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October 2015

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Abe Issa trudged up the walkway to another suburban front door, sweat sliding down his back in the blast furnace of a Fort Worth, Texas, summer. He had a pretty good idea of how he’d be received on the other side of the locked screen: “Not interested.” “Don’t need it.” “Don’t waste your time.” Take your pick.

“Whenever I got rejected, it would sting,” admits Issa, whose family immigrated to the U.S. when he was 5 to escape the civil war in Lebanon.

Everyone knows that door-to-door sales went out with the Fuller Brush man. And what Issa sells is even more of a challenge to the established order: In Texas, the heart of oil and gas country, he offers non-fossil-fuel energy solutions. His company, Global Efficient Energy, provides foam insulation, HVAC, LED lighting and solar products—the last a veritable heresy in these parts. Out of every 100 sales calls, he might wrangle three or four appointments to do a free audit to show homeowners the money they could save with more effective energy management.

“I was told by friends, business associates and investors that homeowners would never buy energy-management products from someone with no track record, no references, no office and no employees, who happened to knock on their door uninvited,” recalls Issa, who launched Global Efficient Energy in 2011 out of his apartment with $1,000.

But naysayers and conventional wisdom didn’t mean much to Issa. Like all entrepreneurs, he saw things not as they were, but as they could be. Energy costs are a major expense for homeowners; cutting those bills would be a successful value proposition. And everyone wants to save money. Issa took the rejection as motivation, pounding the sidewalks until 9 every night.

To prove his credibility, during home demonstrations he showed images of himself giving a speech in front of a large audience. But it was a bit of sleight of hand—the speech had nothing to do with his energy business; in fact, it was one he had given for a prior venture in real estate that had crashed during the Great Recession. If homeowners inferred he had amassed a great following for his energy company … well, it was a stretch, but one he believed could pay off.

Trusting her gut helped Heather Gillette succeed with her crowdsourced decorating service, nousDecor.

Image Credit: Courtesy of nousDecor

A little bending of the rules is par for the course when you’re trying to spin rank beginnings into going concerns. To get in the game, entrepreneurs have to shade, bend, twist and reinvent business as usual. In other words, they have to break the rules: the central act of entrepreneurship. New ventures change, upend, disrupt the status quo.

Psychologist Michael Kirton, creator of the Adaption-Innovation Inventory that measures problem-solving styles and propensity to innovate, has documented that entrepreneurs think differently than get-along, go-along types—known as “adaptors”—who are more suited to working within companies. Entrepreneurs are “innovators” who treat “accepted means with littler regard in pursuit of goals.”

A study by Zhen Zhang and Richard Arvey found that modest rule-breaking in adolescence (family/school offenses, delinquency) is a marker for entrepreneurial behavior. Google “Bill Gates mug shot” and you’ll find a Cheshire cat-like photo of the future Microsoft founder in his teens, booked for a traffic violation.

“I’ve always been a rule-breaker and someone who goes against convention,” says Heather Gillette, founder and CEO of crowdsourced home-decorating site nousDecor. A high-school dropout, she ran away from home more than once and remembers taking her great-grandfather’s car out for spins at midnight beyond the safe confines of her family’s private property. Her parents had to take the distributor caps off her car in her teen years so she couldn’t sneak away again.

Gillette talked her way into a job at YouTube as it was just starting and wound up leading the content review, copyright and user-support teams before heading out on her own rule-busting venture—inviting strangers to help folks decorate their homes.

Rebels have an advantage in a realm based on bucking rank and stepping on a few toes. New ventures don’t have the time, resources or legal teams to wait their turn politely. The founders of Airbnb and Uber didn’t say, “Wait, the hotel or taxi industry may not like what we’re doing. Let’s just skip it.” They opted to start first and address problems later. While some of those choices are still being dealt with in the form of lawsuits and protests, it’s a fait accompli, with both firms valued in the billions.

While not everyone who starts a business has a delinquent past, pushing beyond the established order—not to mention social graces, introversion or comfort zones—is required for all entrepreneurs. In Issa’s case, he challenged the conventional wisdom on cold-calling in the 21st century and a belief that you can’t sell whole-home energy fixes, only individual heating or solar plans.

“Everybody said people were too skeptical today, jaded by decades of scams and hustles. They were wrong,” says Issa, whose bet against the accepted order is paying off to the tune of an estimated $60 million in sales in 2015.

The Gray Zone

The rules of the status quo come in many forms: legal, as in real, statutory laws; unwritten codes of social conduct; and a dizzying variety of conventions held in place only by habit and herd mentality. The toughest to take on are rules that are physically on the books. YouTube’s gamble with unlicensed music videos paid off, but Napster’s file-sharing and Aereo’s TV- signal-snatching antenna got stopped in their tracks by legal maneuvers.

Fortunately for entrepreneurs, the vast majority of rules that might be ignored fall into the non-penal-code category. Rather than illegal, they are merely different, non-obvious ways of doing things—gray areas. “Infractions” range from overly aggressive courting of investors to fictitious big-name-dropping (“Jeff Bezos is looking at our plan”) to exaggerating sales or size.

Dennis liu

Image Credit: Armando Espinoza

Robbie Kellman Baxter, a consultant at Peninsula Strategies and author of The Membership Economy, has seen a lot of this from her base in the Silicon Valley. “Some people do it too much, to where it’s dishonest,” she says. “Most of the time they don’t do it to be unethical. They’ll say, ‘We’re small, and nobody cares if we break this rule.’”

The assumption is that such companies will catch up to the puffed-up estimates later, when they’re successful. In fact, much rule-bending occurs at the front end of ventures, when getting traction from investors to customers can be crucial to a project seeing the light of day.

“Starting from zero, you will do things to make it seem bigger than it is,” says Vince Ponzo, director of the Eugene Lang Entrepreneurship Center at Columbia Business School in New York City. “You bet your career and your money—you will do what you need to do to see that thing come to life.” But he says entrepreneurs have to be careful. Any embellishment or liberties shouldn’t “hurt anyone or cause damage.”

Jason Tan had a lot riding on his venture’s disruptive promise. He’d just walked away from a Seattle startup bought by Match.com’s parent company, IAC. The young computer engineer was in for a stock payout that would have kept him comfortable for 15 years, but he would have had to stay at the company for two more years. His idea for a fraud-detection technology driven by machine learning couldn’t wait. He had a chance to get into a major investor show-and-tell with Y Combinator. Wi
th so much riding on his gamble, he had to stand out from the pack of 63 companies represented by 100-plus entrepreneurs pitching demos to the top investors in the country. But how?

“I decided to drop an F-bomb—in context,” Tan says. “I said, ‘We’re going to catch anyone who tries to f— with your customers.’” That attracted some attention. Almost immediately, he received an email from Max Levchin, co-founder of PayPal. Soon, Tan’s company, Sift Science, had a major investor and was off the ground.

“If you’re breaking rules in a hard-and-fast way, that’s illegal,” Tan says. “I don’t want to do that. But bending rules? I like to win.”

San Francisco-based Sift Science has taken that maverick philosophy to the heart of its technology and payment plan. Its fraud-detection technology is (appropriately enough) not a rules-based system—it’s not “If A, then B.” Machine learning makes it possible to continually adapt to data without human intervention. Tan also bucked industry practices by allowing customers to try the product without buying it and letting them pay month to month, instead of locking them in to annual contracts. His clients now include Twitter, OpenTable, Zillow and Indeed.

One major obstacle startups have to overcome is their initial puny size. How can you sell your company as a serious solution before the customers have shown up? Dennis Liu mined the gray realms of the digital space to get attention for his first venture, a recreational-activities app called Ravn. He and his partners worked with a company that downloaded apps in large volumes every day to artificially propel their product to the top of the iTunes app chart. “It’s like bending the rules. A lot of people were doing this,” Liu says—until Apple cracked down.

Another technique they used was data mining. They hired a large team in the Philippines to scrub the web for activities they could use to populate their app—“Fake it ’til you make it,” as Liu calls it. Business Insider has reported that Airbnb employed a similar tactic, using a sophisticated spam effort to mine home and rental listings from Craigslist to pump up its initial offerings.

Liu’s efforts resulted in 10,000 activities for his app, but the business turned out to have a limited market. He and his team found that it’s best to have a maverick product to back up a rule-breaking strategy. So they created one that goes against the grain: a website for the male shopper. Liu now serves as chief strategy officer of that venture, Touch of Modern, which targets gentlemen with unusual watches, electronics and home accessories.

“The conventional wisdom was that men don’t shop,” Liu says. The company proved everyone wrong. After three years, Touch of Modern is approaching revenue in the nine figures, according to Liu, and has a staff of 130.

“An idea that sounds wrong is actually a good idea,” Liu explains. “If it’s a great idea, everybody is doing it.”

Entrepreneurs Go Against The Herd

If you’re an Arctic tern or a dachshund, there are no rules to break, because they are all built into your biology. Humans, however, look to see what the majority is doing before they act, to make sure it’s sanctioned behavior.

Conformity is a powerful force for the social animal. Psychologist Solomon Asch’s famous line studies in the 1950s showed that people will change their responses to obviously correct answers when the group says something different. People seek out conformity for self- protection and do it more often in times of uncertainty—a big drawback for entrepreneurs. One of the main benefits of doing what others do is that more people will like you; people who don’t conform are more apt to be rejected or ridiculed.

Jason Tan of Sift Science.

Image Credit: Trevor Paulhus

Conformism may help us to function in society, but it’s at odds with the entrepreneurial process. The social cues and faux pas we are raised on are made for preserving the status quo. Entrepreneurs are in the business of violating the status quo. That means they face rejection and naysayers—until their upstart product or service has been validated. In the meantime, entrepreneurs need to go it alone.

Self-starters and iconoclasts like Issa and Gillette have an ability to trust their instincts over the mentality of the herd, and that helps them ride out the slings and arrows of solitary venturing. It’s known in the psychology world as “locus of control”—you don’t need others to ratify your beliefs or decisions. It’s another way of saying you trust your gut.

Gillette trusted hers when she decided to have a prototype for her home décor site built in Ukraine. “People said, ‘How are you going to communicate with them, watch them?’” Gillette says. “I’d started teams in India and done videoconferencing. Why wouldn’t I do this?”

She paid a five-person Ukrainian team $7,000 per month for five months—half what she would have paid for an engineer in the U.S. Though it was scrapped later, the prototype won her $3 million in startup capital. Her site, nousdecor.com, the first to crowdsource home design, launched last year with 3 million products.

When you do something different, you are going to get a lot of rejection. That makes conformists nervous, but it’s provocation for people like Linda Losey, who as far back as eighth grade challenged a New York state law that said girls couldn’t take shop classes and had to study home economics. She won.

More recently, Losey butted up against the weight of state liquor laws when she opened a distillery to make limoncello, the Italian lemon liqueur. She had to get a law passed in West Virginia to stay in business. After opening the Bloomery Plantation Distillery to good notices, crowds and awards in the first two years, she discovered that with 28 percent of her margins going to the state, which operated as a wholesaler for her liqueur, and 10 percent of the company’s retail sales going to local liquor retailers because of an antiquated regulation seemingly from the moonshine era, she couldn’t make any money.

Her strategy was bold even for a hard-charging entrepreneur: Shut down the distillery and rally the troops on social media to change the rules. The distillery’s fans flooded the governor with livid emails, and within six weeks a law was passed in the state Senate that cut the state fee from 28 percent to 5 percent and the local tax from 10 percent to 2 percent. “God forbid you should tell me no,” Losey says. “I’ll find a way to get it done.”

Another entrepreneur, Duncan Berry, the son of two artists, had a ringside seat to nonconformism. “From an early age, I had difficulty with systems and repetition,” says Berry, co-founder and CEO of Portland, Ore.-based seafood company Fishpeople. He dropped out of high school and lived on a boat in the Caribbean with his parents, then became the youngest fishing captain on the West Coast. “I was disrupted from the usual career path. The world of water is full of nonconformists.”

On Kirton’s Adaption-Innovation scale, Berry falls on the innovative side. As Kirton describes it, innovators want to “do things differently” and don’t care about existing structures; adaptors prefer to “do things better” and thrive on structure. Each solves problems with a different cognitive style. Adaptors use existing solutions and don’t challenge rules, while innovators find problems adaptors can’t even see and may bring about major change in the process. The talents of both types are needed in every organization.

Berry started an organic cotton company to help women escape appalling working conditions and to protect habitats on multiple continents. He hired farmers and started schools from Pakistan to Texas before taking on an even bigger disruptive project—challenging overfishing and the de
cline of fish species. After a year of interviewing fishermen, chefs, caterers and other food-service workers, he found there was something missing in the battle for a more sustainable sea: the consumer. He co-founded Fishpeople to rectify that.

His goal was to enlist consumers as activists, allowing them to vote for change with their pocketbooks by buying sustainably caught and sold fish. The idea was to build a seafood brand that was 100 percent sustainable and sourced from American coastal communities. However, he was told by naysayers in the food world that he would never be able to scale to volume with 100 percent transparency into his supply chain and know where every ingredient came from.

Two years later, the company is doing just that for its seafood products, which range from Pacific salmon in chardonnay sauce to albacore tuna in yellow coconut curry sauce. You can go to fishpeopleseafood.com and track your fish to the boat and even the fisherman who caught it. “This week we are shipping a product where you can hold our fillets of fish and have a picture of the fisherman and boat that caught the fish, and we’re doing that at a national scale, 2,800 stores,” Berry says. “The new order will not be defined by the rules of the old.”

The nos and thou-shalt-nots that barrage entrepreneurs boil down to what Mark Twain called “cornpone opinions,” uninformed malarkey based on what the majority has yet to see or validate. The entrepreneur smiles at these limited imaginations, knowing that a successful venture will prove them wrong.


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