Entrepreneurs: Use Your Delusion, Sell the Illusion

"All are lunatics, but he who can analyze his delusion is called a philosopher." ~ Ambrose Bierce

Why do so many business start-ups fail?  What makes others succeed?  Could the answers to both of these questions be the same?

Shortly after founding my investment advisory firm, I recall a conversation with a friend who asked with unusual curiosity, "Kent, what's your Plan B?"  With a perplexed look, I responded, "What do you mean?"  She followed, "You are a financial planner, so I assumed you would have a backup plan...  What if your business fails?"  I quickly replied, "I don't have a Plan B and I have not thought of failure."  She smiled, and with a knowing chuckle she said, "I just read an article saying that most successful entrepreneurs do not have a Plan B and never think of failure..."

The Entrepreneur's Delusion Confidence

The combination of being a small business owner, a financial planner, an investment manager, a philosopher, and an overall cynic with regard to the human race, I often share with others my sentiment that all people are delusional to some degree; and to enable the delusion, one must also be an illusionist.

For example, to start a business, you must have a primary delusion of grandeur: That people will actually buy your product or service.

The business owner's ego -- the inner voice, if you will -- does not identify itself as delusional; but it fancies itself as passionate and necessary. This is probably for a good reason, and by design (for survival), because many people would not even try to start their own business if they thought logically about the odds stacked against them.  To be fair, one might label this behavior as determined and confident but not quite to the extremes of delusion. 

Identifying the 'Egotistical Business Starter'

There is a point, however, at which confidence and passion becomes exceedingly delusional and spills over into foolishness.  I can personally attest, in the business world, many people are over-confident in their own ideas to the point of delusion. These people are not entrepreneurs -- they are egotistical business starters.

There are business starters, for example, that believe their business idea is so good and unique that consumers will flock to buy their product or service once its availability is made known to the masses. This egotistical business starter has the "build it and they will come" mentality; they possess very little self-knowledge; and they overlook the importance of business plans and calculating risk.

Why Businesses Exist

What is the purpose of business enterprise?  Why do entrepreneurs start businesses?  These were the questions posed by one of my favorite grad school professors on the first day of the capstone (final) masters course.  In a room full of soon-to-be MBA graduates, how many students do you think answered "correctly?"  Zero.

The answer to why businesses are started, according to the professor, was "to create value."  In true cynical style, I fervently disagreed, but only in my mind (I'm wise enough to know not to argue with the professor on the first day of class).  I thought to myself that people start businesses to make money. 

There is a difference, however, between an entrepreneur and an egotistical business starter (see above).  The entrepreneur starts a business to create value and the egotistical business starter does so to make money.  The former makes money by virtue of creating value and the latter often fails.

The basic function of business is to create value in such a way that it inspires consumers to buy a particular product or service.  In other words, the entrepreneur must proceed with confidence to create and sell perceived value; to use the delusion and sell the illusion.

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Related:

Dig for Gold, Sell Shovels (or Neither)

Are You Committing Financial Fraud? An Honest Inquiry

Comments

[GregLinster]

Nice post Kent! At what point does creating perceived value become unethical for an entrepreneur? Pull up a Google search and one will be bombarded with a host of ads for products and services that clearly contain purposeful deception in order to create value.

Value can also be created by instilling fear or worry. I struggle with this concept of selling an illusion ethically.

Do you have to believe in your product or service wholeheartedly or is it acceptable to sell an illusion? I'd love to hear your thoughts on the ethics.

Cheers,
Greg

[Kent @ The Financial Philosopher]

Thanks Greg!

To some degree, most of what we see in the world of commerce is illusory; and the Internet certainly adds to the illusion.

Business websites, for example, can be designed in a way that makes any business look large, important, trustworthy, experienced, and so on. In reality, however, the business might be run by a college student in his dorm room.

I do not believe that creating the perception of value is inherently unethical unless the person or entity putting forth the perception (or illusion) cannot deliver to the end-user the value it portends.

On a smaller, more intimate level, we see illusions everyday; and they are collectively known as marketing.

If the contents and price of two packages, for example, are identical but one has ugly packaging and another has attractive packaging, which will sell first?

Illusion sells and we're buying. For this reason, and on a separate note, I think that blind people have much to share about their perceptions...

"I can see, and that is why I can be happy, in what you call the dark, but which to me is golden. I can see a God-made world, not a man-made world." ~ Helen Keller

Thanks for commenting...

Kent

[Thanks]

I agree Kent. I have a question.

I´m speculator (call it financial trader). I live in a catholic country and of course a speculator is for the majority someone who is not able to create value.

Of course I don´t think in that way. I buy when others want to sell and I sell when others want to buy, helping to create liquidity wich is a real social function.

My question is (a lot off the topic), What I do (pure speculation)is considered an entrepeneur job by americans? An is considered to create value for the society?

Regards

[Kent @ The Financial Philosopher]

Thanks:

When you "sell when others want to buy," this is fundamentally creating perceived value.

As for you being considered an entrepreneur by Americans, we can first consider an American definition of entrepreneur (according to Mirriam-Webster's online dictionary):

"one who organizes, manages, and assumes the risks of a business or enterprise"

I believe your speculation as a financial trader fulfills a function in society. If you are trading with your own money (not that of an employer), you are assuming the risk of your trades; therefore you may consider yourself an entrepreneur.

Cheers...

Kent

[Thanks]

Thank you for the explanation.

[obtaining lasting power of attorney]

Thank you for the Post. I agree with the first comment. There are onl 2 ways to motivate a buyer - greed and fear. Appeal to either my greed or fear, convince me that the price you ask is a reasonable one, and the the money would do less good in my pocket than access to that you are offering would, voila, we have a functioning economy.

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