Common Sense: The Key to Entrepreneurial Success?

By Joanna L. KrotzBusiness on Main

A new study shows that entrepreneurs who make decisions based on “practical intelligence,” or experimentation, are more likely to succeed.

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If your idea of launching a business is to dive in and start trying stuff, then huzzah! A new study finds that one of an entrepreneur's most important traits is having “practical intelligence,” or reliable common sense. That translates into learning by doing, being willing to experiment, and being able to think on your feet. When starting a business, common sense trumps book learning.

“Entrepreneurs who prefer concrete experiments and who continually look for customer contact and feedback that can’t be absorbed through reading typically are more successful,” says Barbara J. Bird, associate professor of management at American University's Kogod School of Business. She and J. Robert Baum, associate professor of entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, released the results of their survey early this year.

According to Bird, ultimately a business must harness all three kinds of thinking that make up “successful intelligence”: creative, analytical and practical. You need cogent analysis and creative ideas to craft goals that will result in specific outcomes and growth. And you need to step back and analyze factors, markets and personalities when it’s time to make big decisions about the future. But when you’re in the throes of a startup’s chaotic climb, it’s street-smart practical intelligence that moves the needle.

Who, what, why and winners Launched in 2002, the long-running study compared startup founders with established CEOs (all male) in the printing and graphics industry. Bird and Baum chose that industry because it was competitive, changing rapidly, experiencing fast growth, and attracting a rash of new ventures. Fieldwork ran through early 2008, which allowed the team to track responses before and after the recession.

The most successful owners, says Bird, “were consistent through the economic downturn by tweaking things, moving quickly and adjusting. It added up to the same result. They were more successful when they experimented and tried things.” Not surprisingly, the researchers also found that “habitual entrepreneurs,” defined as those who have launched two or more businesses, were more likely to learn by doing than others.

“Combining practical intelligence with the knowledge of how to do things comes with experience,” says Bird. “That’s what we call ‘intuition.’”

How to put practical intelligence into practice Continuous testing of ideas and products and swift adjustments to marketplace shifts and customer feedback were key factors, according to Bird. “Entrepreneurs who are most successful believe there is no such thing as a mistake. There are only experiments."

If you’re not a hands-on type and your learning style tends toward the analytic — say, a word person who likes to learn by reading and observing — Bird suggests ways to boost your practical intelligence:

- Stay close to the action, wherever that may be for your startup. For instance, initiate frequent customer exchanges and interactions.

- Gain experience at a job or in situations that force you to make frequent decisions without a lot of thought. Bird points to elementary schoolteachers as a good example.

- Work with a partner or consultant who has experience in your industry. That lets you shadow high-level practical intelligence in action.

Entrepreneurs who’ve been there and done it — then done it again — say the study’s findings jibe with their own experience. For instance, serial entrepreneur Paul Harkins believes common sense “is absolutely the key to success as the driver of business.”

Currently CEO of NeighborOil, an Andover, Massachusetts-based company that helps homeowners buy more affordable home heating oil, Harkins has led several consumer service and incentive firms.

He’s learned the hard way that entrepreneurs who don't test the market to find out whether or not people will pay for a product before release “invariably end up failing.”

“The biggest example of common sense,” says Harkins, “is knowing how the market will use a product very early on, before directing a company toward what you perceive is the market.” As a senior member of a startup team some time back, Harkins learned this lesson firsthand when his team made the mistake of releasing a product without checking the market first. “Never again!” he says.

That’s one “mistake” that was truly a valuable “experiment.”

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