What makes a Successful Entrepreneur

Cultivating the art of the seemingly impossible

November 12, 2007

The co-founder and past chairman of Apax Partners on private equity and what makes a successful entrepreneur

My first exposure to entrepreneurship and private equity was at business
school, when I was in my early twenties, and I came back from the United
States to establish Apax in Europe in 1972.

It’s hard to believe today, but when you look back to 1972 these were times
where Britain had three million unemployed, was viewed as the sick man of
Europe and trade union relations were at an all-time low, with a three-day
week because of coal and electricity shortages.

It was already obvious in those days that large companies were going to go
through a restructuring that would require them to lay off people. There was
a threat that American large companies would overtake European ones. A book
written at the time by Jean-Jacques Servan-Schreiber, The American
Challenge, basically pointed to the threat that Europe would be dominated by

When we look back today on those days, it is a completely different world that
we live in. Big American companies do not dominate the world and the big
challenge of the last 35 years has really been with entrepreneurial
companies and with innovation, where America has come out on top. I’d like
to talk a little bit about what’s happened in this intervening period of
30-odd years, where I’ve been privileged to be involved in backing
entrepreneurs and in helping to develop the private equity industry in

In 1972 in Britain there were precious few entrepreneurs. It was thought that
entrepreneurship was an American phenomenon and that Europeans were very
ill-suited to entrepreneurial activity. It was tough to explain what an
entrepreneur was, and the private equity industry was nonexistent. In 1981,
when we raised our first Apax fund in the UK, a £10 million fund – which
compares with nearly £10 billion for the latest Apax fund – it was extremely
difficult to raise the capital.

Only £30 million was invested in entrepreneurial companies at that stage by
the whole of the British “venture capital industry”. The amount invested in
2006 was over £10 billion. In the intervening years, governments have come
to the realisation that, as large smokestack industries went through
restructurings and the companies that led these industries scaled down their
activities and laid off people, so enterprise was necessary if we were going
to create jobs and get the economy to grow.

And enterprise could thrive only in an environment where there were
substantial incentives for hard work, and for taking risks. It’s hard to
believe, but in the early years of Apax the marginal rate of taxation in
Britain was 98 per cent. Why should anybody take risks, or work hard, in
order to earn 2 per cent after tax? Entrepreneurship needs an environment
around it that supports it. You need low rates of taxation, particularly
capital gains tax but also income tax, and governments have to be prepared
to support risk-taking, the liberalisation of industry and the creation of
new firms.

So what is entrepreneurship? Well, in my book The Second Bounce of the Ball,
I chose a title that pinpointed the first and most important characteristic
of entrepreneurship. It is about risk-taking. The problem is that the word
“risk” has a negative connotation. It comes, in fact, from an Italian word
that means “running into danger”, so it’s not surprising that people would
feel unwilling to take risks. But risk masks the value of uncertainty, and
uncertainty is the stuff of entrepreneurship, because you cannot make great
gains out of situations that are certain. You can make great gains only out
of situations where you have a particular insight that is not shared by the
rest of the market.

So the first essential aspect of entrepreneurship is an ability to seek
uncertainty and to take advantage of it. In a way, the venture capital and
private equity industry has specialised in seeking out areas of uncertainty
and backing entrepreneurs who can take advantage of them.

Uncertainty is very much in the eye of the beholder. Some people come from
backgrounds where dealing with uncertainty was extremely difficult. These
backgrounds favoured security – safe jobs in big companies that appeared to
have the prospect of a very long future. Others come from homes where
risk-taking was always considered to be the thing to do, and where the fear
of failure was not a particular hurdle. When you begin to work with
entrepreneurs, you realise they come in all shapes and sizes. Some are more
risk-seeking and others are more protective of the downside. But at the end
of the day, it is very difficult to be an entrepreneur if you do not have an
appetite for tackling something that seems impossible for others, but that
you believe to be possible. You might say that entrepreneurship is the art
of the seemingly impossible.

The second aspect of entrepreneurship is the ability to create a team that can
make decisions with surrounding uncertainty, and the ability to collect a
group of individuals whose collective judgment ends up being proved correct
in a marketplace that is often evolving very quickly. The essence of the
entrepreneurial leader’s role is to create an effective organisation that
can make the right decisions.

As the firm grows from a start-up to a substantial entrepreneurial firm, the
role of the leader needs to change, and the most successful entrepreneurs
have tended to be those who adapt their role to the need of the firm, rather
than those who attempt to fit the firm to their own personal needs.

So you find entrepreneurs who place themselves at the centre of their firms,
as if they were the hub of the wheel, where every decision needs to be made
by them and where the firm can grow only to the extent of their own personal
reach. And you find other firms where the entrepreneur begins to realise
that, beyond a certain size, it’s impossible to continue managing the firm
without the entrepreneur placing himself or herself at the front of the firm
with colleagues behind, to whom decisions are delegated and who can use
their own entrepreneurial skills to make decisions and to implement them.

This also reflects itself in the style of decision-making in the firm. If
there is a dominant personality who makes every decision, it creates a
certain culture. If you have open discussion of issues and out of the
consensus that emerges a decision is made that generally turns out to be
correct, then that is a much more effective model, in my view.

That does not mean that managing an entrepreneurial firm is a democratic
process. The role of the entrepreneur is not to place himself as the fulcrum
of the scales and to measure the weight on each side, but to assess the
weight on both sides of an issue and to throw his or her weight behind the
correct decision.

The third aspect of entrepreneurship takes us to the building of a major
company and the exit of the entrepreneur. Succession is a separate challenge
from building up a successful business. It’s quite obvious when you’ve built
a business that it is closely associated with you as the leading
entrepreneur, the founder, but it doesn’t necessarily become equally obvious
to all entrepreneurs that the firm has to be put in a position to continue
beyond the departure of its founder.

Organising that departure requires a lot of careful thought, organisation and
self-discipline. You need to examine the issue, separating yourself from the
emotion of leaving a business that you have built. You have to leave at the
right time for the business and the leadership of the firm. And the leader
has to be chosen by the firm if he or she is going to prove effective.

But succession has to be viewed as a process, not as an event. The succession
starts when you begin to plan it and takes place when you announce it – not
when you leave, interestingly. During the period between the announcement
and your departure, the founder has a role of supporting the successor to
pick up the reins and to begin to provide his or her own momentum.

So, an appetite for uncertainty, a knowledge of how to lead a winning team and
the realisation that succession is a process that needs to be organised and
not just an event are three of the key characteristics of entrepreneurship.
There are many other approaches that combine with these three to create an
entrepreneurial strategy. They have to do with picking the right
opportunity, finding the right time to launch a venture, financing the
venture and so on. But those three are the defining characteristics which
every entrepreneur should bear in mind.

Entrepreneurship has made a tremendous contribution, with the support of the
private equity industry, to the development of economies across the world.
Today in Britain, 20 per cent of all employment is in the hands of private
equity-backed businesses. We have created an entrepreneurial mindset in
Britain and in many other countries. I am very pleased to see that this
mindset is now being applied to achieve social objectives. But that is
another subject for another time.


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