The Two Things You Need to Know to Succeed as an Entrepreneur

What is it that makes some entrepreneurs so successful?

Is there a "secret sauce" for succeeding as an entrepreneur? Judging from what venture capitalists look for in a startup -- typically, the team, the product, the market -- there’s nothing specific that creates success. So probably not. After all, most if not all entrepreneurs try to get the best team, the best product, and find the better (larger) market. And most of them fail.

So what is it that makes some entrepreneurs successful, and some of them successful over and over again? Surely there is something unique that these "serial entrepreneurs" have or know that brings them repeated success. Perhaps this "something" is to not have any major weaknesses, so that they know a little about a lot and therefore can handle all types of situations. Or it could be the opposite, that they are specialists or have a unique skill or ability to discover opportunities.

The academic literature is about as helpful. In one scholarly theory, entrepreneurs are defined by their balanced skills -- they are "Jacks-of-all-trades." In another theory, entrepreneurs are specialists and exercise "superior judgment."

None of this is particularly helpful when running a business. There are successful entrepreneurs who are both Jacks-of-all-trades and others who are specialists. So what makes a good entrepreneur?

I think it comes down to having two fundamental types of knowledge -- not a specific skill, attitude or asset. These two types of knowledge are required for an entrepreneur or business to succeed. Without either of them, only luck will help you stay clear of making disastrous mistakes.

Simply put, successful entrepreneurs understand people and they understand how the economy works.

1. Understand people

Understanding people is tricky, but straightforward. It is not simply about reading up on psychology, even though that probably helps. More important is to have a deep sense of what makes people do what they do, including what to expect given their backgrounds, attitudes and abilities. It’s partly about getting along with people and developing trust relationships and mutual respect. But it is also about being able place yourself in other people’s shoes and understand where they’re coming from and where they’re headed.

Understanding people helps all aspects of your business. It is about putting together a great team with the right attitudes, avoiding conflict and, where that is not possible, finding respectful solutions. It’s about being tough when you need to be, and to be a reliable friend when things get tough. Within your business, understanding people is as much about leadership as it is about friendship.

It is also about understanding who your customer is, on a personal level, and what that type of person is thinking, feeling and dreaming of. The only way of offering a product or service that is of real value to that person is to understand what kind of person he or she is. If you do, then you can make sure your offering fits in and improves that person’s life -- assuming you know how to communicate the benefit.

Understanding people is as important within the business as it is outside. There are people everywhere, and people always matter. Entrepreneurship is always social, so if you figure out what people are about, then you’re already ahead.

2. Understand the economy

Understanding the economy is not about financing or accounting or cutting costs. Good entrepreneurs understand their startup as a business. They understand that the business exists in an economic context, that there are mechanisms and processes innate to a market economy that makes it function in a certain way. They understand that there are trends, but that those trends can be disrupted; they understand that things change, but that this change is often predictable; they understand that prices are information and that competitors, suppliers, and partners all aim for the same thing: they stand and fall with providing consumer value.

Economic understanding is far removed from the mathematical models taught in intermediate and advanced economics courses in universities, and is more akin to the economic reasoning taught in the principles courses -- and in entrepreneurship. There is an order to the apparent chaos that is an economy. The market is best understood as a persistent process of production and change, directed by entrepreneurs’ anticipations of that consumers want.

In the 19^th century, economic and social theorists talked about the market as a harmony, an "economic organism" that lives, breathes and evolves. The aim is not to make short-term gains or beat the next guy; entrepreneurship is about participating in the collaborative search for how society can better use limited resources to satisfy people’s wants. And individual entrepreneurs earn profits for their valuable contributions to this social cooperation.

Succeeding as an entrepreneur

If you understand people and understand how the market economy works, in a tacit if not intuitive sense, then you will avoid many of the mistakes that entrepreneurs tend to make -- and that makes them fail.

If you understand people, you’ll avoid putting together a dysfunctional team and can orchestrate success, because the parts play well together. You’ll avoid misinterpreting and misunderstanding your customers and minimize the risk that there is no market for your product.

If you understand how the economy works, and how your business fits the overall market process, you can position your product and production to make the largest contribution to society. This means you’ll avoid risky, short-sighted decisions and destructive strategies. And you can prioritize accurately.

The best part? Even if you lack either or both kinds of knowledge, you’re not doomed. Both of them can be learned.