What Good Entrepreneurs Think About - Kathleen Eisenhardt (Stanford)

So thinking, first of all, what is thinking about? There are really three things that I think that I've seen over various studies and consulting gigs and so on that differentiate how people think well and poorly. The first of all is best entrepreneurs tend to see the entire playing field. So they're like point guards in basketball, they're like midfielders in soccer. They're seeing the whole field. The second thing is they typically don't take the playing field is given. It's something in fact they can shape, they can make it bigger, smaller, they make it a rectangle or a triangle. And then finally they understand what game they're playing. In other words, they understand the underlying economics of the business. So let me give you a couple examples of that. This was a study that we did, Rory McDonnell and I did in Fintech. And this was a set of companies we looked at that were trying to do something that was called social investing. And it wasn't really about social mission. It was more about the idea that there are amateur investors who are great and that other amateur investors could follow them and also be financially successful too. So that's how it started out. And what the better firms were able to do is they realized the whole spectrum of who they were actually playing with, who the customers were, who the suppliers were, but most importantly, who the substitutes were. And in particular the substitutes were the big banks like the Morgan Stanleys and US USBs and so on. So it was the big banks. And so the better firms understood that in fact their rivalry was with those substitutes and it wasn't with other startups. Other startups didn't matter because they were small and trivial. Instead, what they were trying to do was disrupt substitute incumbents. So they really saw the big picture and they particularly saw the incumbents. The second idea is the idea that they also shape the playing field. This was a study that I did a while back. It was on what we called the Internet stars. And if I told you who these companies were, you would know every one of them. But we were studying them back when they were still kind of nobodies. And this was five firms that had gone on to be great. And what we saw that they differentiated from themselves, from the other firms that were starting at the same time, was that they were changing the playing field. And in particular what they were doing was allying with large companies who they thought might enter and be rivals and instead co opted them, often gave them an equity stake to keep them out, to keep them as complementers, not as rivals. They also were acquiring other small startups, but not to get their assets, but to take them off the board as a rival. They were also engaging in a number of symbolic actions. For example, storytelling, founding storytelling of how the founder was this really frugal guy who drove across the country in a VW bus, or there's other stories around. My girlfriend wanted something and so I created this marketplace. So it had these stories that were fairly colorful, kind of true, but kind of not, but very catchy for the media. So what these entrepreneurs were doing was they were changing. They were shaping what the structure was, keeping certain rivals out, getting rid of other rivals, and creating what they called a cognitive reference. They became the company that you thought of when you thought of that market.