I recently spoke to a government delegation from Switzerland about my experience as an investor, entrepreneur, and expat living in Silicon Valley. I’ve met with delegations like this, from multiple countries, for more than 20 years. They never fail to ask: What can our institutions do to promote more entrepreneurship?
Although they may not say it out loud, they think their country punches below its weight in entrepreneurship, and their attempts to clone Silicon Valley (their first mistake) have failed.
Why? Perhaps because policymakers don’t have a useful model of why and what entrepreneurs do. That is what I offer in the first installment of this three-part series, which goes on to address what policymakers can and can’t influence (part two) and who their programs should target (part three).
Entrepreneurship is more of a discipline, like a sport or an art, than a business activity. And it has two parts that are crucial for our discussion: a mindset and a method.
Turning Stones: The Mindset
As a kid growing up in Switzerland, I used to wander the banks of the Toess and Thur rivers looking for roly-polies. I’d obsessively turn over every stone in search of those little black crustaceans (not bugs). It looked a bit insane, but as Mark Twain supposedly said, “Sanity and happiness are an impossible combination.”
Roly-polies are the best analogy I have for how entrepreneurs think and act. Like a child turning over stones, entrepreneurs are on all-consuming missions that may concern, perplex, or annoy everyone around them. Their 24/7 obsession with finding roly-polies — ideas to pursue, problems to solve, experiments to try — consumes their dreams and fills notebooks at 3 a.m.
We cannot treat entrepreneurship like a normal economic activity, because the people who do it are not normal or rational. A fair comparison is an Olympic sport like alpine skiing. There is no economically sound case for riding downhill on skis at 95 miles per hour. The probability of becoming a well-paid ski racer is much lower than the odds of suffering a life- or income-threatening injury. Nevertheless, like kids hunting roly-polies, alpine skiers obsessively pursue fractions of a second in their quest for speed.
Entrepreneurship, likewise, involves a non-economic obsession with a challenge, the solution to which might be economically valuable. Solving that challenge could take years of stone-turning.
Contrarian Compounding: The Method
Turning stones is the mindset with which entrepreneurs pursue ideas. “Contrarian compounding” is the method that converts their obsession into a category-leading company.
Contrarian compounding rests on two premises. First, to create a company that changes the world, a founder must act on a view of the future that is right but that no one else knows about or believes. Second, investment in this contrarian idea will compound, like interest reinvested in a bank account, only in the form of intangibles like quality relationships, knowledge, and reputation. As I heard LinkedIn founder Reid Hoffman say at a Silicon Valley venture event years ago, “To do a really interesting startup, you have to be contrarian and right.”
Founders gaze through the Portal into the future, turning over stones. Eventually, they find a right, contrarian idea in the form of a problem that must be solved for deeply personal reasons.
The founder iterates on the problem and a potential solution (move number two) by discussing it with friends, family, customers, partners, investors, potential co-founders, and team members. If 99 percent of them reject the idea, that’s a good sign — it’s certainly contrarian.
After dozens if not hundreds of these conversations, the entrepreneur builds this refined idea into a viable product with the intent to fail rapidly (move number three) and try again. Founders might revisit the Portal, Iteration, and Fast-Forward Failing any number of times, which can be brutal.
Eventually, a product survives. The founder must reveal it to create a business, exposing it to entrenched competitors. The objective in Scaling Hell (move number four) is to create and own the market, quickly and stealthily, before competitors feel threatened. At move number five, to which far less than one percent of ventures ever arrive, the winner names and owns a category — like the smartphone, ridesharing, cloud CRM, or satellite internet.
Just because a founder pursues a right, contrarian idea first doesn’t mean that founder will own the category. Netscape defined the web browser but failed to secure the value chains around it, ceding leadership to Microsoft’s Internet Explorer. (Venture investor Mike Maples Jr. tells the Netscape story beautifully in his book Pattern Breakers: Why Some Start-Ups Change the Future.) Likewise, Open AI defined generative AI but might not hold on to category leadership.
The Policy Disconnect
Most policymakers wouldn’t consider themselves experts in “stimulating” an Olympic ski team. However, because entrepreneurship moves economic metrics that policymakers do influence — like employment and foreign direct investment — they assume that entrepreneurship can be stimulated or managed through classic policies.
Unfortunately, policies don’t change anyone’s propensity to turn stones and don’t cut steps from contrarian compounding. Often, policies accidentally kill the motivation to turn stones and allow companies to fail slowly, with more catastrophic results for stakeholders.
Policymakers tend to meet founders of multibillion-dollar, category-leading companies once they are deemed right about something everyone believes (and have handlers, polished messaging, etc.). Policymakers rarely encounter founders when they resemble Marty McFly showing up in 1953 in a time-traveling 1981 DeLorean DMC-12. And it’s McFly who can generate the highest return on government support, not the polished, practical founder with a perfectly reasonable mainstream idea.
That’s why the next piece in this series will focus on an unconventional framing for policies and strategies that might, in fact, support the discipline of entrepreneurship and its abnormal practitioners.
Philipp Stauffer WG04 is the co-founder and managing partner of FYRFLY Venture Partners, an enterprise deep-tech venture firm based in Silicon Valley and Switzerland. Having grown up in a family of entrepreneurs, Stauffer followed his passion for innovation early on, launching consumer products to the European markets right out of school. He has held roles at the frontier of technology innovation and technology as a founder, a leader, and an investor, working with companies such as Accenture, Salesforce, Amazon, Micron, Interpublic, and Google. He is an honorary ambassador to Switzerland and currently lives in the San Francisco Bay Area.
