Idea Transcript
E-Library Idea Bank About Mindset The Wall
Noam Wasserman is a professor at Harvard Business School, a world-leading entrepreneurial thinker and author of our e101 text:
Here, Noam answers some of our key entrepreneurial questions: 1. Who are two entrepreneurs – alive or dead – that you find particularly interesting? Why them? To focus on my case protagonists – the founders I’ve gotten to know deeply and personally – I find Lew Cirne and Brian Scudamore quite intriguing. In his first startup, Wily Technology, Lew seemed to be a smashing success. For instance, the accomplished engineer raised capital from prominent venture-capital firms and used it to lead the development of a very successful first generation of products. His reward for that success: The board replaced him as CEO. They believed that as Wily was heading into its next stage of development, it needed a different CEO with skills in sales and in scaling a company. By raising capital from outside investors, Lew had surrendered control of the board of directors, which controls the decision about who should be CEO. His success meant that he was even more blindsided by the demand for a change in CEO than he would have been if he were underperforming. Why was I impressed by someone getting fired? Because he did a tremendous job of turning a public and jarring setback into a productive learning experience, one that he has now leveraged to achieve impressive success in his second startup, New Relic. He has a much better picture of what business models and challenges fit his strengths, how startups change over time and how to grow into those challenges, and the early decisions he should make about whom to involve in the startup and how. In contrast, Brian founded a very low-tech business – residential rubbish hauling – when he was still in college (in Canada), but he has impressed me in two striking ways. The first was his ability to undo his early founding mistakes as soon as he realized that he had made them, in contrast to the more common patterns of being unable to tell or act decisively when something has gone awry. When he realized he had made a mistake about his cofounders and his early hires, he acted decisively to “clear the decks” so he could restart as a solo founder and could rebuild his employee base from scratch, rather than hoping the problems would solve themselves and succumbing to the natural aversion to conflict. The second striking attribute was his ability to reflect and learn quickly from his missteps so the next time he faced the situation, he would be far better at anticipating the potential problems and proactively finding a better path through them. Brian’s first startup is now known as 1-800-GOT-JUNK, which helped pioneer an international industry. One great thing about both Lew and Brian is that they are quite humble and unassuming people, making them even better role models for our young founders. 2. How did you land on entrepreneurial ventures and their founders as a focus for your research? I had firsthand influences and secondhand influences. The firsthand influences were my own founding experiences: Among other things, I solo founded, made a lot of early decisions about whom to involve in the organization and how (without knowing many of the common pitfalls associated with tapping people from my own network), saw the effects of ill-planned founder succession, and faced a wide variety of other founding challenges. However, I didn’t realize that those challenges might apply to others until I had the secondhand experience of working in venture capital. I met a wide variety of founding teams and, as I delved into their stories and experiences, for the first time realized that what I had experienced was pretty common, and that there were recurring patterns of decisions and outcomes. When I came into academia and tried to see what we had learned about those decisions and outcomes, I found nothing systematic, rigorous, or on-target, so I decided that if we were to learn about those key early decisions, I should be the one to do it.
3. What are some ‘truths’ about entrepreneurship that you have found to be overstated or untrue? The first “truth” is about the sources of entrepreneurial failure. People tend to assume that they have to do with product problems, market issues, or the like. I had assumed the same thing! However, when I was reading a 1989 paper in which a small section delved into the reasons for failures of VC-backed startups, I realized that that “truth” was wrong. A number they presented was only a tiny part of that paper – barely more than a data point in a table and a sentence in the paper – but the authors had found that 65% of the failures within their VC-backed portfolios had been because of “people problems” within the teams. When I saw that, I realized that I had been wrong about the sources of failure, and that by delving into what those early ill-fated people decisions were and how we could make better decisions, we might be able to have a significant impact on the rate of entrepreneurial failure. Within that specific arena, another “truth” is that you should follow your gut and your instincts. Over the last 15 years, I have focused on the ways in which following your gut is likely to heighten the chances of failure rather than set you up for success. It turns out that our natural inclinations and instincts – e.g., to be overconfident in our abilities, to focus on the rosy scenarios of where things might go, to avoid tackling difficult interpersonal issues, and to make easy shortterm decisions that end up being problematic in the longer term – are particularly misleading about how to make solid decisions about cofounders, non-founding hires, investors, and the other people we might involve in the startup. 4. What are some advantages that entrepreneurs in their twenties can glean from their youth? A big advantage of youth is that that stage of life is often more conducive to founding because you don’t have a mortgage, don’t have children to feed and support at home, and haven’t gotten used to a high-priced lifestyle. The “golden handcuffs” of having a high personal burn rate haven’t set in yet. Those handcuff challenges often prevent or delay older people from founding, but are far less challenging for younger founders. 5. What are some disadvantages that these young entrepreneurs may face because of their youth? Youth often try to justify why youth is an advantage by arguing that they’ll see new things that older people are missing. “Ignorance of this industry will help me revolutionize it.” I think that sometimes happens, especially with opportunities that are keyed to younger customers, but that overall it’s more likely to be a minus than a plus. The chances that you’ll get blindsided by something unexpected go up a lot, so rather than being able to anticipate challenges and proactively tackle them, you’ll have to deal with them reactively, which is a lot harder to do and doesn’t bode well for your chances of success. Younger founders should proactively identify and address gaps in their skills and professional networks that could hinder, or even derail, the growth of their venture. Common areas for improvement include building sales skills, gaining technical experience, and developing relationships with potential investors. 6. Can you tell us about some of the unique things you have noticed about entrepreneurship in Silicon Valley? I just got back from teaching Founder’s Dilemmas at Stanford Engineering for a quarter, so this is a very timely question. One unique thing I noticed among the founder-students I was teaching was that they took “access” – to startups, founders who might want to employ them, investors who might want to get involved with them – for granted. In contrast, everywhere else, students worry about how to get access and need help learning how to build their social networks and contacts. Being in Palo Alto seems to facilitate those contacts so you can focus on the next set of challenges you’ll face as a founder.
7. Outside of North America, which country particularly impresses you with its entrepreneurial culture? Why? Israel. The people there seem to excel at turning difficult challenges into entrepreneurial opportunities, and at harnessing the talents of the local population to turn those opportunities into high-impact companies. For instance, during my last trip to Israel, I was extremely impressed with a bunch of founders and investors in the water industry – people who were turning Israel’s challenges with getting sufficient water supplies into the opportunity to pioneer and commercialize irrigation technologies and to develop water-supply technologies. Those products and advances are helping not only their country but also a lot of other countries around the world who are increasingly struggling with similar issues. 8. Please describe some of the most common mistakes you see young entrepreneurs making as they build their founding teams. The most common mistakes are making “easy” short-term decisions that result in a fragile founding team. For instance, founding with friends and classmates – i.e., those who are nearby and accessible. Because we are naturally attracted to the people who are most like us, we cofound with people whose skills overlap with ours. That both heightens tensions within the team because we’re stepping on each other’s toes, and leaves important holes within the team because we doubled up on a capability rather than finding a person who can fill our holes. When founding with those types of people, we also fool ourselves into thinking that we know each other really well so we’re setting ourselves up for success together. In truth, we rarely know what our friends (and even family) are like in the workplace, what their weaknesses are professionally, and whether our work styles – as opposed to our “hanging-out styles” – are compatible. So we don’t even question or test our professional compatibility, whether our potential cofounder is dependable in a work context, etc., and instead make the bold and often-dangerous leap that we’re all set on those fronts. When you add our natural inclinations to avoid conflict-ridden issues, the chances of facing problems proactively and productively go up even more dramatically. We avoid discussing potential issues in the hopes that they will disappear, or paper over the problem thinking that we’ve taken care of it. That also applies to equity-split decisions about who will own what percentages of the company, negotiations over who will drive the decision making and have the CEO title within the company, and other decisions about whom to involve and how. These decisions become particularly risky when we follow our natural inclination to focus on the rosy scenario (“when we succeed”) and then architect plans that assume that scenario. When we then hit a bump in the road, those fragile plans and expectations can come crashing down to the ground because we didn’t anticipate those bumps and pitfalls. 9. What are key pieces of advice you would offer to a final year undergrad who is thinking of starting his or her own business? Before you embark on an entrepreneurial journey, get a solid picture of “the roadmap of the venture”: What key decisions you’re likely to face on the journey and what the forks in the road are where you might have options you wouldn’t have considered but which should be taken seriously. Understand where you’re likely to have to trade off the benefits of one option in order to get a different benefit from another option. To help you build a better roadmap, while you’re still on campus, build your relationships with key potential mentors and make sure to check in with them often – you never know how people can help you. A course that covers the common dilemmas faced by founders can also be an invaluable input into your decisions about whether, when, and how to start your own business. Complement that with deeper knowledge of “the roadmap of yourself.” In addition to what your strengths and weaknesses are – and therefore which holes you should focus on filling – what is motivating me to become a founder? What are the outcomes that I will celebrate achieving rather than be left with regrets? That will help you understand what you should decide when you face a tradeoff between two potential benefits. In addition, at the nexus of those two “roadmaps,” make sure you understand what decisions you’ll make along the way that will heighten the chances of getting to outcomes that you’ll celebrate rather than regret. Then, find ways to resist having your gut and intuition lead you towards regret rather than celebration.
Application 1. Based on what Noam says in his interview here, map out some of the key decisions and dilemmas that you will likely face in the ‘road map of your venture.’ 2. Given what you have learned from Susan Ben Oliel – our e101 video-featured lawyer – which of these dilemmas or decisions might have legal ramifications and how should you address them? Noam Links Is your passion for the business bolstering or blinding you? http://online.wsj.com/articles/how-an-entrepreneur-s-passion-can-destroy-a-startup-1408912044 http://www.hbs.edu/faculty/Pages/profile.aspx?facId=2978
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