Is "Do What You Know" Smart Advice for Startup Entrepreneurs?

When you're trying to choose a field for your startup, it may be smart to leave the familiar behind and strike out into new territory.
October 02, 2014

Any would-be entrepreneur asking for tips about what kind of business they should start is often quickly advised: Do what you know. In other words, start a business in a field where you have some experience. So if you’ve managed restaurants, then start a restaurant. If you coded for a living, start a software company.

The idea is that you're more likely to succeed in an industry where you know the ins and outs. It's simple. It's obvious. And, according to some experts, it's wrong, or at least, not necessarily right.

When researching her new book, Rookie Smarts: Why Learning Beats Knowing in the New Game of Work, author Liz Wiseman found that rookies working in knowledge industries tended to equal or outperform people with more experience. One explanation Wiseman offers is that experts tend to ignore things that don’t accord with their experience. Meanwhile, rookies, who know they don’t know it all, stay alert to everything. Experts were also less likely to seek third-party advice, while rookies lapped up all the information they could get, which helped them bring fresh perspectives to problems and opportunities.

Of course, rookies aren’t superior to old hands in all ways, Wiseman says. Experts’ hard-won networks of contacts are difficult for newcomers to top, especially when it comes to sales, for instance. She also theorizes that industry dynamics matter. “When the industry is stable, you want someone with experience,” Wiseman says. “But if you’re in an industry where information is doubling and knowledge is becoming obsolete, you need someone who is a learner.”

Rookies Versus Pros

Interestingly, Wiseman didn’t find that being a rookie helped you bring fresh ideas to a situation that could help prompt innovation. “I found we really bring no ideas,” Wiseman says of being a rookie. “And it’s the fact that we don’t know that prompts us to seek out experts.” Gathering input from a variety of experts is how someone new to a field is often inspired with insights that lead to innovation, she explains.

No matter what the industry, however, business owners need comprehensive skills that span the areas of finance, operations, marketing, management and more. And even if you have experience in the field in which you start your company, you're unlikely to know everything you need to run your business successfully. This often shows up in a lack of sales ability, according to small-business consultants Doug and Polly White.“They may really know how to do the primary work,” Polly says, “but they don’t take into consideration the sales and marketing activities.”

That was the Whites' own experience when the two of them, both veteran corporate and consulting firm employees, started their consulting business, Whitestone Partners, several years ago. While they knew the business management industry, they'd never sold consulting services—and it showed. “We pretty much suck at selling,” Polly says.

The couple spent months following approved consulting industry practices and attending numerous networking functions looking for clients. The result was not just no sales but also no meetings with anyone who could hire them. “We had to come up with a new way of getting clients,” Polly says.

This was when their own version of rookie smarts kicked in. They decided to write a book in hopes that would bring in some business, and they found that interviewing 100 or so small-business owners in the course of their research for the book was just the entree they needed. Meeting and talking with other entrepreneurs an average of four times each created strong enough relationships that, even though they were researching and not selling, when the businesses later needed consulting services, they called Whitestone.

The duo calls their approach “research based marketing,” and Doug says the necessity-driven sales innovation—and the fact that they had enough savings to pay their living expenses until it came to fruition—was critical to their survival. “Had we launched the business and not had the deep pockets that we did," he explains, "we would have had to have folded and gotten jobs after some period of time because we wouldn’t have been able to pay our bills.”

Do What You Don't Know

While Wiseman has found that rookies have special smarts they can offer and the Whites have discovered positives in their own unfamiliarity with important aspects of running a business, academics have also been undermining the idea that doing what you know is always a best practice.

Researcher Gavin Cassar of France’s INSEAD recently looked at 2,304 startups and found counter-arguments to the notion that all experience is good, and that is particularly true of startup experience.

In a 2014 article published in Journal of Business Venturing, Cassar described discovering that entrepreneurs with industry experience tended to generate more accurate performance forecasts. But entrepreneurs whose prior experience was in starting a company did not outperform newcomers to entrepreneurship. The reason, Cassar says, is that entrepreneurship itself is not a highly effective teaching tool.

“Basically, for experience to be beneficial, the entrepreneur needs to learn from the experience,” Cassar explains. But key features of effective learning, such as repetition and timely and accurate feedback, aren't typically present when starting a new venture, he notes. Even serial entrepreneurs don’t start large numbers of companies, so repetition is limited. It can take years to learn whether or not a new venture will be successful, which is hardly timely. And feedback is very general—the business either succeeded or it didn’t, with the reasons for that success or failure based on entrepreneurs’ own biases toward casting themselves in a positive light. “Success was because of their superior ability," Cassar says, "while failure was due to luck.”

Despite the difficulties of starting a new business, both newbies and scarred veterans continue to jump into entrepreneurship, and some do succeed. Wiseman says one approach that seems to be working in Silicon Valley today is to pair a well-connected veteran and a passionate newcomer to create a “power duo.” Her research has led her to suspect the optimum approach might be slightly different—with a rookie joining forces with a veteran in one industry who pivots into a related field. That could maintain the pluses of experience while also tapping into newcomer’s advantages.

For their part, the Whites suggest startup success depends to some degree on what entrepreneurs bring to the table in three key areas: personal expertise, team expertise and working capital.

“In our experience,” Doug says, “you either have to know how to do the primary work in the business, including generating sales, or you have to have someone working with you who knows those things, or you have to have enough cash reserves to flounder around for a while to learn how to do it without going bankrupt.”

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