INTUITIVE INTELLIGENCE

For me, business is a ‘gut feeling’ and if it ever ceased to be so, I think I would give it up tomorrow.

It wasn’t always a success story for billionaire Richard Branson, but as he describes his past mistakes in his 1998 autobiography, Losing My Virginity, he recalls the invaluable lessons he learned about life and business. His mistakes led to innovations that would later become the experience necessary for the “gut feelings” that would lead him to greater business success.

“By ‘gut feeling’, I mean that I believe I’ve developed a natural aptitude, tempered by huge amounts of experience that tends to point me in the right direction rather than the wrong one.” (Branson, 2011)

One of the most distinctive features of money-makers is the “gut feeling.” Virtually all highly successful people talk about trusting their instincts over the complicated analysis of an idea.

In a 2012 interview, Lauren Lyster from the Daily Ticker asked Jimmy Choo co-founder Tamara Mellon, “What is the most important lesson you’ve learned in business.” Mellon said, “The most important thing is instinct, you have to trust your gut. Every time I’ve gone against my instinct it’s been a mistake.”

However, upon further investigation, the gut feeling is NOT what sets apart the successful entrepreneur from the struggling entrepreneur, but rather, the distinctive factor is the ability to monetize gut level experiences. Money makers are not merely throwing the dice on a hunch that double sixes will turn up. Both billionaires and zeroaries have the same chance of success apart from experience.  

Financial entrepreneur, Warren Buffett, heavily relies upon at least two helpful emotional brain processes: intuition and empathy. He also utilizes gut instincts with position sizing, overall market exposure, and in sensing danger. (Revee Mehta)

What is the advantage that an experienced money maker has over other, less successful entrepreneurs? It has been shown that money makers use a complex information processing system of pattern recognition that most people use for recognizing faces in a crowd or avoiding a potentially dangerous situation (Kirzner, 1985; Baron & Ensley, 2005). A money maker is like a chess grand master that can make a move on a chess board in less than 30 seconds, because he recognizes a pattern from thousands of hours of playing chess.

The probability of making an error in judgment when relying on gut feelings greatly decreases with experience, because decisions for money makers is more about recognizing opportunity than throwing the dice on a bet.

SIDES OF A CIRCLE

If people aren't calling you crazy, you aren't thinking big enough. Richard Branson

In 1967 Rollin king approached a Texas attorney with an idea for starting an interstate airline. It was an idea that someone crazy enough to understand the potential could actually make it happen. That person was Herb Kelleher, one of the most innovative entrepreneurs of our time, who turned Southwest Airlines into the most profitable Airline in the world. When Kelleher was asked in a 2009 interview at Stanford University, “Is there anything about the spirit of innovation, that can be taught and learned or do you think it is congenital, that you’re born with it?” Kelleher replied, “I think you have to have that spark in your DNA to start. You’re a little bit of a risk taker, you’re a little bit of a visionary, and you’re a little bit of an idealist.”

Thinking big is only a small part of the strategy that money makers implement into their business plan, but a closer look at the strategy reveals a unique and enduring trait that is matched to money makers (Rauch and Frese, 2007). Some may call it innovation and others identify it as out-of-the-box thinking. Edward De Bono (1967) described the trait as something more than mere innovation. He coined the term, “Lateral thinking,” which was not only manipulating existing pieces, but seeking to change those very pieces. It focuses on the perceptual part of thinking. (De Bono,1969).

Lateral thinking is not a natural way to think. Our brains make sense of new experiences by relating it to meaningful patterns. Furthermore, Gestalt psychologists suggest that cognitive processes begins with innate patterns of sensory information and we relate new sensory input to fit our mental patterns. Our brains tend to be self-regulating mechanisms, so when sensory input doesn’t appear to fit mental patterns we adjust the information. Some people will adjust a picture that is slightly crooked, even in a stranger’s house, to fit their perceptual patterns of what they consider normal. Lateral thinkers naturally perceive the world from a different perspective. Perhaps it’s a preference for right hemisphere processing or an innate cognitive structure that causes them to adapt existing information to fit their worldview.

Lateral thinking often presents us with solutions to problems that is not initially appreciated by the general public. Only when the idea “works” and sometimes revolutionizes the industry is it recognized as useful. Education tends to follow cultural trends, and lateral thinking leads the trends, so for this reason, lateral thinkers often struggle in higher education. According to Pauwe and Williams (2001) Higher education inadvertently suppresses intuitive, creative, lateral, emotional, and other dimensions of nonlinear thinking, suppressing the innovative nature of aspiring entrepreneurs.

How many sides to a circle? It depends on how you see the world. In most people’s minds the cognitive structure of a circle has no sides, but to a person who thinks laterally a circle has an inside and an outside.

THE MISTAKE WE MAKE: EXTRAVERSION AS A MONEY MAKING TRAIT

           I remember my conversation with a bar tender in a Mexican restaurant in 2006. I was planning to rent my house and a real Estate agent overheard what we were talking about. Her voice cut through the conversation like a knife, “If you are interested in selling, it’s a really good time right now.” She handed me her business card and continued to tell me more about the real estate market than I was interested to hear. She is an extravert and most people would agree that it takes an outgoing person to succeed in business. However, there is no evidence to show that an extravert will succeed any better in business than an introvert.

           It is so widely accepted that extraverts make great sales people that few people have stopped to look at the evidence. Extraverts are talkative, gregarious, optimistic, confident, and social; however, the extravert may appear to customers as insincere, shallow, unrealistic, hypocritical, and unwilling to listen.  Customers may be put-off by the negative characteristics of the personality trait. As the saying goes, people love to buy, but they hate to be sold.

           The evidence for money making and extraversion is contrary to the popular perspective. In other words, most people would assume that extraverts would make great sales personnel. Barrick, Mount & judge (2001) gathered trait results from job performance studies, isolating a correlation between extraversion and successful sales personnel. They concluded that there is nearly no correlation (.07) between extraversion and making money. Andreas, Rauch & Frese (2007)  conducted a meta-analysis of 104 separate studies of nascent entrepreneurs, an overall 26,700 subjects, and concluded that extraversion is not matched to entrepreneurial success (inter-rater agreement of .73). In a recent study, Grant (2013) showed that extraverts and introverts performed daily sales averages almost evenly, with the extravert coming out on top, resulting in a five dollar a day difference between the two traits.

           What may we conclude from recent research that contradicts commonly held beliefs regarding money making traits? First, we should check our biases regarding individual personality behaviors and money-making success. Second, we should not only identify a trait through an assessment, but we should observe how the person displays the trait. “Extraverted salespeople may focus more heavily on their own perspectives than on customers’ perspectives. As a result of these tendencies, extraverted salespeople may spend too much time delivering assertive, enthusiastic pitches and too little time asking questions and listening to customers’ answers.” (Ames & Flynn, 2007; Judge et al., 2009). Third, if an extraverted salesperson is not performing as well as expected, he or she may benefit from trait research that identifies the Ambivert, the middle ground between the Introvert and Extravert, as the real money maker.

OPPORTUNITY, A REWARD IN ITSELF

             The next time you here a money-maker say, “This opportunity feels good” you better listen. Many money-makers are conditioned from their youth to feel pleasure when they find an opportunity to make money. Money-makers are conditioned to feel pleasure when they see or hear about financial opportunities, and even the thought of an opportunity stimulates the reward system of the brain.

            Through studies of motivation we’ve learned that reward pathways in the brain are stimulated naturally through our peripheral senses (sight, sound, touch, smell) in the same way that a drug induced “high” satisfies an addict’s appetite for drugs. These pleasure signals are conditioned early in life and programmed to stimulate the reward system of the brain. David Linden a professor of neuroscience at Johns Hopkins University (2011) states, “It is important to realize that our pleasure circuits are the result of a combination of genetics, stress, and life experience, beginning as early as the womb.” The conditioned response can at times be so strong that it overrides basic drives such as food, water, and sex. Experiments show that when subjects are given a choice between food and brain stimulation of the lateral hypothalamus they chose the pleasure of the stimulation over food (Routtenberg & Lindy, 1965). The lateral hypothalamus contains a bundle of dopamine rich neurons and when it is stimulated by a rewarding experience it induces the greatest amount of pleasure and drive (Wise, 2002). Neuroeconomics is taking a hard look at reward seeking emotional behavior and the research reveals that the mesolimbic dopamine system (MLDS) modulates instincts by reinforcing or decreasing motivation in learning as well as decision-making (Alcaro, et al., 2007).

            What this means for the money-maker is that the pleasure they feel when they see an opportunity to make money is a conditioned response.  In many cases the stimulus is so powerful that it drives their behavior to the extent that they can think of little else than the opportunity before them. This may in part explain why money-makers have an aversion to market statics and business plans; because they don’t plan for opportunity they feel it.

THINK LIKE A MONEY-MAKER Cont.

         It is not unusual that an entrepreneur uses heuristics more often than systematic analysis for determining opportunity; however, the money-maker is more successful in choosing profitable ventures than the non money-maker, because their decisions are less influenced by a number of cognitive biases.

        Money-makers effectively avoid cognitive biases that set in motion a series of events that lead to failure. Baron (1998) states, “Successful entrepreneurs, as compared to unsuccessful ones, may be less subject to a wide range of cognitive errors. . .” People tend to be creatures of bad habits when it comes to investing time and money in business ventures.  Many entrepreneurs recognize opportunity at the peak of its potential, but by the time they choose to invest, it starts to decline. This is what researchers call a representative bias (Tverskey and Kahneman, 1974; Hogarth, 1980; Simon et al, 2000). In other words, an entrepreneur will use past or current successes to plan for success in a new market venture; however, in doing so they will overlook minor variables that can dramatically influence market performance over time.  A second common cognitive bias is the tendency for an entrepreneur to be overly persistent. Persistence can be a trait of strength, but when an entrepreneur anchors their initial decisions and ignores the need to make vital adjustments in the process they leave themselves vulnerable to problems that arise in the micro-environment. A failure to adjust the business plan will cause an entrepreneur to lose sight of problems that can create an internal financial hemorrhage. (Kahneman et al., 1982). A third common cognitive bias is that some entrepreneurs are too optimistic about predicting outcomes. They think that the strength of their belief will protect them from failure. Furthermore, their overly confident attitude about success can distort their perspective and they begin to think that the outcome is subject to their control; this is what Hogarth (1980) calls an optimistic bias. In order to understand why money-makers are more consistently profitable than non money-makers, cognitive bias is important variable in identifying the reason for success.

      In addition to identifying the cognitive biases of entrepreneurs, it should also be determined why some are less prone to biases and if it is a determining factor for financial success.
           

THINK LIKE A MONEY-MAKER

            Money-makers think differently than the rest of us. The thought process of the money maker is often counterintuitive. They will be told that they are crazy; the idea will never work, no one will buy the product, it doesn’t make sense. The nature of counter intuitive thinking is that it is contrary to common sense thinking. A money-maker will open a business where many businesses fail. They will start companies in depressed economies. They will hire employees and expand their business when other companies are trimming their work force. We should understand that the money-maker doesn’t only think differently than most people, but the mind of the money-maker functions differently than the rest of us.

           

            Some of the common cognitions of money-makers are that they have less of a tendency for counter factual thinking (Roese, 1997; Baron et al., 2004). In other words, the money maker spends less time thinking of the possibility of failure than most people. A study comparing entrepreneurs with non entrepreneurs showed that non entrepreneurism frequently thought about the possibility of failure and as a result had a much higher occurrence of failures in their life. When entrepreneurs were asked to list the three events in their life they regretted, many of them could not think of three negative life experiences. Money makers tend to be forward thinking and rarely consider that failure is a possibility (Baron, 2000).

           

            Money-makers show a preference for heuristic thinking verses systematic processing of information. Cognitive scientists have drawn a clear distinction between two modes or styles of thought: systematic processing, which involves careful, analytic thinking, and heuristic processing, a contrasting style in which information is processed quickly and effortlessly, in accordance with various simple heuristics (e.g., ‘‘If it comes from a good source, then I will believe it; if not, I will reject it’’; Petty and Caciopo, 1990). It should be noted; however, that a money-maker can easily switch between analysis and the heuristic. Unsuccessful entrepreneurs, on the other hand, may cling to their heuristic when it would be more prudent to slow down and analyze the facts (Baron, 2004). What this means in the real world is that the money-maker is less guided by market trends, statistics, or what the experts are saying about capital investments. This kind of thinking allows them to stay ahead to the trends and often make decision in contrast to current statistics.  

WARRIORS IN PINSTRIPES

"I would rather live a short life of glory than a
 long one of obscurity."           Alexander the Great

       In 324 BCE Alexander the Great established world domination. His generals encouraged him to return to Babylon to rule his Kingdom. Alexander could think of nothing worse than to live out the rest of his life as an administrator of Babylon. The end of battles did not mean security for Alexander, it meant obscurity. For a year he reluctantly ruled over his kingdom, and in the end he drank so heavily that in his weakened state, at the age of 33, he caught pneumonia and died.

       When a nascent entrepreneur establishes his or her company, so that it is financially solvent they are already thinking about starting another business; when they win the bid or secure the contract they’re off to another negotiation. For people who don’t understand this kind of drive it seems strange that money-makers seldom celebrate their accomplishments. However, it’s not the accomplishment that drives them – it’s the battle. The money-maker has a high need for achievement. If the nascent entrepreneur talks about making the final deal and settling down to enjoy the fruits of their labor, it’s for the benefit of others; a wife or husband that complains about never getting to spend enough time with them. A company that wants to promote an entrepreneur into an administrative role, such as Vice President of Marketing, or Sales VP will find a lot of resistance and often lose one of their best money makers, because the need for achievement in administrative roles is never fulfilled in the same way as it is in the trenches.

         A need for achievement (nAch) is a stable trait to obtain satisfaction by continually striving for a higher standard. When John D. Rockefeller was asked how much is enough he replied, “A little bit more.” McClelland, Koestner, and Weinberger (1989)  viewed nAch as an animal like drive that energizes and selects behavior. In other words, an entrepreneur with a high need for achievement is not driven to succeed by some outer force, but rather is motivated by an internal drive to always obtain a higher standard. For the money-maker the achievement incentive, a term coined by Spangler (1992), is triggered by a potential opportunity to make a lot of money. The potential opportunity is the driving incentive for the money-maker, but without it there is no incentive to achieve. McClelland (1965) conducted a longitudinal study, looking at graduates 14 years after graduation, and found that significantly more of those originally scoring high in nAch were currently in entrepreneurial occupations. This supports the theory that there is a strong relationship between high need for achievement scores and “entrepreneurial” behavior. What the McClelland research did not show us is a correlation between entrepreneurial drive and money-making success. Therefore, nAch alone is not a predictive trait of the money-maker. 

       As we continue to search for money-making traits, it is this researchers belief that the composite nature of successful entrepreneurs will come together like pieces of a puzzle to reveal the predictive characteristics of money-makers.