan, a guru of entrepreneurship at the Wharton School who has counseled innumerable startup wannabes. They have seen, in their mind's eye, the better mousetrap, the great unmet need, the changing tide, the big opportunity. Because they see it so clearly, they feel they know exactly what must be done to prevail. Entrepreneurial insight enabled Ken Olsen to grasp a way to make computers far more cheaply than IBM; he started Digital Equipment Corp. It helped retailing whiz Merritt Sher of San Francisco see that small specialty stores, often obscured by giant department stores at suburban shopping centers, would flourish in new, smaller "strip malls." And it has actor Robert De Niro convinced he can turn the Brooklyn Navy Yard into a successful East Coast movie studio. "I could be wrong a little bit here and there," De Niro told reporters recently. "But you cannot fail at this."

For some, entrepreneurial insight isn't a one-time flash but instead a unique way of viewing and valuing opportunities. Minnesota's Irwin Jacobs was practically the father of the hostile takeovers that began in the 1980s. What did he see in ailing companies that others didn't? He had been in the salvage business when he was young, and had learned to spot assets that could be spun off and sold. "My whole life I've been a junk man," he says. "That's how I look at things."

Some people call that insight "vision," but that's a spooky word, conjuring up people who think Jesus came to them in a dream and told them to make glow-in-the-dark sunglasses. To Merritt Sher it's pretty simple. "You suddenly understand how everything fits together. And then you want to demonstrate that you have the understanding." (People who've had that kind of epiphany generally don't need to attend "leadership" seminars; they know where they want to go and how to get there, and people instinctively rally behind them. It's the clueless CEO who needs leadership injections.)

If you don't have that insight--and the enthusiasm that comes with it--you won't get far. Venture capitalists look and sniff for it. Arthur Pappas, a former top executive at Glaxo who started a biotech venture capital firm near Research Triangle Park, N.C., a few years ago, says he leaves many of the early technical and financial details of business proposals to others on his staff. "I prefer to focus first on the character and commitment of the people on the management team," he says. "The people with vision or insight--they see something and are driven to its endpoint. You can hear it in their voices."

Pappas says he won't touch proposals from scientists who plan to keep their job at the local college and work on the startup part-time. That's because successful entrepreneurs need maximum enthusiasm and commitment. Explains Joel Hyatt, who started a chain of innovative legal clinics in the 1980s and now teaches entrepreneurship at Stanford: "It will take longer and require more money than you thought, and there will be problems you could not have anticipated." Some people think entrepreneurs are lunatics because of the way they spend years struggling to make an idea work. But Hyatt says the critics don't appreciate the optimism that drives the dreamers: "Bill McGowan [the founder of MCI] spent ten years working to end AT&T's monopoly of long-distance service. People would say to him, 'Ten years! How could you do that?' He would respond, 'Do you mean you think it was stupid? I never thought it would take that long. I thought I could do it tomorrow!' "

Falling in love with your idea is necessary, but not sufficient to make you an entrepreneur. Several years ago an MIT professor named Edward Roberts began studying MIT graduates who had gone on to start technology-related businesses. He found that 70% of the starter-uppers had parents who were entrepreneurs and that nearly all possessed a powerful drive for accomplishment.

It may seem obvious that people who accomplish things have a drive for accomplishment, but it's not that straightforward. In the 1930s, Harvard psychologist David McClelland described three needs (okay, besides sex, shelter, and chocolate) that drove human behavior: power, accomplishment, and affiliation. Power seekers want to make decisions others have to obey. Affiliators crave companionship. Achievers are intent on accomplishing something. The achievers don't seek "some intangible conceptual objective," says Roberts. "They're not devising brilliant ideas that only other brilliant people like themselves recognize. They want to create something significant and tangible--a building, a bridge, a company."

It's not clear whether the achievement urge is hard-wired before birth, but it seems to emerge early. McClelland played games with kindergarten children, having them toss rings onto an upright post. It is difficult, and most kids wound up standing over the post, dropping the rings straight down. Another group, content to rely on luck, flung the rings from across the room. A handful of children stood a foot away from the post, tossed until they made it, then stepped back to try again, and so forth. These kids turned out to be the achievers, eager to test themselves to see what they could accomplish. Says Roberts: "Achievers don't want to do something if it isn't a challenge, and they aren't interested in winning through luck, like the children who threw the ring from far away."

In his study of entrepreneurs, Roberts also looked at MIT graduates who had joined large companies, then left to start businesses. His findings puzzled him at first. When he tested for the achievement drive, the alums in startups didn't score much differently from grads who had remained in big corporations. "But when we looked further," says Roberts, "we found that successful entrepreneurs had a very high need for accomplishment. There was a big difference between those who just set up companies and those who made it big."

His research suggests that you don't need inkblots to determine which people in a large organization are most likely to go out on their own. Even before they quit Colossal Corp., says Roberts, the would-be entrepreneurs were "outperforming the people who stayed behind, in terms of the number of papers they published, number of patents they received, and ratings by former supervisors." The hyperachievers look around at their colleagues and decide they can succeed on their own. Explains Roberts: "They say to themselves, 'I'm pretty hot. I can do this.' "

Too much confidence, however, can be a problem. It's called arrogance, and it often trips up aspiring Edisons, especially hyperbright hyperachievers. The word "arrogance" came up repeatedly as venture capitalists, academics, and others ruminated on why so many promising people bomb as leaders of a startup. It may even answer that age-old question: "If you're so smart, why aren't you rich?"

A good entrepreneur is driven not by arrogance but by its close relative: a big ego. What's the difference? Mark Fraga, managing director of an entrepreneur development program at the Wharton School, explains: "The person with the big ego is committed to the venture and will do whatever it takes to succeed. His attitude is, 'I'm here, world. I'm going to turn air into gold. I'm going to make the impossible mundane.' The arrogant person is devoted to himself. He thinks he has all the answers, accepts no advice, and blames others for his failure." Pappas, the venture capitalist, looks for signs that the guy planning a startup can identify his own shortcomings. "It's evident in the team he wants to put together. A brilliant scientist will recognize that he needs a marketer or a financial manager." Hyatt at Stanford says he knows people with great ideas who say, "I need someone smarter than I am."

Nearly every entrepreneur is comfortable with--if not eager for--risky, unfamiliar situations. Jack Miller, who leads the U.S. Army's program to select candidates for high command, says the Army operates a crude but effective filter to weed out people who can't tolerate risk: It moves them to new locations every few years. Those who can't adjust to novel situations eventually leave, and, says Miller, "you are left with a reasonably flexible officer corps."

People who regard uncertainty as an adventure are far more likely to become entrepreneurs than those who see it as a threat to an orderly way of life. Richard Branson, the British billionaire, started Virgin Records and Virgin Atlantic Airlines. But he probably has gotten more attention for his efforts to circle the world in a hot-air balloon. He figures it's no coincidence that he likes risky balloon ventures and risky business ventures. "Being an adventurer and an entrepreneur are similar," he says. "You're willing to go where most people won't dare." When he decided to start the airline, his advisers called him crazy. "You know the joke," he says. "The easiest way to become a millionaire is to start with a billion and go into the airline business." He did it anyway. "It's not about making $2 billion or $3 billion. It's about not wasting one's life."

Some entrepreneurs are so comfortable with risk that they take deliberate steps to make their employees more daring. Joe Liemandt, who quit Stanford to form Trilogy Software in Austin, Texas, flies trainees to Las Vegas, where he encourages them to bet thousands of dollars (of their own money) on one spin of the roulette wheel. Too many successful companies become overcautious and risk-averse, explains Liemandt, and their growth rate slows. He believes that debating whether to bet money at roulette helps employees understand their attitude toward risk.

Paradoxically, entrepreneurs with the greatest appetite for risk also have a healthy respect for it. "In everything I do, I examine the downside, the danger, what can go wrong," says Branson. He bought just one plane when he started his airline: "And I had an agreement with Boeing to take it back if things didn't work out." Liemandt, for all his love of risk, makes employees who fail at one undertaking do something less risky for a while. "You don't want people placing a bigger second bet to make up for losses on the first one. That's very dangerous behavior." Shrewd entrepreneurs, says MacMillan, try to lay risk off on others while preserving as much upside potential as they can. It's not a taste for risk or money that motivates entrepreneurs, he insists. His advice: "Never buy what you can lease. Never lease what you can rent. Never rent what you can borrow. Never borrow what you can steal. The risk-seeking entrepreneur is a mythical beast."

Yeah, maybe. But I am still in awe of them. Years ago I came up with a device to help my nearly blind grandfather read. It was an ordinary videocamera mounted on a Plexiglas frame with wheels, with the lens set to close-up view. Words in the newspaper appeared an inch tall on the TV screen, and my grandfather was delighted. "Wow, a golden opportunity," I told myself. "Millions of old people would buy this." I fantasized about it for years and even researched miniature videocameras. But I never got the nerve to hock the house and start a factory. Eventually my cousin found a tiny version of my TV doodad, made by some company out west, and bought it for my grandfather. "Damn," I said to myself, "I was gonna do that." But I didn't.