Why Take Risks?

Neil Armstrong spoke at the Union League Club in New York on September 26, 2006 where he was honored with the Theodore Roosevelt American Experience Award. In his acceptance speech he asked, “Why are we, the American people, driven to take national and individual risk?”

The concept of risk is so inherent to the American Experience that it is barely visible. The willingness of our citizens to take risk is at the heart of what makes America great. There is something unspoken in the phrase, “America is the Land of Opportunity.” Opportunity, but for what? The unspoken words are “to take action and risk” and sometimes to fail and try again. The nature of the threats and opportunities that we face today, as a nation and as business people, are different than they have ever been before and that requires us to change the way we think about risk.

Armstrong chronologically compared the risks and effort that Theodore Roosevelt took in building the Panama Canal with the risks taken by the Wright Brothers in pioneering manned flight. He went into detail about the setbacks, the effort and the ingenuity that was required for success. Today, we take both of these amazing accomplishments for granted but they have unquestionably added hugely to the development of our nation. His talk explored what drove TR and the Wright Brothers.

The common denominator between the Wright Brothers and Teddy Roosevelt was that they had the magical ingredient in the American Land of Opportunity: the bias for action and the determination to do whatever it took to succeed. Neil Armstrong talked about the two methods of learning to ride a horse. The first method is to jump on the horse’s back, get thrown off and get back up again until mastery is achieved. The second method is to sit on the fence, watch and observe and retreat to your quarters to reflect on how you would react to each movement by the horse. Armstrong stated that the first method produces a lot more trained horsemen. Similarly, TR and the Wright Brothers had to take action and overcome enormous obstacles in order to achieve their goals.

John F. Kennedy spoke before Congress on May 25, 1961 in one of the most poignant addresses ever made by an American President. He announced his intention to place a man on the moon by the end of the decade. The context of his speech was the shock, America had experienced one month earlier when Russia cosmonaut Yuri Gagarin became the first human launched into space. The Soviet Union was overtaking the USA. Our entire way of life seemed at risk.

“First, I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth. No single space project in this period will be more impressive to mankind, or more important for the long-range exploration of space; and none will be so difficult or expensive to accomplish. We propose to accelerate the development of the appropriate lunar spacecraft. We propose to develop alternate liquid and solid fuel boosters, much larger than any now being developed, until certain, which is superior. We propose additional funds for other engine development and for unmanned explorations—explorations which are particularly important for one purpose which this nation will never overlook: the survival of the man who first makes this daring flight. But in a very real sense, it will not be one man going to the moon—if we make this judgment affirmatively, it will be an entire nation. For all of us must work to put him there.”

Leaders Need Vision and Determination

Aside from pushing the nation to take risks, what JFK did that is truly entrepreneurial is being truly VISIONARY. He says that the US will put a man on the moon in 10 years. He doesn't have any idea how it will be done or what it will ultimately cost. There are huge unknowns and challenges but he sees the moon from where he stands and he is convinced that it will happen. He died two years later, so we don't know how he would've defended his vision through the 10 years...but you can bet that no matter what setback he encountered he would always dispel the nay sayers and tell them why NASA was going to prevail. Taking risks is important but having a vision—and even more—having a charismatic leader who can infuse the people around him with that vision is ABSOLUTELY KEY. America is a perfect place for that because it allows people to dream and not get bogged down by the details. Someone has to work out the details but the guy that goes after the “blue oceans” must focus on success at all times and keep his eye on the prize.

On July 29, 1969 Neil Armstrong walked on the moon almost two years ahead of JFK&lrsquo;s vision.

The Two Different Types of Risk are Synergistic

TR and JFK mobilized our country to take monolithic national risks. Neil Armstrong told the audience that we as Americans take risk because if we don’t, “Other, bolder peoples will overtake us.” Risk is at the core of the American Experience. We believe the risk we take today will impact our children and the world in which they will grow up. The success of the Panama Canal and putting a man on the moon inspired the American people to believe they could do anything. This is in sharp contrast to the communist and European socialist view of, “Don’t break a sweat because the State will take care of me.”

Individual and national risks are in many ways similar. Todd Sullivan, the CEO and founder of Spirit Shop says, “I think of taking risk as answering a calling. For me, the rewards for taking risk are usually greater for my spirit regardless of the outcome. I feel like I cannot fail taking risks in business because I always learn something.”

Immigrants continue to come to America in record numbers. Ask a new arrival to this country why they took the risk to come here. Almost all will say that they answered a calling. They say they feel electrified by a sense that they can do anything here if they work for it. They are free to succeed or fail and try again without stigma. A bigger threat to our society than Islamic fundamentalists are the forces inside our country that try to “protect” us from risks, like Sarbanes Oxley (SOX). These protections actually have huge unintended consequences of adding friction to the forces of progress. SOX makes it more difficult for businesses to succeed by adding enormous compliance costs and distraction of management’s time and resources without making anybody more honest. These resources would otherwise go to the two highest value functions of business; innovation and marketing.

The Risks and Opportunities America Faces Today Are Distributed

Today, America faces new national challenges ranging in scope from strategic nuclear threats to guerilla warfare and terrorism. Our military is being reshaped to fight multiple small insurgent groups all over the world. The challenge for American politicians is that it was easier to capture voter’s imagination in the fight against the monolithic forces of communist Russia than against the far subtler, distributed enemies like terrorists. There are huge stakes riding on proposed changes in American force structures: disassemble our military that was designed for fighting pitched land battles in Europe and reassemble it to protect us against distributed threats. Today and tomorrow we need to protect the global supply and demand chain, the home front and multiple small fronts around the globe. In the future it will be a contest between our silicon versus their sons. The stakes are immense.

Losers and Winners in the Future

Likewise, business leaders today face splintering markets where the old rules of market share and economies of scale are out the window. How to inspire potential investors and partners? Entrepreneurs must launch differentiated products into market voids where no focus groups or competitive intelligence can help predict success. The losers of tomorrow are the MBA’s at big companies who are sharpening their pencils to figure out how to steal market share from entrenched competitors and achieve economies of scale for their factories. The winners of tomorrow are discovering “blue oceans” by harnessing economies of connections and removing friction from commerce and improving choice and speed to market. They take multiple small and medium risks. They are willing and able to fail, but with success allow customer demand to take the business where no one has gone or would have planned before.

Power to the People!

Winners of the future are entrepreneurs and investors who invest in businesses that push power from monolithic, slow moving big companies to the blindingly fast and amazingly diverse masses. Three critical dynamics of “power to the people” are mass customization, democratization of commerce and outsourcing. Mass customization is about business platforms like Dell or Spirit Shop where customers are free to design the specific product they want. Build the platform; give customers the tools to design just what they need to take out inefficiency and excessive inventory. Spirit Shop’s CEO Todd Sullivan says, “For me, economies of connection is really about connecting with your customers on an emotional level through their peers. It is empowering your customer to be a company advocate, an enthusiastic marketer and your greatest salesperson to his or her community.” eBay is democratizing commerce by giving anyone with access to a computer the ability to create a market niche. eBay is one of the world’s fastest growing companies. Outsourcing is about enabling a company to focus entirely on the highest value tasks they perform so they can get to market faster. Winners in outsourcing are innovators like Apple Computers and their suppliers like Flextronics as well as Janeeva, a leading provider of software solutions for outsourcing. Apple doesn’t do any manufacturing. It can focus its resources on what it does best: innovation, design and marketing.

At Acorn Factor, we are seeking to back determined entrepreneurs with business models that benefit from economies of connection. Ideally, they should have demonstrated proof of concept, near breakeven, where small investments of capital can dramatically accelerate growth.