Finance Strategy

Grit v. Glam: The 2 faces of Billion-Dollar Entrepreneurship

By Dileep Rao – Guest Contributor

Billion-Dollar Entrepreneurs (BDEs) are defined as entrepreneurs who have built ventures from startup to more than $1 billion in sales and valuation. Billion-Dollar Entrepreneurship (BDE-ship) is defined as the process used by BDEs to build these ventures. This blog explains the difference between the two faces of BDE-ship.

Glam Face: The business press loves to talk about the glam side of entrepreneurship and business schools love to teach it. This includes:

  • Shark Tanks and Pitch Competitions: This is where glamorous judges and investors supposedly pick winners for investments based on a few minutes of presentation. Given that sophisticated VCs wait for Aha, which is real proof of potential, do their due diligence, and yet fail on 80% of their deals, it would be interesting to see audited data to evaluate whether these smart investors on these shark tanks really invest in the ideas they hear and if they do, how do they fare.
  • Venture Capital with its tales of instant fame, glamor and wealth where 20-something entrepreneurs use capital from super-smart financiers who can predict the future. In the VC world, glam counts. The opportunity needs to reek with potential and the entrepreneurs need to be stars – or they will be replaced by CEOs who are stars. And even with all this agglomeration of talent, VCs fail on 80% of their investments and their funds succeed only if they have a home run. Could this be one reason why only 20 VCs (you read that right, it is 20, not 20%) are said to earn about 95% of VC profits?
  • Initial Public Offerings: In today’s world of easy money, unlimited debt, and easy IPOs, it has become easier for all types of ventures to go public and create fabulous wealth. Perceived value can be more important than real value. Maybe the law of gravity has been repealed.
  • Pedigree Counts: To get VC, you need to get to Aha, when your venture’s potential is evident to others. But there are a lucky few who get lots of capital for unexplained reasons. No one questioned whether Elizabeth Holmes of Theranos knew how to develop the technology to analyze the body’s illnesses from a drop of blood. Others may have to be qualified, but it seems as if these minor formalities can be suspended when Harvard or Stanford, and prestigious connections show up on the resume.
  • Instant Riches: Who does not like to talk about instant riches whether from Vegas, the lottery, or from a venture? It is the dream of every entrepreneurship student who enters pitch competitions with hopes of being anointed with the glam of VC and fast wealth.

The glam side of entrepreneurship is epitomized by entrepreneurs such as Zuckerberg and Kalanick. It allows 100/100,000 entrepreneurs into its gilded gates. And rewards one with a home run.

Grit Face: The other side of entrepreneurship is grit – the wrong side of the tracks. You may be surprised to know that more than 90% of America’s billion-dollar entrepreneurs fit into this category and did not get VC until after they had taken off and proven their ventures with real performance – not with a pitch to all-seeing judges. 76% never got VC. On the grit side of entrepreneurship, you need:

  • Skills: You actually need to know how to develop the product to avoid someone like Mark Zuckerberg imitating your idea. You also need the skills to know how to sell, and how to operate for customer happiness while bootstrapping. Most importantly, you need to know how to take off with limited capital. After take off, the VCs will come a-knockin,’ as they did for Zuckerberg and Koum (WhatsApp).
  • Sales: You need to know how to sell because getting capital at startup is very difficult. Look at what Bill Gates did. He not only learned that IBM was looking for an operating system, but he bought one, steered IBM in his own direction, and convinced IBM into signing a non-exclusive licensing contract without a buyout option. Now, that is sales genius.
  • Smart Strategies: On the grit side, you need to know how to take off without VC by using smart strategies. By avoiding (or delaying VC), you reduce dilution, keep control, and retain most of the wealth you have created. Look at Jeff Bezos (pictured above).
  • Cash Flow: This is mothers’ milk to grit-based entrepreneurs. They grow. But they also make money while growing rather than having unlimited losses. They get sales with cash flow, not growth with perpetual blood letting that is then foisted off on the public through an IPO when times are frothy.
  • Looks are not key: Real value, not silicon value, counts. VCs come up with unicorn valuation for public sale and have claw-back arrangements in case the venture does not live up to the hype. In the grit-based world, entrepreneurs build real value – or fail.

The grit side of entrepreneurship is available to everyone. It is epitomized by entrepreneurs such as Michael Bloomberg, Joe Martin, and Carey Smith who have built real value.

MY TAKE: VC is a beauty contest. It is glam. A few win. Unicorn venturing is a talent contest. It is grit. The best win. Sometimes the two coincide. Glam is why Vegas wins. But it is not reality for most entrepreneurs in the real world. Grit is real. It is why the rest of the world has a chance. It is time that business schools, that claim to be research-based, saw the real world and practiced grit-based entrepreneurship rather than wasting time, talent, and treasure on the glam side.

This column  was first published in Forbes.

Dileep Rao is the author of Finance Secrets of Billion-Dollar Entrepreneurs  (FIU Business Press, November 2020) and teaches entrepreneurship, unicorn-entrepreneurship, and venture financing at Florida International University. He is a former venture financier.


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