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Simeon, a serial entrepreneur and VC, has written a thoughtful piece about the success factors for entrepreneurs.

We tend to say that one of the marks of great entrepreneurs is that they know how to operate in uncertain environments. I believe this is very true but it merits asking the further question about why are entrepreneurs good at this, or rather, why do we perceive them to be. I believe there are three main reasons which complement each other:

• Luck & timing. Many startups succeed primarily because they are at the right place at the right time. That’s not to take away credit from the teams for taking advantage of opportunity and executing but simply to point out that the presence of certain exogenous factors plays a fundamental role and/or point out that absence of certain exogenous factors could guarantee the startup’s failure. (More on this here.) As an industry, we have a terrible track record of applying revisionist history to explain success driven by luck and timing as success driven by brains and guts.
• Gut sense. Let’s face it, some people just have the combination of a great gut sense and the confidence to go with it. Like sharks that sense infinitesimal traces of blood from miles away, gut-driven entrepreneurs pick our opportunities well ahead of the market. Their biggest problem is finding like-minded people who either see the same trends or are willing to trust the entrepreneur’s gut sense. Sometimes luck can be confused for great gut sense. I attribute success to luck & timing if success is primarily driven by a confluence of exogenous factors that weren’t specifically identified by the entrepreneurs ahead of time. If, on the other hand, the future unfolds according to plan, I’d attribute success to great gut sense.
• Iterative improvement. Some entrepreneurs look at startup decision making as a process of defining testable hypotheses around key strategy and execution questions and designing the quickest, cheapest tests for these hypotheses. Will consumers recommend products to their social network? Rather than assuming they will and building this into a new online service, which may be the approach of a primarily gut-driven entrepreneur, this type of entrepreneur may decide to run an independent test pitching a few offers to consumers independently of the specific online service and seeing what consumers do.

The best entrepreneurs have both a strong gut sense and the ability to iterate quickly and cheaply. This tends to make them luckier because they are better prepared to take advantage of opportunities.

May we all be fortunate to work with people like that. Lucky entrepreneurs often see their luck run out in follow-on ventures. Entrepreneurs who are strongly gut-driven can look like geniuses when they succeed but have one unfortunate pattern of failure–they tend to fail having spent more time and money than necessary. Strong gut sense tends to ignore market feedback. Entrepreneurs who are overly focused on iteration have the fortune of failing quickly and cheaply. However, they sometimes tend to build businesses that are too small because lots of short-run optimization doesn’t necessarily lead to long-run optimization.

When I talk to successful entrepreneurs, I try to understand why did they succeed and then pay very close attention to how they talk about their success. Do they know what made them successful? Do they attribute enough to luck & timing? How introspective are they about what drives them? I look for a balance of vision and gut sense targeting a big opportunity which are measured by an iterative, hypothesis-testing-driven approch to execution. These types of entrepreneurs have a high opportunity cost of time. They aim to fail fast. If they see they cannot build a big company, they clean things up and move on to try something new.