Heart, Smarts, Guts, and Luck

Tony Tjan: Well Rachel, it was a little bit of an accidental authorship, as venture capitalists in our day jobs we get the privilege of meeting many founders and business builders, and we decided one day a few years ago, wouldn't it be an interesting idea if we videoed some of these people leaving our offices, or as they're leaving our offices, to just get some wrap up thoughts on what it is that drives them, what their aspirations are? Over the course of a couple of years that became a fairly significant library, and then we decided to formalize that into a more structured entrepreneurial aptitude questionnaire of things such as, "What are the traits that most describe them?" and "What are different types of behaviors that they see that affect their decision making?" And, slowly, over time we formalized the questionnaire and that led to the basis of a book and several hundreds of interviews all across the world.

Rachel Salaman: Who is the book aimed at, is it mainly for entrepreneurs, or can other people benefit from it too?

Tony Tjan: Well, the book is slanted towards entrepreneurship, but I think what's core to understand is that entrepreneurship, where founder's mindset is really applicable to so many people out there, whether you're in a corporate job trying to make change happen, or whether you're a single mom making the most out of limited resources, the mindset of a founder or of an entrepreneur is relevant in any business building or make change effort.

Rachel Salaman: Now as well as exploring the four traits I mentioned in the introduction that you call "Heart," "Smarts," "Guts" and "Luck," your book also emphasizes the role of self-awareness in success, could you just talk about that?

Tony Tjan: We fundamentally believe, and it goes back to your first opening question on why we wrote the book, that self-awareness is perhaps more important than any other quality, so at the umbrella level above these four traits, understanding who you are, what your true north is, what you're all about, is probably the greatest factor towards success. This is not necessarily a new insight, different people have called this different things, "What is your EQ?" "What is your intellectual honesty about yourself?" And it is our fundamental belief that more important than anything, you have to know what it is that drives you, motivates you and therefore affects your decision making. The framing of "Heart, Smarts, Guts, and Luck" is connected to that self-awareness by providing a set of guideposts to have you ascertain, after taking an entrepreneurial aptitude test, and, by the way, any of your community members or listeners out there can take the test for free at hsgl.com, there's an entrepreneurial aptitude test there, and you can see which of these four traits really drives your behavior and how those trait patterns compare to other people. So, having that awareness of what it is that drives you helps inform your self-awareness, helps inform your strengths and weaknesses, and that's really the only way to both improve and the only way to really understand where you're going to be most effective with change.

Rachel Salaman: Do you think it would be fair to say that a lot of people aren't very aware of what drives them, that it's something that happens at an unconscious level?

Tony Tjan: I think self-awareness in general is a perpetual and ongoing goal, I think all of us have a level of awareness, and it really is a matter of how much self-awareness you have. If we were to look at our sample base I would guess that probably about 25 per cent to 30 per cent were really quite self-aware, they had a great congruence between how they acted and who they thought they were and how people perceived them to be, but I think it's really a noble cause to continue to work on one's self awareness and it's certainly something that I try to continue to do, and we encourage our entrepreneurs to do.

Rachel Salaman: Near the beginning of the book you say that many successful business people don't have a business plan when they start out, so is that your advice to would-be entrepreneurs, "Don't worry about the plan, just do it"?

Tony Tjan: I think it's a question of staging, of course a planning process and especially for those working in a corporate environment will recognize that some level of business plan at some point is important, however, at the earliest inception of an idea it is often far, far more important to just get started. By just getting started, if you think about it, that provides the input for a business plan. Too often what happens is that the business plans that are created are created on theory, are created on secondary research, "Oh the market will be this big," "My competitors will buy x, y and z," but there's no real customer data, no real product testing. I think we're in a world today where trying things is far easier, that is more capital efficiency is at play, and the ability to use the tools that technology provides, tools such as doing a simple survey of customers testing your product or service using a tool such as Survey Monkey, a very cheap, efficient tool, you can go out and just test and iterate. So just starting, testing and iterating is often the best way to get started, and then use the data from there as the initial inputs towards a plan.

Rachel Salaman: And it's at this point in the book that you say that 70 per cent of entrepreneurs who made a successful exit didn't start with a business plan, followed the model that you just described instead perhaps. Now made a successful exit is a euphemism for selling your business, often, and it might surprise some people that entrepreneurs pour their heart and soul into a business with the ultimate goal of selling it, so I wondered if you could explain how the idea of heart works in that scenario?

Tony Tjan: Well I think most people start businesses as if they were parents, giving birth to a child, and don't really let the thought enter that they may give it up for adoption one day, so I think you are right that most businesses and founders who are starting businesses think that they're building things to last forever, and I think that is the right mindset, but as a proxy for success, as one proxy, an exit defined by a sale or an initial public offering, so those are two things, it was not just the sale of a business I want to clarify, it was also in the case of initial public offering where ownership may have been shared, but the founders were still running the business. Those businesses in 70 per cent of cases did not start with a formal business plan so the role of heart is always persistent in that it is the infectious quality, it is the passion, the purpose that instigates the business, but the heart also has limitations at certain points of a business's growth cycle and therefore people often reach that crossroads of deciding whether to stay and scale up that business or deciding to sell it off to someone else who may have an opportunity to take it to that next level potentially better.

Rachel Salaman: You just mentioned there that heart is about purpose and passion, in the book you say it's also about sacrifice and work ethic, and also nuance, so could you explain how nuance plays into it?

Tony Tjan: Yes, those are the exact three qualities of heart, and when you're in the presence of a heart driven person you know it, you feel their passion, you feel their purpose, you feel that great willingness to sacrifice, what the Greeks called agape, the sacrifice of love, and that third dimension of nuance is also related to those first two. Heart driven people have an amazing way of just adding that artistic nuance that may not be able to be seen, but certainly can be felt. I use the analogy of listening to two great musicians, one on a stage playing every note technically perfect and something sounding the same as someone on the right playing the same notes, but the one on the right stage you somehow feel difference, and that feeling of difference is driven by the nuances someone puts in, a great chef that just makes a slight tweak in the composition of ingredients that is not so formulaic in their approach. So you think of heart driven businesses, you think of companies such as Apple where every element, every nuance of design is thought through from the powering up of a device, as you open the packaging, to the beauty of the packaging itself, to the beautiful trim on the edge of a notebook computer. Those are elements of nuance that we're talking about.

Rachel Salaman: In the book you include a section about what heart is not, so what do we learn there?

Tony Tjan: Well, I think many people starting businesses confuse love with lust, and I think lust is about chasing trends, there are many trends and I joke here on this side of the pond in the U.S. that one way to make money is to short a graduating class from Harvard Business School where I graduated from, because oftentimes when you're younger, and even as you are older and perhaps many of the listeners out there, you hear trends and you think that is what I must do. You hear the trend of social media, of video online, a trend of quant trading, a trend of design, and suddenly everyone wants to be on that train and you convince yourself that, "Boy, this is what I want to do," as opposed to be true and self-aware to yourself that my real passion is furniture making, or my real passion is cooking, or my real passion is creating great ideas in manufacturing or delivering information to people. Staying true to yourself and your true love is far more important than the short-term lust many people have as they see the trends around them.

Rachel Salaman: How easy is it though to tell the difference between those two things, if you're the person feeling the lust how can you distinguish that from true love or authentic love?

Tony Tjan: I don't know how easy it is but I asked the question around a dinner conversation last night to a group that we having this discussion with, and I said, "Look, just project out 10 years, 15 years," and it's not much different than being in a relationship and trying to assess it. In 10 or 15 years could you really imagine yourself doing this and being absolutely thrilled and happy still and that this is the thing that would get you up in the morning and make you feel like, "Wow, I am just so excited still to be doing this and pioneering this type of work," and I think that will often answer about 80 per cent of the cases.

Rachel Salaman: You mentioned a little earlier that there are limitations to a heart driven approach to building business, could you talk a bit more about that?

Tony Tjan: Perhaps the biggest limitation is at the crossroads of scaling up a business, so we know that about 65 per cent to 70 per cent are heart dominant, so, if you take again the entrepreneurial aptitude test at hsgl.com and you see yourself as being very heart dominant, so i.e. disproportionately scoring high on heart relative to smarts, guts, and luck, the watch outs are really around when your business gets to a point where you need to start delegating responsibility, putting in certain processes, and scaling up growth to the next level. And it really is the reason why so many startups and great small businesses fail to scale, and they fail to scale because it's very hard oftentimes being heart driven to shift gears, for example to be smarts, guts, very hard to take off the blinders and change out people who may have become friends or change out elements that created a part of your initial success but clearly need to evolve to get you to the next level.

You're listening to Expert Interview from Mind Tools.

Rachel Salaman: Let's move on to smarts now, and in the book you talk about different kinds of smarts, could you just run through those?

Tony Tjan: The first comment about smarts is to recognize that smarts is fundamentally about pattern recognition, and we define smarts as that ability to see patterns and people that have great pattern recognition are people that are smart driven. Now that said we describe four types of smarts, so four types of pattern recognition, and it goes beyond just the book IQ type of smarts which is the first. There are three others to complement book smarts, and those are street smarts, people smarts, and creative smarts.

Rachel Salaman: Do you find that people sometimes possess all four, or is it more likely that they'll only possess one of those types?

Tony Tjan: No, there absolutely are people that have all four of those types of smarts, but in a very similar fashion to that higher order of heart, smarts, guts, and luck, people tend to be more oriented often towards one or the other as you probably could surmise intuitively, there aren't a ton of people that can cross both left and right brain thinking, to simplify the types of smarts, but you've certainly also met people that transcend those types of thinking and it's that ability to shift gears and go through those different types of patterns that make them so effective.

Rachel Salaman: And do successful entrepreneurs favor one type of smarts over the other in terms of their natural ability?

Tony Tjan: I would say that in business building in general, that the smarts trait, the smarts gene if you would, is probably relatively the least important, that's the comment I would want to make and that only about 10 per cent of our survey population, so again the process was that we took hundreds of people across the globe and surveyed them and looked at their different entrepreneurial and business building DNA patterns across heart, smarts, guts, and luck, and really only about 10 per cent of that population set were smart driven. So the broader comment I would want to make is of course smarts is important, you need a certain baseline but I think most people in business building over emphasize how much you need it.

Rachel Salaman: That's probably a good time for us to move onto guts, which is the third trait, how do you define guts in this context?

Tony Tjan: Oh guts is that propensity towards action, it's the classic kind of CEO type out there, we all have friends and colleagues that are just like, "Done this" people, checklist people, "Let me get it done," and that is really the baseline of guts. Our framework for guts is threefold, the guts to initiate or start something, that's level one, the guts to persevere is level two, to have resilience, and ultimately the third one, which is often the hardest is the guts to evolve, and that third level is so hard because once you have had success can you evolve from that success to maintain relevancy. So the guts to initiate, to persevere, and ultimately to evolve.

Rachel Salaman: I think most people think of guts as something that is inherent, perhaps something that's quite hard to learn if you're not naturally gutsy, what's your take on that?

Tony Tjan: No, guts is certainly one of the traits you can absolutely learn, we get asked a lot on the founders mindset entrepreneurial qualities is it something that is nature or nurture, and the answer is a little bit of both but the two traits that can be learned the most are smarts and guts, and guts can be learned in two buckets because there's two types of guts. There's the type of guts that you feel in that moment of truth, you're in a dangerous situation, we describe the situation of a gentleman who fell out of a boat and survived at sea for 76 days alone, what did he do in those first 30 seconds that enabled him to survive. And then guts is defined also longitudinally, how do you persevere over time and have resilience? Or, how did that gentleman maintain sanity and have resilience over 76 days? The three elements that help you do that are as follows, first is having a level of training or knowledge, this gentleman's name was Steve Callaghan, who, in the '80s fell out of his boat in a solo race when his boat crashed one night, and he talks about the fact that he had read maybe 12 or 14 survival books, and what those things help you do is understand the first response. So think about a business context, you have a business crisis, you have to do a layoff, you have to fire large numbers of people, we have an economic downturn, there is a set of best practices, quote unquote if you would, that would tell you what is your first response to do, so that is the first element to help you become gutsier. The second is all about what you've done contextually earlier, experientially in life, in your childhood, so a good example, I'm certain that some of the listeners out there who have sold things early or sold things as part of their career, they have learned rejection, so just through practice and training and experiencing those rejection moments helps build a thicker skin. And ultimately the third dimension of becoming gutsier would involve really having a peer support network, we are human beings that crave nurturing, that are able to do things when we are supported by others, so the positive side of peer pressure is a type of peer pressure that gives you courage and we've all seen that at times when people are going through perhaps personal health issues or other types of personal crises, when you have a support network around you it really energizes you with greater courage.

Rachel Salaman: In this section of the book you talk about the business builders' paradox which is deciding when it's better to push on with something or drop it and accept failure, so what advice can you offer people who might be in that situation?

Tony Tjan: It is the paradox between having conviction and stubbornness to go forward, and humility to know when to bow out or change one's thinking, and Rachel I would just say it comes back to self-awareness, the greatest self-awareness you know are things that you've done in the past where you've been right, where you've been wrong is absolutely a critical input there. And then also again going back to what I just said on the guts dimension, having the right set of peers and objective advisors around you to help give you and guide you with some advice.

Rachel Salaman: I thought it was really interesting that you present five questions in the book that can help people overcome failure, I wondered if you could talk us through those now.

Tony Tjan: Sure, so I think when people fail, one of the five questions we put forth is, "Are you being macro myopic?" And that is a fancy buzz word, I guess, to say, "Are you overestimating the short-term impact of the situation, and underestimating the long-term learning?", or, "Are you basically giving it too much weight in the short term?" Everyone tends to have a bias towards amplifying things in the short run, so that is one question. We also say, "Is this really your true north? Was it something that you really cared about towards your success and calling? Or was it something that you were more driven by or asked to do by someone else? Did that impact you? Was it something that really was your personal motivation? Or was it just a task that someone else asked you to do?" "Was the standard reasonable?", a third question. "Was this benchmark of success reasonable or was it a stretch goal?" Many managers out there struggle with goal setting, and they want to put very high stretch goals, and that's an art and a science to get at that right level to motivate people, to understand how high high could be with not letting people sandbag, so just understanding what is a reasonable standard to exist and reflecting, "Was that standard reasonable?" What are moms and dads saying? "Did you try your best, did you do everything possible to help succeed in this goal?" Think about it, did you really? And that will help you understand more about the failure. And that leads to the last one, we say, "What can you really learn from this? What do you take away?" And I find when people just have a simple framework like that and this is again back towards self-awareness and you're referring to a chapter in our book on reflecting true north questions, I think those five questions help people build perspective and awareness over time.

Rachel Salaman: The final trait from the book's title is luck of course, and you break this down into different types of luck, what are they?

Tony Tjan: I think there are people that often confuse luck with the classical definition of luck which is one that is fate or just probabilistic type of luck, what we call dumb luck, so you're in a casino, you bet it all down on double zero green on the roulette wheel and it hits and you think, "Gosh, what a lucky person, I just won the Powerball lottery." That has very little to do with circumstantial or types of luck that you can influence, and the type of luck we're trying to emphasize in the book is the type of luck that you can help make and take advantage of, principally this is circumstantial luck. There are other types of luck like constitutional luck but I'd emphasize it is a circumstantial type of luck and that is really luck whereby your circumstances are influenced by your approach towards attitude and relationships. So attitude and relationships are what really drive one's ability to create, make and take advantage of their own luck.

Rachel Salaman: So how can someone develop a lucky or a luckier attitude?

Tony Tjan: There are three parts that we use to define luck, and a great example of someone with this characteristic and any of your listeners, I encourage them to go and look at some of the online videos of Tony Hsieh, the CEO of Zappos, or read his work. He really is someone who embraces this luck-driven attitude, and I've had a chance to spend quite a bit of time with him and I really just admire his luck-driven qualities. But the three aspects of it are as follows: one, have a baseline of humility. People who are really luck-driven has this ability to be humble, naturally humble, and humility as many have written about, Jim Collins, perhaps one of the first to really popularize it, it's really that baseline for a higher order of leadership. And with humility you can have the second component of a luck: attitude, which is intellectual curiosity, because if you don't have humility it is hard for you to be fully intellectually curious because you believe you know most things, so luck-driven people are just voracious consumers of experience, of reading, of going out and just talking to people, you talk on people smarts, they are people that just will go and say hey, to a taxi driver, to someone serving them, hey, what it is that drives you, what are you about, and they won't just try to do the same routine all the time. And third: optimism. So those three things, humility, intellectual curiosity and optimism, the optimism gives the energy to take advantage of those lucky circumstances because you just believe that more change can happen.

Rachel Salaman: Some people might say, "Oh, I'm just not an optimistic person," but that is something they can change isn't it?

Tony Tjan: It is something they can change as I alluded, I believe that the smarts and guts traits are easier and more malleable with training and understanding, I think the attitudinal components of heart and luck are ones that take greater self-awareness and more time to evolve, and so it is absolutely something that one can change, but starting with that baseline of humility it is something that I've personally tried to work on over many years, but I have a greater awareness now that I'm principally heart and smarts driven, and when I really see luck driven people and people with true levels of humility, it's just a fact, they have greater humility than me. So it's something that we have to be intellectually honest about and I think the more honest you are about it, the more self-aware you are about it, you try to pause and get better at it.

Rachel Salaman: What final tips do you have for people who would like to perhaps re-balance the amount of heart, smarts, guts, and luck that they bring to their business life?

Tony Tjan: I think it starts and ends again with self-awareness and so it really ties to this question of how do you really become more self-aware, and there are a few ways and one important point here Rachel is I want people to know that our book, whilst it's done very well as have others who have put forth psychometric frameworks, it's not meant to be a recipe and as you're out there reading all the advice, listening to great expert series such as this one, reading the blogs, don't get caught in the trap of what is the recipe, what is the magic formula I'm trying to get to in "Heart, Smarts, Guts, and Luck," or what Myers-Briggs formula, or what Strength Finder formula, what Predictive Index formula do I need, what is the right business plan color by numbers formula. Too many people want something formulistic and I would say self-awareness is gained first by having a framing that just helps you and "Heart, Smarts, Guts, and Luck" and the entrepreneurial aptitude test is a framing, and then really try journaling and codifying your decision making and reflecting on them, like many of the questions that we talked about today, people can learn a tremendous amount if they are just intellectually and rigorously honest about what it is they say they would do and what it is they did, and then doing post mortems on that. And then third having an objective mirror, a close set of friends, mentors, peers, family members, it doesn't really matter, who can come to you and say yes, that sounds about right, your perception matches the reality I see, or you know what, you're full of it right now and you've got to have a check in again. So those are the elements that I think could help you become more self-aware and just always remember there is no set formula for success, the success really starts with understanding who you are and trying to be true to that.

Rachel Salaman: Tony Tjan, thanks very much for joining us.

Tony Tjan: Thank you Rachel and thank you to everyone listening to this.

Rachel Salaman: The name of Tony's book again is "Heart, Smarts, Guts, and Luck: What it Takes to be an Entrepreneur and Build a Great Business." There's lots more information about it including the online assessment Tony mentioned at hsgl.com

I'll be back in a few weeks with another Expert Interview, until then goodbye.