18 May 2024

Rules are there to be broken

Business
| The European |

Recessions calls for counter-conventional thinkers, says John Mullins of London Business School, who shows us how to become one

It’s a little understood fact that a recession is a very good time to start a new business. Why? First, many established companies, when they get sight of a recession on the horizon, start pulling in their horns, with mass layoffs, cost-cutting initiatives and more, all intended to keep their earnings on track through the coming downturn. That means less competition for your new startup, and less innovation in pursuit of new opportunities, too.

Second, as demand falls across the global economy, resources of all kinds typically become cheaper and more plentiful. That includes people, facilities, and most other inputs, too. Getting started with less is music to any entrepreneur’s ears.

Third, those who’ve had an entrepreneurial opportunity lurking in the back of their minds soon realise that they’re not likely to get promoted where they are working now, at least not any time soon. Thus, I ask you, might the looming recession be a good time to strike out on your own, or change how you envision your business model and growth strategies developing in the short-term?

If they were still with us, Bill Hewlett or David Packard would probably tell you to go for it! Hewlett Packard got its start in Packard’s garage in the throes of the Great Depression in 1939. Likewise, Bill Gates and Paul Allen, who started Microsoft in the teeth of the 1975 oil embargo. More recently, Brian Chesky and Joe Gebbia founded Airbnb in 2008 because they were struggling to pay the rent on their San Francisco apartment. But none of these startups represented “business as usual”, of course. Each was ploughing radically new ground. So, if a recession calls for counter-conventional thinkers, how can you become one?

“Gates and Allen started Microsoft in the teeth of the 1975 oil embargo”

Step 1 – Unlearn the conventional rules

The first step is an unconventional one – you must unlearn what you’ve been taught. In particular, you’ll need to forget some of the conventional habits and practices that have turned so many companies into slow-moving dinosaurs in recent years. Two of the most unfortunate such practices that hold companies back are the “rules” that companies – and entrepreneurs, too – should only start new initiatives when the markets to be served are “large” enough; and that the first step in doing do is to think ‘out of the box’ and come up with an “idea” of something, whether a product or a service, to sell.

In 1964, Philip Knight and Bill Bowerman identified a problem that elite distance runners had. At that time, they believed, the German running shoes that everyone wore weren’t designed with the needs of distance runners in mind. Distance runners, unlike sprinters – many of whom did most of their training on smooth tracks – spent countless hours and many miles running on dirt paths and rough country roads. Shin splints and stress fractures in their feet were common, caused by the repetitive impact day after day. Ankle sprains, too, because of the uneven terrain, and the rocks and sticks they couldn’t avoid. Knight, the runner, and Bowerman, his track coach, figured that shoes with a wider footbed and more cushioning were the answer. Before long, Nike’s legendary waffle sole was born.

As every weekend athlete now knows, their startup, Blue Ribbon Sports, renamed Nike in 1978, has gone on to become the undisputed global leader in athletic footwear and more. Note that rather than targeting a large market that could “move the needle” as so many big companies do, Knight and Bowerman thought narrowly, instead of broadly, about their target market: elite distance runners. Once they had learned how to design and source shoes that elite distance runners loved – in which some soon won medals – other runners followed. And once they learned how to take advantage of elite athletes’ knowledge of what a shoe needed to do for a particular sport and win their endorsements, they were well placed to move on to tennis, basketball, and more. Focusing on a small segment of the market might have been an unconventional business move at first, but it has had a huge impact on Nike’s success and the sports industry overall – and is a shining example of counter-conventional thinking in action.

“Becoming a counter-conventional thinker isn’t easy”

Step 2 – Learn, adopt, and master your own “entrepreneurial” mindset

The Nike story illustrates the “Think narrow, not broad” and “Problem-first, not product-first logic” mindsets that characterise many of the world’s most innovative and successful entrepreneurs. After more than 20 years of research into how entrepreneurs differ from other successful businesspeople and what makes them “entrepreneurial”, I’ve learned that there are six such mindsets. Perhaps not surprisingly, they run counter to the conventional wisdom that’s typically found in large and well established companies and they break the rules taught in most business schools about strategy, target marketing, financing and more. What do I mean by “mindset”? A person’s mindset is:

  • The collection of beliefs and thoughts that make up one’s mental attitude, inclination, habit or disposition…
  • That predetermines one’s interpretations and responses…
  • To events, circumstances and situations – opportunities, as entrepreneurs like the Nike founders and their forbears call them.

And what are these counter-conventional, break-the- rules mindsets, you might ask?

  • Problem-first, not product-first, logic – Entrepreneurs know that solving genuine customer problems is the key to thriving businesses! As prominent venture capital investor Vinod Khosla famously remarked: “It’s very simple. Nobody will pay you to solve a non-problem.” Were Knight and Bowerman problem-focused? Indeed!
  • Think narrow, not broad – Big companies want to serve big markets. When the markets are small, they say: “It won’t move the needle”. But entrepreneurs know that once success is established in a tiny market, a foundation is in place to enable their businesses to grow from there. Was the market of elite distance runners large? Four- minute milers, then and now, are few and far between!
  • “Yes, we can!” – When a prospective customer asks whether they can do something that’s entirely new which falls outside their current competencies, entrepreneurs say “Yes, we can!” – then work out how. When Jeff Bezos saw in 2004 that the physical distribution of books and movies was about to be digitally disrupted, he didn’t let Amazon’s lack of competencies in hardware deter them from developing the Kindle, which almost single-handedly dragged publishers kicking and screaming into the 21st century.
  • Ask for the cash, ride the float – By getting customers to pay in advance, and by paying their suppliers afterwards, entrepreneurs generate cash for growing their businesses. Elon Musk and his founding partners at Tesla sold 100 Tesla Roadsters, Tesla’s first model, for $100,000 each – cash up front! That’s a cool $10m with which to begin building the cars!
  • Beg, borrow, but don’t steal – “Borrowing” the resources you need to start or grow something new beats investing in those resources, especially when the outcomes of anything new are highly uncertain. When India’s Sunil Bharti Mittal realised in 2003 that the next frontier in equipping India’s vast population with mobile phones was almost entirely rural, he outsourced all of Bharti’s network hardware and software requirements to western companies like Ericsson and IBM. Doing so made it possible to sell prepaid mobile minutes profitably for prices so low that industry experts thought impossible.
  • Never ask permission; beg forgiveness later – When the legal or regulatory landscape is ambiguous or uncertain, entrepreneurs simply continue with their plans and deal with any necessary regulatory issues later, begging forgiveness, if necessary. Had Uber founders Travis Kalanick and Garrett Camp asked San Francisco regulators whether they would welcome Uber’s new ride-hailing business, Uber and its imitators Grab, FreeNow, and many others – and, indeed, the gig- worker phenomenon – might not exist today.

These six break-the-rules mindsets connect the opportunities that entrepreneurs encounter with the actions they take to pursue them, even when times are tough, and enable them to make decisions and take action that other businesspeople would simply scoff at. The good news is that each of them is eminently learnable by pretty much anyone who wants to strike out on an entrepreneurial journey of their own, or become a more counter-conventional thinker in the face of challenging circumstances.

Why not you? And why not now?

Becoming a counter-conventional thinker isn’t easy, especially in uncertain times, but the lessons of history are clear that difficult economic periods are advantageous for starting new ventures. If you’re the kind of person who wants to make your corner of the world a better place, in one way or another, as the entrepreneurs profiled here have done so well, what are you waiting for? There’s no time like the present to start breaking the rules.

ABOUT THE AUTHOR

John Mullins is an Associate Professor of Management Practice at London Business School and the author of a new book ‘Break the Rules! The Six Counter-Conventional Mindsets of Entrepreneurs That Can Help Anyone Change the World’.

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