Passion and profits – the paradoxical relationship
Steve Jobs once said, “People with passion can change the world” and if there is one company in the world that exudes passion that is unmatched across the startup world it is Apple. Is it then just a mere coincidence that Apple is also the most valuable company in the world today?
Passion is everything. Studies have shown that the five personality traits that define a successful entrepreneur are passion, resilience, confidence, flexibility, and vision.
At the base of it all is passion. With passion comes resilience against adversity that every startup has to encounter from the word go. It enables the entrepreneur to disregard obstacles and hurdles that come their way with the innate belief that what they are doing is for the greater good.
In the Indian environment, startup resilience is critical often relating to the regulatory structure which is somewhat archaic.
In a classic case of delay, an entrepreneur had to wait over five years to get the excise license for a micro-brewery that they were planning putting severe strain on their finances and those of their investors but persistence paid. Today Dolally is a famous craft beer chain in Pune and Mumbai.
The same passion gives them the confidence and belief in themselves and their ideas to be able to persuade investors and customers to support them, partners and colleagues to join them and even media and governments to give them a patient hearing.
The first cheque from an investor or a customer usually comes from confidence of the founder rather than a viable product or plan.
Sometimes, this confidence is a stretch but it works. In 1975, when Bill Gates called up the developers of the Altair 8800, they said they had a software that could work on the machine but actually only wrote the code once they got the company interested and that led to their first client.
Flexibility and agility of entrepreneurs is a key advantage as they compete against their larger but usually slower competitors. Their passion to change the world allows them to take a step back before they go two steps forward to reach their goals.
It also helps them to think how best to achieve their goal by making mid-course corrections as the environment changes. Likewise is the vision.
Dreams that entrepreneurs have are generated by passion. They can envision what will happen when their idea will conquer the world and then they work backwards to build it brick by brick.
When demonetisation was announced quite unexpectedly in 2016 November and most businesses were busy thinking how to manage their cash, not PayTMmThe team was actually burning the midnight oil designing their advertisements to promote their platform as an alternative to cash. The rest, as they say, is history.
A passion of the founders creates a psychological self-defense mechanism for their businesses that helps them to remain frugal, agile and keep steadfast on the path even in adverse circumstances.
This is what enables even small companies take on larger competitors and leadership positions with limited resources.
That is exactly what investors look for when they invest in a startup that are replace passion with resources and therefore become capital efficient and thus generate superior returns for the investors.
As investors, while we study markets, analyse cash flows and check on the execution capabilities of the founders, conduct background checks on their integrity, no analysis of a startup can be complete without a serious look at the passion that drives the team.
It is usually the only advantage a young startup has in a world that is biased in favour of their larger competitors. Just as passion is a key clue to startup success, the lack of it is a red flag often ignored.
As investors, we have seen situations such as those in 2000 during the dotcom boom or even more recently in 2014 when hyperlocal companies became a fad, a lot of people jumped into startups with the primary aim of making money.
When the downturn came soon afterward, a majority of those who were there just to make a quick buck, disappeared swiftly as they came, leaving behind only a set of passionate survivors and a group of chastened investors.
While the cycle of boom and bust will continue in the startup world being able to differentiate between passionate entrepreneurs and those who are merely opportunists will remain a key task for any investor as much as a reality check for all wannabe founders.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)
