One of the biggest differences between a core business and an entrepreneurial one is what colleagues and I have termed the difference in the Assumption:Knowledge ratio. Businesses with a low ratio – such as your core – can be managed conventionally. In such situations, the measure of a good plan is how close results came to expectations, and failure rates should be low. In a high-ratio situation, opposite disciplines apply. In an entrepreneurial situation, the measure of a good plan is not whether results and expectations aligned. Rather, the measure is how much was learned for as limited an investment as possible. Similarly, high failure rates are acceptable, provided that the cost of failure is kept very low. You can afford a lot of high-learning failures if they don’t cost very much.

Entrepreneurial leaders need to be a little bit deaf and a little bit blind. By definition they're trying to do something that defies the common view. They have to be inured to skeptics. They have to believe that their vision is true and they can make it happen. But if they are too deaf and too blind they won't learn from the market or their advisers, and as a result they won't have a chance to course-correct. They won't be able to respond and adapt as more information becomes available to them. It's a tricky balance.

There's nothing wrong with legacy businesses. I wish I had one - a profitable business that generated cash and gave you independence. There is a big problem with legacy thinking. What we need is new, dynamic thinking applied to legacy businesses to bring them into today's new opportunities.

What do self-respecting entrepreneurs do when subjected to new regulations? They learn the regulations backward and forward and then vow never to start another business that falls within the scope of those regulations. And so off the entrepreneur goes to find a new way.

The new entrepreneur often seeks ways to innovate outside the scope of the newly established regulations. In the beginning, all that works out fine. We have innovations, we love the people who created them, they’re great heroes, the returns are strong, everybody says, “I’m going to be one of those guys.” Eventually, all the truly good guys who are going to get into that business have done so. The opportunity starts drawing less savory figures—charlatans who overmarket, cut corners, establish usurious contracts, and do other clever things to generate profit for themselves. They end up bringing the system down. Then guess what happens? At the end of that period, after the equity premium has soared and collapsed again, the government steps in and regulates the systems, this time focusing on the last wave of abuse. And then we start over.

Be stubborn in the face of failure. Instead: Be determined in the face of disbelief.

The doubters are inevitable and the odds are stacked against entrepreneurs and startups, thus it is crucial to believe in yourself, your company and your solution. Yet that determination can become our biggest weakness when it manifests itself as stubbornness or inflexibility; we can learn more through failures than successes.

The difference between determination and stubbornness is the difference between ignoring people and ignoring results.

There is nothing investors like more than a startup that seems like it's going to succeed even without them. Investors like it when they can help a startup, but they don't like startups that would die without that help.

The reason they like it when you don't need them is not simply that they like what they can't have, but because that quality is what makes founders succeed.

The average investor is a pretty bad judge of startups. It's harder to judge startups than most other things, because great startup ideas tend to seem wrong. A good startup idea has to be not just good but novel. And to be both good and novel, an idea probably has to seem bad to most people, or someone would already be doing it and it wouldn't be novel.

How do you know a great entrepreneur when you meet one? Great entrepreneurs would do a better job running the competition than their competitors are doing. They can tell you not only the ways in which their strategy is better than their competitors', but also the ways in which their competitors have created the very opportunity that they are exploiting.

Successful entrepreneurs frequently are not experts in any one thing, but they are capable of being the chief, chef and bottle washer all in one.

Entrepreneurialism is a way of living life, not a way of managing life. The real entrepreneur has a certain spirit, an elan and an approach to issues that is just different. And that is the key. In a system that demands sameness, the entrepreneur is willing to be different. Only by being different can things be made better. That is the philosophy at the heart of being an entrepreneur.

One of the things we are doing in the venture capital business by raising ever larger fund sizes and amassing larger pools of capital under management is creating problems and then making them the entrepreneur's problem.

And so we tell the entrepreneur that we need 20% of his or her company to solve our problem. I don't think that's right. I've said this before and I am going to say it again. The scarce resource in the venture capital business is great entrepreneurs with cutting edge ideas willing to work 100 hour weeks turning the ideas into businesses. The scarce resource is not capital and yet we are optimizing our businesses to be able to manage ever larger sums of capital.

Successful serial entrepreneurs are able to recognize patterns before an opportunity takes shape. They search for ideas at the intersection of markets, industries, and emerging technologies. They look for disruptors that will "unfreeze" a stable industry and the companies that compete within them. They look for business models that worked well in one market and can be adapted and applied in another. They recognize that they must listen to customers but must sometimes educate the marketplace to new approaches. Entrepreneurs learn to identify ideas by raising their head above day-to-day operations and expanding their vision. They then prioritize and narrow the many ideas they generate into a potential opportunity that addresses a compelling problem for customers who are able-and willing-to pay.

There is no such thing as a "space".

There is such a thing as a market -- that's a group of people who will directly or indirectly pay money for something.

There is such a thing as a product -- that's an offering of a new kind of good or service that is brought to a market.

There is such a thing as a company -- that's an organized business entity that brings a product to a market.

But there is no such thing as a "space".

And, as far as startups are concerned, there is no such thing as Web 2.0.

What happens when startups start getting referred to as "Web 2.0 startups" -- or for that matter, "B2B startups" or "mobile startups" or "pen computing startups" -- or as being in the Web 2.0/B2B/mobile/pen computing "space" -- is that trends are getting mistaken for markets and products.

You can't build a company based on a trend.

Trends are obvious, and there's no startup opportunity in the obvious.

It frankly doesn't really matter which trends, or design patterns, you incorporate into your product.

If the product is compelling to the market, it will succeed.

If the product is not compelling to the market, it will fail.

It's not much more complicated than that.

Start-ups tend to be enormously resource constrained. Typically they are not able to devote money and time to the problems of strategic uncertainty. As a result, start-ups tend to be "bet the farm" propositions: high risk, with the potential of high reward. Such firms don't manage strategic risk, they accept it.

The degree to which you manage risk will be a function of your ability to bear risk and recover from setbacks. On the continuum from the archetypal "two people in a garage" to Johnson & Johnson, I take the counter-intuitive view that start-ups are much better able to bear risk: if the venture fails, the people and other resources involved are typically far more easily redeployed than is the case with large corporations.

Anyone who tends toward arrogance should be sentenced to a term of VC fund-raising during a tight market.

There's only a fine line between entrepreneurship and insubordination.

Silicon Valley isn't based on resource allocation, it's based on resource attraction, where somebody throws out an idea into this kind of marketplace for ideas. Either that idea attracts capital and talent or it doesn't. But there's no giant CEO brain making allocational decisions in Silicon Valley. There are many, many people making those decisions - It's very distributed. If one venture capitalist doesn't like it, you send it to another and another and another, and maybe you get funding and maybe you don't. You have to create the expectation that the kind of ideas that could change the destiny of a company can emerge from anywhere, and you have to create a system whereby people can quickly share those ideas.

When societies aren't organized so that the old vested interests can be brushed aside, entrepreneurs cannot emerge. Social systems have to be built in which entrepreneurs have the freedom to destroy the old. Yet destroying the old can too easily be seen as a step into chaos. Societies that aren't ready to break with the past aren't willing to let entrepreneurs come into existence.

The important difference between an entrepreneur and an administrator is that the entrepreneur is opportunity-driven, whereas the administrator tends to be resource-driven.

Outsiders think of Silicon Valley as a success, but it is, in truth, a graveyard. Failure is Silicon Valley's greatest strength. Every failed product or enterprise is a lesson stored in the collective memory. We don't stigmatize failure; we admire it.

Visionaries buy on the promise of a product; pragmatists buy when the product's benefits are proven. But pragmatists usually control the bulk of the money. Understanding how a specific set of pragmatists and visionaries relate to one another in the application that the venture chooses to pursue is the key to rapid revenue growth; because, if you do business with the "wrong" visionaries, they'll lead you away from the very pragmatists you will need to turn a high-potential venture into a high-performance venture.

Markets do not work as well for social entrepreneurs. In particular, markets do not do a good job of valuing social improvements, public goods and harms, and benefits for people who cannot afford to pay. These elements are often essential to social entrepreneurship. That is what makes it social entrepreneurship. As a result, it is much harder to determine whether a social entrepreneur is creating sufficient social value to justify the resources used in creating that value. The survival or growth of a social enterprise is not proof of its efficiency or effectiveness in improving social conditions. It is only a weak indicator, at best.

Very early on, the founders of startups make an important choice. Do they want success or control? Neither is bad so long as the choice is explicit. I've picked success. And success implies giving up control -- hiring people who are much better than you, or being willing to be the janitor if that's what's required.

I think there are too many people who try to change consumer behavior. That's really expensive. When an entrepreneur tells me he or she wants to educate the market, I run the other way.

Most investors prefer "learn-it-alls" to "know-it-alls."