Book Extract: Set ambitious targets to win

The greatest danger is not to worry about an illusion of excessive control, but the reverse. It is to set sights too low, says a new book

Starting a company isn't a one-time decision. Entrepreneurs don't just make a bet and hope they can defy the odds. Their job is to manage risk, which means controlling what they can and finding ways to grasp the gains while guarding against losses.

To learn more about the crucial decisions facing entrepreneurs, I met with Brad Mattson, a Silicon Valley veteran with twenty-five years in the semiconductor industry, as well as experience in venture capital. Today he's chief executive of Solexant, a thin film PV company that uses nano particle technology to bring down the cost of solar panels. Aside from running his company, one of Mattson's chief interests is to help a new generation of entrepreneurs. We met at Solexant's offices in Santa Clara, in one of the many low-slung buildings that stretch along the corridor of Highway 101, from San Jose to Redwood City. The names on the doors come and go, as ventures spring up and many fail, but as a whole the ecosystem remains vibrant and healthy.

Brad Mattson explained that starting a new business demands clear analysis with an ability to manage risk. "What I tell entrepreneurs is, 'Your job is risk management. If you can reduce or eliminate the key risk, you can succeed.'" New ventures face three kinds of risk: Market, technical, and financial. Mattson commented: "The one I try to avoid is market risk. You can't control markets. You can't force customers to change. If your solution depends on the customer changing what they're doing, you're just adding risk." It makes little sense to pursue a speculative market where demand doesn't already exist. Also beyond an entrepreneur's control are the actions of competitors and government policy.

Technical risk is a different matter. Not only is technology something we can influence, but improvements are very likely crucial for the new venture's success. Only with superior technology is there a chance to prevail. For this it was essential to take large risks. As Mattson put it: "You can't expect the market to adopt your product if it's 5 per cent better; it needs to be 20 per cent better." In a crowded market for new technology-whether semi­conductors or solar panels-only those who set their sights on very high performance will be in a position to succeed. It's very much what we saw earlier: when performance is relative and payoffs are highly skewed, an absolute advantage is necessary to achieve high relative performance.

The key to success is to set aggressive technical goals, then pursue them with confidence. The greatest danger is not to worry about an illusion of excessive control, but the reverse. It's to set sights too low. Mattson described one company that successfully created the product it set out to build, but failed as a business because the product wasn't ambitious enough. The company had reached its (absolute) target but ultimately collapsed because it fell short in relative terms. The moral: "Don't fail because you succeed." Of course there is no point in attempting what is clearly impossible. "Don't try to invent unobtanium," was Brad Mattson's advice. "It can be demoralizing to find out something cannot be done." Yet he also said, "I've never yet been disappointed with a technical team, to be creative and to come up with amazing things."

Regarding the role of the leader in a start-up, with so many uncertainties it is essential to identify the critical success factors and provide a road map for success, and then to communicate it with confidence. Broad goals have to be broken into smaller goals, each of which is feasible. Mattson explained that the leader's job is to say, "There are the six to eight critical elements. If we do these things, we win. If you believe we can achieve these elements, then you can believe the total." Sounding much like Gene Kranz, Mattson commented that employees are constantly watching the boss. "They're reading your confidence of what's achievable. You have to have credibility."

Re-printed with permission from Hachette India. Copyright @ Phil Rosenzweig 2014. All rights reserved.

LEFT BRAIN, RIGHT STUFF: HOW LEADERS MAKE WINNING DECISIONS
Author: Phil Rosenzweig
Publisher: Hachette India
Price: Rs 399
ISBN: 9781781251355

About the author

• Phil Rosenzweig is director of IMD's executive MBA programme since 2009. Prior to joining IMD, Rosenzweig was assistant professor at Harvard Business School from 1990 to 1996. In addition to his academic experience, he worked with Hewlett-Packard in California from 1979 to 1986. He received his PhD from the Wharton School, University of Pennsylvania, in 1990
   
• Professor Rosenzweig's areas of expertise include strategy, firm performance, and complex organisation design. More recently, he has focused his attention on critical thinking and managerial decision making. His 2007 book, The Halo Effect and the Eight Other Business Delusions that Deceive Managers (Free Press, 2007), takes a critical look at the errors that pervade business thinking
   
• He has consulted with numerous firms in Europe and North America, and has taught executive courses in North America, South America, Europe, Japan and Singapore

PHIL ROSENZWEIG
Professor of Strategy and International Management, IMD business school, Switzerland