The “Magic Trenton Moment” Finding the Formula

What is More Important? A Great Business Idea or a Great Jockey?

I believe investing in the right Jockey is more important than investing in the right business idea. I think there is a common misconception that entrepreneurs succeed because they have the “right vision.” Vision is essential - it gives you the energy and incentive to get started - but it is determination to succeed that creates happy endings. I believe the principle of determination is the most critical factor of success in business, sports or war.

As an investor you will improve your returns, and be a more valuable supporter of the Jockey if you view setbacks as inevitable learning experiences and invest incrementally as they find the correct formula. Consequently, I like to fund businesses with just enough cash to give the Jockey a fighting chance. I am always mentally prepared to make additional investments.

The Two Vital Qualities of the Jockey are Determination and Flexibility

When I invest in a new business I have learned to assume from the start that while I can be compelled by the entrepreneur’s vision to make an initial investment, we will probably not be successful executing on his first business plan. Most entrepreneurs are barely able to raise enough money to support their first product launch. Naturally, there is a huge amount of learning once they actually call on customers to generate revenues. There are very small differences between success and failure and that means the Jockey has to be capable of “broken field running.” This is a football term that describes a leader’s ability to improvise and act quickly in the split seconds after the snap, as they watch their game plan dissolve. It is the determined Jockey who can continue to believe in the business and muster resources after the inevitable multiple setbacks (aka learning) that ultimately rewards investors. It is the ability to attract incremental capital, combined with the determination to persist, that decides whether a business gets all the chances it needs to try and fail until ultimately, success is achieved. As Soichiro Honda, the founder of the car company so aptly said, “Success is 99% failure.”

George Washington Demonstrates the Rebels Can Win

Nobody had a bigger vision than America’s Founding Fathers. Yet General George Washington had a poor record of winning battles in the American Revolution. He does, however, rate among history’s best strategists for his dogged focus on his ultimate goal. Arguably the greatest test of his leadership was simply keeping his Continental army viable. It took charisma, cajoling and conviction to convince his hungry, cold, unpaid, dispirited troops to extend their enlistments. The crushing loss in the fall of 1776 at the Battle of Long Island left the viability of the Continental Army hanging by a thread as they retreated to the discomfort of Valley Forge. On Christmas Eve, 1776, George Washington made a decision to risk everything for a chance to turn the tide of the American Revolution in a surprise attack on the Hessian forces at Trenton. In his moment of desperation he found his formula. Instead of pitched land battles against the numerically superior and better-trained British forces, he used guerilla surprise techniques to win. As if God was throwing down the final gauntlet to test his determination, a severe winter storm came up as the troops were preparing to cross the river. General Sullivan sent word that the men's muskets will not fire due to being exposed to the storm all night. Washington sent word back to rely on the bayonet-"I am resolved to take Trenton." He knew what would happen if he failed to take Trenton. His army would dissolve and he would be captured and hung as a traitor to King George.

We all know what happened next. The battle was the first decisive American victory of the Revolution and would shortly be followed by another victory at Princeton. Washington turned the tide from desperate, waiting for the “axe to fall,” to aggressive victor, chasing the British forces from the Delaware River. It was the vital victory the colonials needed to see them through to the “day the world turned upside down” at Yorktown. (Source:http://www.doublegv.com/ggv/battles/Trenton.html)

Finding the Formula to Win

All successful entrepreneurs have their Magic Trenton Moment where everything clicks and they find their formula with which to succeed. What is not obvious to most inexperienced investors and entrepreneurs is that the Magic Trenton Moment takes longer to find than you could ever dream. Here are some interesting examples….

One of my greatest mentors, Gerry Rimer, the founding partner of Index Ventures www.indexventures.com, always told me “The secret to financial success is to find a profitable operation and repeat it as many times as possible.” I have learned that finding the formula of the profitable operation is as vital as it is elusive. Even Gerry found it elusive as he struggled (between golf games) for over a decade to find the formula for turning his marginal bond trading business into the number one performing venture fund in Europe, managing over $1 Billion. His formula was to partner with his sons to leverage his financial contacts with their vision of the potential of the Internet economy and their knowledge of California style venture capital to fill a need for providing capital to European entrepreneurs like the founders of Skype.

Safeguard Scientific invested $50 million trying to make Novell a viable portable computer company to help migrate its successful “One Write” manual accounting system to computers. They failed miserably. In a last ditch effort to save the company, Safeguard’s Board allowed the engineers several months of operating capital to market NetWare, their pioneering computer networking solution. At the “final” Comdex trade show in 1982, a retired computer industry executive, Ray Noorda, saw the importance of the development and convinced Safeguard’s Board to allow him to take over as CEO and invest $300,000 [of his own money] for a 30% stake in the Company. Within two months of Noorda’s taking the helm, the business was profitable and Safeguard ultimately realized a return of over $1 billion from their “failed investment.”
Source: http://www.whiteworld.com/novstory/surf00.htm

Steve Jobs bought Pixar from George Lucas in 1985 for $10 million. Over the course of a decade he sunk tens of millions of dollars into the company only to fail repeatedly. At first, he tried to make it a success as an animation hardware company, then a software business and failed. Jobs was desperate from personally being bled by losses at Pixar and Next. He was down to his last few million. He was determined to show the world his success at founding Apple was not a fluke. Finally, the brinksmanship paid off with an unexpected deal with Disney to produce “Toy Story,” the first full-length computer animated picture. Producing full-length animated pictures was not in any of Pixar’s business plans for the first ten years - it was the result of the desperate need to find a winning formula. In the process Pixar invented computer animation as an industry, eventually holding their partner Disney hostage, forcing the resignation of Michael Eisner, Disney’s CEO, and ultimately the acquisition of Pixar for $7.4 Billion by Disney in May 2006.
Source: iCon: Steve Jobs, The Greatest Second Act of the History of Business by Jeff S. Young and William L. Simon

I don’t want to underestimate the value of vision - it is crucial to getting started, staying motivated and capturing people’s imagination. However I am convinced that most investors and entrepreneurs would benefit from understanding these lessons from history demonstrating how long and how much it takes to actually achieve the “Magic Trenton Moment”.

I invite you to post any other great stories of determination snatching victory from the jaws of defeat.