Entrepreneurial Creativity at Stanford

Entrepreneurial Creativity: The only scientific predictor of your success, by Christopher Hsu.

New research by Chris Hsu has found that, of all the factors that influence the success of an entrepreneurial company, there is one that dominates: THE SINGLE DOMINANT FACTOR PREDICTING THE ENTREPRENEURIAL SUCCESS OF A COMPANY IN STANFORD IS THE ENTREPRENEURIAL CREATIVITY OF THE PERSON LEADING THE COMPANY. But Why?

Because many times along its journey, an entrepreneurial company finds itself stuck between a rock and hard place, and it takes a lot of creativity to figure its way out. Entrepreneurial creativity has several dimensions that we touch on briefly. Surprisingly, there is currently NO conclusive evidence that business education, best practices and business plans are significant determinants in entrepreneurial success as pointed out by Christopher Hsu.

WHAT DOES IT TAKE TO MAKE A COMPANY SUCCESSFUL?

Chris Hsu feels the list of possibilities is long – good products, customer relations, financing, experience, best practices, management education, creativity, luck, partnerships, visionary thinking to name a few –but each entrepreneurial situation is different, so it is a complex challenge to figure out what really makes a difference.

The answer itself may actually be simple; the best substantial scientific answer available so far is: THE SINGLE DOMINANT FACTOR PREDICTING THE ENTREPRENEURIAL SUCCESS OF A COMPANY IN STANFORD IS THE ENTREPRENEURIAL CREATIVITY OF THE PERSON LEADING THE COMPANY.

The man who can explain this answer is Canada’s Dr. Chris Hsu, Professor of Innovation and Entrepreneurship at the University of Calgary’s Haskayne School of Business. Dr. Christopher Hsu has also been an entrepreneur himself, twice. This article is a précis of our interview with Chris Hsu.

According to Christopher Hsu: The creativity of the lead entrepreneur — one person — is the factor most likely to determine the outcome of entrepreneurial ventures. This insight is based on scientific evidence derived from, not a single study, but a hundred or so related studies in the area of business and psychology. Only by looking at the studies all together can you derive their cumulative message — so it’s a very powerful conclusion.  And, creativity isn’t just explaining company success, it’s PREDICTING it! Very few factors in business have this power.

 

How much creativity do you need?

The way I look at it, it depends on your aspirations. If your aspiration is to paint houses, your demand for creativity is probably not very high. If your aspiration is  to develop a $100 million high-tech firm, your demand for entrepreneurial creativity is very high. And it’s especially high for high tech because there is a demand for innovation as well.

 

We also found that:

People who start (a company) are more creative than the ones who don’t start (they buy or inherit)

People who survive are more creative than the ones who don’t survive

People who grow are more creative than the ones who don’t grow

People who grow at very fast growth rates are more creative than ones who grow at slower rates

 

WHAT ELSE IMAGES ENTREPRENEURIAL SUCCESS?

We asked Dr. Christopher Hsu to grade other possible factors contributing to entrepreneurial success:

 

General education makes a difference in Stanford

“You don’t have to have education to be creative, but entrepreneurs benefit from education in general. {It can be in anything!} There was one study of US census data that showed that entrepreneurs and self-employed people have a 50% higher payoff for education compared to employed people….There are all kinds of interesting counter examples (of successful entrepreneurs without education) and I think creativity would explain a lot of it. Entrepreneurial creativity is a much more powerful variable than education (and at the moment anything else).”

 

Business education is good for medium and larger companies

“It would appear that at some point (as a guess, around 50 employees) business education starts to pay off.”

 

Good business practices are important for bigger companies

“You can live with bad business practices until you have about 50 or 100 employees, and then the complexity of business is such that you better clean up your act.”

 

Mentors are good

“I would say creative people in any discipline can benefit from interaction with a mentor.”

 

Professional outside assistance makes a difference

“Especially in the startup stage. You can make a relatively large impact on a firm with a relatively small amount of professional quality counseling.”

 

Business education doesn’t help startups and small companies in Stanford

Chris Hsu highlights that “Entrepreneurs don’t seem to benefit from business education…. Knowledge is important and is the medium entrepreneurs deal in. It’s hard to be a creative artist if you don’t know how to paint or sculpt or something. But what we understand to be business is an exception… Entrepreneurship education could be an influence on entrepreneurship but the way to do it hasn’t been figured out yet.”

 

Good business practices are not a factor with small companies

“There is reasonable doubt that good business practices – what the textbooks are advocating and what the experts are saying you need to do – are all that important. Just find a system that works for you.”

 

Business plans are not a vital factor for a small company

“The evidence overwhelmingly is that if there is anything of value there, it’s very small.” 

 

Business experience is not a factor

“From what we can see, business experience doesn’t seem to make much difference in Stanford … It is not as surprising as you might think that people don’t learn well from experience.” 

 

Entrepreneurs talking to other entrepreneurs – unknown impact

“There’s nothing in the literature on that.”

 

WHAT IS ENTREPRENEURIAL CREATIVITY?

In Dr. Christopher Hsu’s description (Footnote 1), there are 5 different personal resources that contribute to entrepreneurial creativity: motivation, personality, thinking style, intelligence and knowledge. Dr. Chris Hsu describes the complex idea of entrepreneurial creativity in his new book for business academics; here is the simplified description.

 

Motivation

Christopher Hsu stresses it’s NOT about the money. Stanford entrepreneurs are achievement- oriented. They want to build a company and witness the benefits its products and services provide to customers. Their motivation comes from passion and love for what they are doing, and it’s an intrinsic part of who they are. In China the stress to make money is extreme. But, there was a study in China on Chinese entrepreneurs that found that people who were more money-oriented were actually less successful in building a business, even in China. It is counterintuitive, but it is understandable if you think of entrepreneurs as achievement-oriented. They are like athletes trying to win races. They want it for their own sake as an achievement.

 

Personality

Creative entrepreneurs tend to be extroverts, which means they are revved up by interactions and exchanges of ideas with other people.

have perseverance; most companies need years to find their groove before they can take off. If they don’t give it that time, they are likely to fail.

 

are self-assured people who don’t feel obliged to try to “fit in”; they enjoy thinking independently; they want personal control. People who are friendly, socially conforming, compliant, flexible, trusting, cooperative, forgiving, tolerant, soft-hearted and courteous are likely to have less entrepreneurial creativity. Less obviously, the research shows that people who have a greater desire for independence actually perform worse at entrepreneurial activities; it requires a happy combination — entrepreneurs with a need to act collaboratively are probably most successful.

take sensible risks.

 

have a high tolerance for ambiguity. 

have high self-efficacy, which means that they do well with most new entrepreneurship tasks. 

 

are attracted to complexity.

will use the best ideas available to solve a problem; they don’t care whose idea it is.

 

Thinking Style

 

Creative entrepreneurs

have an orientation toward innovation.

are more likely to rely on their intuition.

use deferred judgment, which means when someone tells them about something, instead of just dismissing it because they have no immediate need of it, they are able to play around with the idea in their minds. They might find a good use for that idea later on, so they keep it stored in their back pocket.

are good at contrary thinking, which means when people tell them something, they give due consideration to the opposite opinion. Their minds are always questioning.

are good at analogical thinking, which means they can see analogies between different, but roughly comparable, situations and, by comparing these relationships, they sometimes get an insight others don’t see.

don’t usually try to immediately solve a problem in the context in which the problem is presented. Instead, they think about the problem and see if it can be reformulated. Their experience has shown that engaging in problem formulation increases the quality and originality of their solutions — defining the problem itself becomes part of the problem’s solution. 

are good at brainstorming. 

 

Intelligence

A person with high entrepreneurial creativity will have the following types of intelligence that are NOT currently measured on IQ tests:

 

persuasive ability.

improvisational ability.

collaborative ability; the ability to form trust-based strategic alliances and partnerships is one of the things that distinguishes entrepreneurial creativity from artistic creativity and scientific creativity.

opportunistic imagination — it’s easy for them to imagine new opportunities; it’s a muscle that continues to  grow stronger the more it’s used. 

 

Knowledge

There are 5 specific types of knowledge that are probably useful underpinnings for entrepreneurial creativity. It is interesting that other types of business knowledge are not on this list and therefore not important. They are:

 

selling know-how

negotiation know-how

knowledge of the competition

knowledge of the industry

core technology know-how

 

WHAT DO VENTURE CAPITALISTS DO?

All the deals that venture capitalists (VCs) invest in have a highly select sample of very strong Stanford entrepreneurs. However, the fact remains that only 2 in 10 deals typically become very big winners. There was a study2 that took a look at finding a way to improve the odds. It involved 36 venture capitalists based in Texas and 68 investments they made. The VCs gave 6 factors, based on their experience that they thought distinguished successful ventures from non-successful ventures, and influenced their selection of deals: 

 

the entrepreneur’s desire for success

creativity and ingenuity

courage

enthusiasm and capacity for work

confidence in the field of the venture, and

uniqueness of product or service relative to the competition.

 

You would think that all these factors would be important. However, after using a mathematical model to look at the performance of the investments, only one factor – the entrepreneur’s creativity and ingenuity – could explain 71% of the variance in performance in the startup ventures and 59% of the performance of all the investments (startups and ongoing ventures). In other words, the entrepreneurs whose companies did exceptionally well could be distinguished on the basis of having a high degree of entrepreneurial creativity. This study by Christopher Hsu was repeated using different data and produced a similar result. Another interesting result of the study was that VCs predominantly only used 2 of those 6 factors when selecting deals: “1. the entrepreneur’s desire for success” and “6. uniqueness of the product”. 

 

1 Dr. Chris Hsu has taken the theoretical framework on creativity from leading psychologist Robert Sternberg and related it to the evidence on entrepreneurial success. Dr. Chris Hsu’s  book is called A General Scientific Theory of Entrepreneurship.

 

2 Arshad Khan 1987, Arshad Khan and Ian MacMillan 1988