The economics and business textbooks tell us that a business is a kind of machine, owned by shareholders whose objective is to minimise inputs of all kinds, and to maximise outputs, thereby creating the highest possible profits for the lowest possible effort and risk.
Anybody who is in business knows that this is rot.
Whilst we do from time to time come across a business which can be described in this way (tellingly, it is usually a very small business – one run to provide subsistence for an individual or family), the great majority of businesses are run on a mixture of passion, aspiration, adrenaline, and dreams.
Usually, we find an individual or, mostly, many individuals who passionately “believe in” their business, and are prepared to go to extraordinary lengths and to do things which the economist would regard as completely irrational, to help it succeed.
For example, we find an entrepreneur who left very well paid and secure employment in order to create a business which offers neither. We see them working every hour God sends, skipping his or her own payroll and incurring expenses on behalf of the business, and taking risks with important family assets.
If you ask such an entrepreneur “Why?” you will sometimes get a “business school” type answer, such as: because the entrepreneur believes in the long term future, and the pay-day when it comes will be enormous. But, the entrepreneur is not applying normal standards of proof or probability to this – his calculation is wildly different. And, if you talk to such a person for a while longer, you come to see that they gave you the “business school” answer because they didn’t want to appear irrational or unorthodox.
In reality, this entrepreneur is following a dream, and should not be ashamed to do so.
At Fusion, we love this kind of business. When we read corporate histories, we always find that what becomes a great business was founded by a passionate man or woman who believed totally in what they were doing and who, curiously, and embarrassingly for the theoreticians, didn’t even seem very interested in what the profits would be.
From Lord Lever to Mo Ibrahim we find that passion lurking underneath, even when (to please outside investors) they try to talk “rationally” about their business.