Master entrepreneurs rely on... effectual reasoning. Brilliant improvisers, the entrepreneurs don't start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, [successful] corporate executives... use causal reasoning. They set a goal and diligently seek the best ways to achieve it.

If you give [entrepreneurs] data that has to do with the future, they just dismiss it. They don't believe the future is predictable...or they don't want to be in a space that is very predictable.

[Entrepreneurs] make lots of mistakes. They overestimate market size and underestimate how long things will take. But what happens most often is that entrepreneurs underestimate the importance of what they don't know. They know their competition as it is today, and they know that their own product is going to be significantly better. But they don't know what's going on in the backroom of their competition. You can't discount the possibility that the other guy is getting ready to replace the Model T with the Model A.

Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.

Paul Graham says that good startup founders can be described in two words: relentlessly resourceful. I agree, but I would add two words of my own: arrogant and naïve. Arrogant enough to get in the ring, and naïve enough that you still think you will win after you feel the first punch.

The pioneer is convinced that it knows what market a new thing is designed for. But this rarely is the market that subsequently picks up the product.

We've overdone this whole leadership/founder/entrepreneur thing. And we're not spending nearly enough time crediting the folks who turn all that visionary stuff into tangible reality: the chief operating officers, the midlevel managers, the staffers. If the word didn't have a pejorative tinge to it, I guess you'd call them followers.

We degrade the very idea of followers -- lemmings! -- yet the world needs people who can follow intelligently. I am not talking about mindless armies that march in formation and shoot if their leader points down a dark hallway. The key word is "intelligently." Good followers ask good questions. They probe their leaders. They crunch the numbers to ensure that their visionary boss's gorgeous plan actually works.

If your aspirations are not greater than your resources, you’re not an entrepreneur. For large companies to be entrepreneurial, they have to create aspirations greater than their resources. You can call it “strategy as stretch” or “strategic intent.”

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.