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February 15, 2011

Fred Wilson comes to Harvard Business School

It was a treat to host Fred Wilson of Union Square Ventures at Harvard Business School today - his first time attending a class at the school.  Fred, as most readers of this blog know, is a venture capital legend in the making and the investor in some of today's leading consumer Web properties, including Twitter, Zynga and Four Square [Fred's post on his visit can be found here].

Fred and I had a discussion about lean start-ups and pattern recognition with the HBS students in Professor Tom Eisenmann's class "Launching Technology Ventures".  If you want to see some of the Tweets that came out of the class (imagine a professor encouraging students to grab their smart phones and live Tweet in class!) you can check them out here (#hbsltv was the hashtag).

A few takeaways from our session that I thought were particularly insightful:

  • Early on in a start-up, entrepreneurs should be hunch-driven more than data-driven.  If you are only data-driven, the risk is that you will move too slowly.  It's more important to have a hypothesis about what might work and what might not work and then see what happens in the marketplace to prove or disprove that hypothesis.
  • Lean start-up as a methodology or approach is very useful, but isn't a guarantee for success by any stretch.  Think of the methodology as a machine.  If you have garbage inputs, you will still have garbage outputs.  There's no substitute for good strategy, great entrepreneurs and a very large market opportunity.
  • When considering when to monetize your new product/service, think carefully about whether the monetization strategy actually improves the service or is a distraction.  Banner ads on Facebook are a distraction (as Zuckerburg supposedly said in the movie Social Network, "No ads. Ads aren't cool.")  But, for example, on Etsy if someone pays for a product, it inspires producers to create more products.  Thus, the monetization is harmonious with building the service.
  • If you are going to fail, and certainly with more start-ups being created and seeded we will see more failure, be sure to fail gracefully.  How you handle yourself as you unwind / seek a soft landing will reflect heavily on you and will cement your reputation.
  • Don't worry about whether you are building a feature, a product or a company.  Build something great, have huge passion for it, engender affection with a large customer base, and let the rest follow.
  • If you get traction, transform your company into a platform.  The most valuable companies are those where third parties help you grow by plugging into your services like a utility.
  • VCs don't make companies successful.  They can believe in and support a company, but ultimately the entrepreneurs make or break the company's success and don't let anyone (particularly an egotistical VC!) imply otherwise.

As we ended the class, we tried to inspire the students to "go for it" and become entrepreneurial.  I am always pushing students to consider if now is the right time for them (see my recent blog post:  "Should I become an entrepreneur?") and pointed out that this was a time in their lives where they could afford taking more risk.  Once they get married, have kids, buy a house and get a mortgage, it's a different ballgame.  Fred quoted a friend who once told him there were three addictions in life:  "calories, heroine and a paycheck".  If you can break the last addiction, you are well positioned to become a potent entrepreneur!



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I think that business is a risk. You will never know if it will work but when you are hunch-driven then go for it! All big businesses starts from a small business. You just have the courage and passion for what you love doing then you will make it work. If it fails the first time don't get discourage but make that failure an inspiration to do better the next time.

thanks so much for having me Jeff. it was a great day.

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Thanks, Fred.  It was really a treat
to have you.

Excellent take-aways.
I like your comments especially on monetization approaches.

I like the last quote on addictions "...Paycheck" As a young entrepreneur myself one many challenges me and my team face is balancing our "day jobs" to fund our venture, the necessary evil..!

This sounds like it was an awesome event. Would love to see more of these across the river at the college...

Not sure if things have changed much in the past two years - but too many kids were going off to banks or consulting firms. They arguably have larger risk appetites than the HBS students and would benefit from the 'entrepreneurial bug' from the get-go.

Thanks for sharing, wish I could have caught the Bussgang/Wilson discussion live! As a Cornell Johnson School alumn, this is precisely the type of event I'd like to bring to Johnson.

Would the two of you consider a reprise of this event at Cornell? If not in Ithaca, perhaps in NYC? I am more than happy to work through all the details to make this happen. Great stuff...

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Things have changed A LOT. When I was at HBS in the mid-90s, there were two entrepreneurship faculty members. Today, there are over 30. Entrepreneurship is a required 1st year course for the entire class of 900. Great progress, indeed!

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Thanks, Peter. Ithaca would be hard. NYC easier!

Great points, and thank you for encouraging more people to start companies before they lock themselves into a mortgage. The typical advice is to take a big company job, but leave if bores you. My experience after graduating from Yale with a CS degree in 2002 was one where my job at Expedia.com kept me so busy that I didn't have time to be bored. I missed wearing many hats like I had as Online Editor of the Yale Daily News, or working at startups. So, at the recommendation of my manager (HBS class of '05), I left to be the 12th employee at a VC-funded startup. The company, Jobster, seemed like it was making great process but was just repeating the 90s mistake of spending more to acquire a customer than the lifetime value due to high churn. Jobster raised $45 million before realizing in-person sales and support cost too much, and started imploding. A new CEO raised another $7 million before selling off the company in pieces for a few million. The silver lining was that I helped co-found another startup that kept our costs really low so we still have $1 million of our original $2 million in funding we raised in 2007/2008. We'll easily pass $2 million in revenue this year, achieving the important milestone where annual revenue is larger than total funds invested. In contrast, many of the other circa 2007 companies from ex-Expedia alumns have raised 10x as much as we have, yet their revenue is at most double ours.

For engineering grads, the best time to start a company is right out of school because the opportunity cost (forgone salary) is low and they haven't learned big company processes that are wrong for a scrappy startup. For HBS grads, the 2nd year is a good time because there are opportunities to collaborate on small projects with engineering students to test out a partnership. Finding a great co-founder is one of the most important and little emphasized keys to launching a successful company.

Most companies go through a "trough of sorrow" (as Paul Graham likes to call it) where the initial excitement has faded and they haven't yet identified a good product-market fit. Having a well-matched co-founder is critical to making the right pivots and getting through that period.

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Thanks for the comment, Erick.  I like
that “trough of sorrow” comment.  I’ll have to use it for future reference!

Great extractions.

great insights, wonder if you are mostly looking at B2C side of things in your ecosystem?

I see much more non transparencies and lucrative opportunities in the B2B value chain world, but sadly as your last paragraph pointed out (Fred's friends wisdom): the addiction to "calories, heroine and a paycheck", means thats the best place to innovate as I put it, its majority run by managers than leaders, they would invariable do the safest and most obvious things first, second and third time..

sadly however, most startup as I observe now (not expert, pls put me right if I am wrong) are mostly focusing on short term valuations and even exits..? as most founders probably do not have that kind of business insights?

I might be wrong, as they are generally not as sexy to be reported by Techcrunch/venturebeat/business insiders??

maybe I am reading the wrong press in your VC news world.

This man is out of his mind!

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We tried to make our insights broad, Gareth, but I agree there's less sizzle in the B2B market.

Good stuff! Your first bullet remained me of a saying.... Better to be wrong than confused.

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How about - sometimes wrong, but never in doubt.

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