What are the traits of great founders? A 2006 study by Zhao, H. & Seibert, S.E. meta-analyzed 23 studies and mapped the findings onto the Big Five personality model.
The paper reveals entrepreneurs tend to exhibit higher conscientiousness and openness when compared to non-entrepreneurial managers. While interesting, the study failed to correlate these traits with the financial outcomes for the founders in the study. My theory is that if they had, we’d see that when keeping openness constant, one’s degree of conscientiousness would correlate directly with financial successes in the long run.
This post is about what that means and why it happens.
The problem with unchecked openness
Openness is a crucial prerequisite for founding a company. It’s the personality trait that renders you helplessly exposed to the winds of creativity. It’s what gets you excited to try something untried and risky, regardless of prevailing social norms.
Low openness founders are the ones still stuck in their day jobs watching Shark Tank late at night, and buying Entrepreneur magazine.
They fail to launch.
But, the problem is that without conscientiousness, openness will sabotage your shot at entrepreneurial success. The mechanism of sabotage goes by the pejorative term ‘shiny things’ amongst founder circles. ‘Shiny things’ are the creeping distractions that pull you from the path of building your business.
“One is punished most for one’s virtues.” — Nietzsche
I’m so high in openness that my brain is nearly falling out of my skull. I can become enamored by new startup ideas to the degree that I’m buying domains and drawing logos mere minutes after the idea materializes. The grass is always greener after all. Unfortunately, I pursued too many of those ill conceived ideas. I wasted a lot of time and hurt my main company as a result.
Then, one day a fellow founder gifted me an instructive analog that elucidated my errors so plainly that even I could see them.
Startups are like oil pipelines
Imagine you’re the general contractor for an oil pipeline company. It’s your job to connect metal tubes together (for hundreds of miles over many years) so that once complete that humble sequence of tubes will pump black gold and off-gas luscious profits for years to come.
But what would happen if you never complete that pipeline?
Let’s say after ten miles of heads-down building you run into a large mountain range that looks expensive to navigate. One of your guys tells you about a flatter, shinier route just ten miles south. You decide to restart the project and build a new pipeline to the south.
Then, let’s say 100 miles into building that second pipeline, a shiny new type of steel is invented that would allow your company to pump the oil at much higher pressures. You’re so excited about this innovation(example) that you fear your pipeline will be obsolete upon completion. You put in an order and start a new pipeline with the new steel.
Congratulations, you have fallen prey to the shiny things trap.
Here is the rub. Pipelines are only useful when 100%complete. Even if you stop laying pipe at the 99% completion mark, your pipeline is still worthless.
Here, a passing grade is an A+.
Startups are much more like pipelines than ‘shiny thing’ entrepreneurs care to admit. The reason is they both share the characteristic of ‘binary payoffs.’
The tyranny of the binary payoff
Typically, founders face binary financial outcomes. While there are two schemes of extracting your sweat equity from a startup prior to a full liquidity event, both are generally disparaged by investors and startup communities.
Scheme A is to draw owner distributions while building your startup so that you can capture value along the way. Of course, distributions must be paid equally to all shareholders as proportional to their ownership. Furthermore, paying out earnings to shareholders in the form of a distribution is a friendly signal to competitors that you’ve run out of innovations to invest in.
Scheme B would be to take money off the table during future fundraising rounds to capture value and lower your risk profile as a founder. But again, that will signal to your investors that you’re hedging your bets, and may not be as excited about the future as you’d like them to believe. This also sends a signal to your team that you will hoard the last parachute and leave them behind when things go south.
Given these realities, founders are often locked into an all-or-nothing scenario whilst building their pipeline. The oil will only drip upon exit. No liquidity, no liquid gold.
Recognize sirens when you see them
The truth of the matter is that the companies we’d merely like to start are sirens that will lead us to our deaths. The tempting call of starting fresh with a new idea, new team, new investors, etc is an intoxicating song that we founders love to listen to. This temptation will pull us away from the pipeline we are toiling away on day in day out.
We’ll build a few hundred miles of it, see something shiny, and start building that new shiny thing. We’ll use our cleverness and storytelling abilities to rationalize our idiocy.
We’ll congratulate ourselves for not committing the sunk cost fallacy. We’ll tell our investors we escaped a local maximum. Funny how we only recognize we’re committing fallacies while rationalizing.
Sooner or later your career will look like a scrapyard of Rearden Metal. Had you stuck with just one thing, you’d have built something big enough to span the full gap from A to B. You’d have a valuable company that was delivering value to customers. You’d have built a real acquisition target, something that you’d be able to be paid cash money for.
Defending yourself against yourself
If the pipeline analogy is not convincing enough, consider that Warren Buffet gave identical advice in different words to his personal pilot. We’ll call him Flint (because that is his real name).
Buffet once instructed Flint to make a list of his top 25 career goals. He told him to prioritize them from most to least important, and to circle the top 5 most important goals.
But then, Buffet told Flint something unexpected. He told Flint to convert the lower 20 items into a separate list titled “avoid at all costs.” For Buffet, the things we sort of want to do are distractions that will erode our laser focus on the things we most want to do.
“The main thing is to keep the main thing the main thing” — Stephen Covey
Buffet is successful because he recognizes the temptations within himself, and designs check-and-balance mental models that counteract those negative tendencies. You need to do the same for the shiny things in your life.
Today, I’ve installed a methodical process for green-lighting new ideas. When I have an idea that is tempting me to stop, drop, and build, I just put it on a list. Then, I force the idea to pass through several gauntlets. I ask myself questions like:
- Do I care about this enough to not regret wasting ten years on it?
- Am I uniquely qualified to do this better than anyone else?
- Do I have the time and energy to give this idea the care it deserves?
- Do I actually have a plan that has been tested from all angles?
Questions like these establish a funnel that sirens must defeat. They usually don’t make it out the other side alive. This system allows me to maintain my openness and creativity, while protecting my attention from myself. It’s how I managed to keep committed to the business I was building, push it past $1m in annual sales in the notoriously challenging EdTech market, and make the 2019 Forbes 30 Under 30 list.
Yeah, this stuff is hard work. It will be easy to compare the potential of another idea with the reality of your current project. Don’t fall into that trap. The founders that win are the ones who tie themselves to a mast, sail into hell, and keep moving forward.