Developing the Ability to Think Like an Entrepreneur

Developing the Ability to Think Like an Entrepreneur

Q: I have truly enjoyed your Venture Academy series during the past year. It was an incredible investment value. Your personal stories on how you honed your entrepreneurial talents were most interesting. With your experience and understanding, would you suggest apprenticeships, or reading books or a combination — developing talents from example and discussion — as the most effective method of successfully forging dividend-paying business talents and to think more like an entrepreneur?

A: I’m glad to hear you have benefitted from the videos. I would recommend both apprenticeships and reading. In terms of reading, I would recommend becoming a serious student of entrepreneurship and read about lots of creative deals, read about how entrepreneurs came up with their ideas and how they launched their businesses. And read about how tricky problems were solved. This will sharpen your thinking and the stories will act as powerful analogs that will serve you well when you bump into circumstances that are similar to what you’ve already read about and studied.

For example, I will never forget reading a Wall Street Journal article nearly twenty years ago about the brilliant move Blockbuster made when they wanted to increase customer satisfaction and revenue by increasing their stock of rentable videos on their shelves. Historically they had always tried to manage their cost by limiting the number of VHS cassettes they “bought” from the major film distributors because of the steep prices they paid to carry a rental cassette on their store shelves. This in turn meant they often badly misjudged the inventory needed (almost always missing on the low end due to the costs associated with carrying a higher inventory). Many, many customers came in to rent a new release on Friday or Saturday night only to be disappointed and settling for something else or walking out empty handed. Everyone lost.

Blockbuster’s brilliant move was to go to the distributors and cut a deal where Blockbuster loaded up on the videos at little to no cost since the only real cost to the distributors was the cost of the cassette and some recording cost, which was only a few dollars per VHS cassette. In exchange, Blockbuster gave the distributors a revenue share, which would result in more upside for them if there were more rentals. The result was that it lowered Blockbuster’s risk, increased Blockbuster’s revenue, increased the film distributor’s revenue, and increased customer satisfaction because Blockbuster could make the promise of “never running out of new releases”. They literally had stacks and stacks of new releases vs. only half a dozen under the previous paradigm and the videos virtually flew off the shelves. It was a huge win-win for everyone. No one lost in the deal.

Reading about that deal was a real “ah ha” moment for me and I have used that analog many times when negotiating strategic alliances with larger partners. The idea is to share enough meaningful information with a partner about how to win together while reducing the risk and increasing customer satisfaction and revenue.

As it turns out, eventually Blockbuster missed the next big innovation of streaming video and it cost them dearly with their high-cost brick and mortar rental stores when Netflix hit the scene. But even though Blockbuster didn’t always make all of the right moves, the alliance they struck with distributors in the mid-1990’s had all of the hallmarks of a very strategic and creative decision.

The more you read stories or business cases like that and the more you are mentored and apprenticed, the more you will think creatively. And you will have more examples to draw upon when you see similar patterns.

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About Wade Myers

Wade has founded or co-founded, invested in, and been a director of over 25 companies and has completed 55 financing and M&A transactions. His previous work experience includes the Boston Consulting Group and Mobil Corporation. Wade also served as an Airborne Ranger in the US Army where he was a decorated veteran of the Gulf War. He is a Baker Scholar graduate of Harvard’s MBA program and is married with five children.

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