Darin Gilson - President and COO of Campus Pipeline

[Originally published 11/1/99]

For those of you who want to become entrepreneurs, joining a management consulting firm after business school might not be a bad career move. After graduating from Wharton, Darin Gilson decided to join McKinsey & Company. After completing a consulting engagement for Campus Pipeline, he and Chad Muir decided to leave consulting to help lead the small start-up into the future. Since then, Gilson and the other two co-presidents have grown the company from five to over a hundred employees in just over a year. They also recently raised $25 million in venture-funding from an all-star group of investors. Gilson is no stranger to entrepreneurship, though. Before business school, he started a mobile oil-change company called MobiLube while a junior at the University of Utah.

Given your earlier entrepreneurial endeavor, why did you decide to go into management consulting after business school?

At MobiLube, we made every mistake we could have made. While the business was ultimately successful, I wanted to figure out how to really do it right the next time. While I was in business school, the experience of being an entrepreneur was very fresh in my mind and I thought I would want to do it again eventually. But I would always tell people that I wanted to wait until the memory of how hard it is to run your own company had faded sufficiently before I started another company. That's how consulting became interesting to me. A lot of my friends had gone to medical school and done a residency, and that's how I viewed consulting - as a residency after business school to help me refine the new skills I had learned.

I had a great experience at McKinsey. The firm had recently begun a special program to serve "MIGs" - Market Innovating Growth Companies - and Chad Muir and myself wanted to be one of the first people at McKinsey to actually serve one of these small startup companies. Given our entrepreneurial backgrounds, we were also chosen by the firm to conduct an internal research study about business building. That was a g reat chance for us to interview entrepreneurs, venture capitalists, and corporations that were successful and not successful in building new businesses.

Were there any major findings that came out of your study?

You bet. The biggest lesson that we learned and we've applied is the notion that when you start building a new business, it's going to quickly evolve and go through many different phases. Part of the challenge is recognizing which phase you're in and the management style and tactics that you need to use in that particular phase. While our final materials were very extensive, you can look at business building in terms of three main phases.

The first phase is all about what we call "building believers". This is the phase where you have an idea and you need to get believers in that idea - including financial backers and your first employees. Frankly, it's a lot of missionary work and selling yourself and your idea. The second phase is "proving concept". Once people believe in you and your vision, you have to prove that you can really make the idea work. This is very detail-oriented work and involves a lot of heavy lifting and heads-down execution. And the people who were involved in the previous phase are not necessarily the right ones to lead the company in this new phase. The final phase is "managing for profitability". Once you're a public company and proven that your concept works well, things like quarter-to-quarter growth become the metrics that you're measured upon. Again, this phase takes a very different management style. Now, you need to make sure that everything you do is optimized.

Another thing we learned at McKinsey is that there is a lot of money out there. Getting funding is not the key. You need to get the right funding. We call that the "strategic source of capital". We looked at a lot of venture capitalists and corporations for our initial funding. Ultimately, SCT [a global provider of information systems to higher education] proved to us to be the most strategic source of capital, because they were so strategically positioned within our target market.

Any other advice for students?

Some people do one entrepreneurial venture after another, and in the process they eventually get it right. I think you can gain significant "builders judgment" and save yourself a lot of headaches if you master the science of business building through a great education and subsequent training. However, there is as much art as science to entrepreneurship so you ultimately just have to be courageous and jump in the game!

Steve Pollock - Co-founder and President of WetFeet.com

[Originally published 10/25/99]

Whether you're trying to decide what you want to be when you grow up or preparing for an important interview, WetFeet.com can help. After graduating from the Stanford GSB, Steve Pollock and his partner Gary Alpert founded WetFeet.com to serve as an information source for students as they plan their careers and go through the recruiting process.

What led you and your partner to start WetFeet.com?

We started with the idea that we wanted to work together as business partners. We had a high level of respect for each other's integrity, business ethics, and capabilities. We had also enjoyed working with each other at business school. So we started with the idea that we wanted to create a business. We didn't have a specific business in mind so we spent a year researching the feasibility of a variety of different business ideas. At the end of the process, we launched Wet Feet Press - which has become WetFeet.com. We knew from personal experience that there was a great need for information to help people go through recruiting, and we thought that the business required many of the skills and experiences we brought to the table.

Would you recommend going into business with a close friend?

Every person is different. I think you risk jeopardizing a friendship by going into business together. It adds an extra level of stress and introduces different kinds of things that you need to deal with. I've seen a lot of people lose friendships while creating businesses together. For us, I think it has worked really well since we have complementary personalities and skill-sets. That's not to say that there isn't tension sometimes between the two of us, but we started the company with a high level of trust for each other's values and we agreed on how we wanted to run the business. That's been a common denominator for us even when we've had disagreements about strategy.

Beyond the founders, how do you assemble a great team for your company?

Hiring people is the single most difficult aspect of running a business - that's one of the reasons a lot of top employers work with WetFeet.com. Everything is hard about it: deciding which positions to fill, identifying candidates, evaluating them, and convincing them to come work for you and your idea. Once they're on-board, you have to manage them and determine what level of responsibility to give them relative to the things that you want them to accomplish.

Today, you see companies that go from one person with a business plan to fifty people in just three months. It's unbelievable how big a task it is to grow a company that quickly. At the same time that you're trying to recruit people, you're running faster than full-speed to accomplish everything that you've agreed to deliver to your investors. It's really challenging.

Once you recruit the right people to your company, how do you create the corporate culture you desire?

At least at the initial stages, I think most companies are a reflection of the founders. Even if you don't deliberately do a lot of things to create a culture, your behavior and decisions set an example for people to follow. They'll read a set of values and establish cultural norms that reflect that.

Finally, how should students think about trade-offs between risk and reward while starting new companies?

I don't personally feel like the risk of doing something entrepreneurial is necessarily as big as most people think it is. You graduate from business school with a bunch of loans and feel like you need to get a $100,000 salary to be able to pay for everything. The first year after business school, I paid myself something like $25,000. So it is possible to enjoy your work, pay your bills, and survive - even if you don't get paid the big bucks.

On the other hand, I would also say that the rewards aren't as certain as a lot of people seem to think they are these days. Everyone's heard of someone who has become phenomenally wealthy by creating a company at the right time. That's not the case for everybody who goes the entrepreneurial route. Even if you have a great idea and work really hard, you may still end up with nothing to show for it because of some twist of fate, industry shift, or change in the economy. There are lots more people who end up in that position than become fabulously wealthy.

David Gilmour - Founder and CEO of Tacit Knowledge Systems

[Originally published 10/18/99]

Some entrepreneurs start their first company early in their career. Others, like David Gilmour, wait awhile before taking the entrepreneurial plunge. Gilmour graduated from the Harvard Business School in 1984 and joined Lotus Development Corp. After eight years at Lotus, he joined Versant Object Technology as Executive Vice President of Marketing. He was later promoted to CEO. In 1996, Gilmour helped found the Giga Information Group, an information technology research firm. His most recent career endeavor is Tacit Knowledge Systems.

You waited until fairly late in your career to start your company. What caused you to take the plunge when you did?

In many respects, I think I'm an anomaly. I'm 41 years old right now and I started Tacit just before my 40th birthday - which is old for Silicon Valley. And yet, I feel like this is the first time that all the planets have really lined up for me and it made sense to do this. I've been involved in a lot of young companies over the years so it's not like I needed to season myself or see different things in business first. But, in my life, I never happened to stumble across an idea that I thought was worth risking everything of my own until a couple of years ago when many different things came together for me. And I literally know the moment it happened. It was that black and white for me. I remember just which street I was on and practically the spot on the pavement.

What have you learned while getting your new company off the ground?

Startups need two things in abundance: invention and persuasion. Every startup has some sort of invention at its core. It either has a new way to look at a market, a new way to use or develop a technology, or something else truly unique and different. Startups also need people who have sufficient force of personality to get others to see that the invention is relevant and that the world could move into a place where the invention is really critical. So for students thinking about starting a new company, I would advise them to first try to know themselves well enough to know where their inventing and persuading skills are up to snuff, know where opportunities exist, and intersect the two.

Given your prior experiences at young companies, do you have advice for students thinking about joining a startup?

In an early startup company, you either have to be the person with the great idea (in which case you should chase it for all you're worth) or you're lucky enough to meet someone who has an idea but is missing something in their own ability or willingness to do certain jobs. So if you're thinking about joining a startup that's not "your startup," you really need a clear view for something that is special about yourself or your own talent that can interlock with the founders. It tends not to be functional or about experience. It's intensely personal. It's about who those other people are.

How do you go about building that type of bond with the founders?

There's something that Mitch Kapor taught me during my first year at Lotus. When you're an outsider moving into a group of inventors, there is a sort-of ritual that takes place. Before you can change the direction of what goes on, you have to earn your position in the group by showing that you can enhance the group's invention within the framework of its original assumptions. That is very different from enhancing it by hijacking it to a new set of assumptions - that's easy to do. But doing that too soon is a fatal mistake. So what I found has helped a couple of times when approaching entrepreneurs is to do just deep listening. Really understand, from where they sit, in their skin and in their head, why it is that they think their invention is relevant. What has driven them to invent? And then test the assumption by looking for extensions that resonate with the inventor. That's kind of the clue that you're on their beam and the trust can build.

Any other advice for students on their way to startups?

Being at a startup and not being the lead entrepreneur is a really difficult thing for a businessperson to do. So, if you thinking about jumping to an early-stage startup, you should insist on a direct mind-meld with the founder. Nothing else should substitute. I think that's the acid test for whether it's the right thing for you to do.

Diversity Matters for Entrepreneurs

[Originally published 2/7/00]

At the recent African-American Student Union (AASU) conference, many of the speakers and panelists discussed issues of diversity and the many challenges facing minority entrepreneurs. To enrich and continue the discussion started at the conference, the Harbus recently sat down with Professor David A. Thomas to further explore these issues. Professor Thomas is a member of the Organizational Behavior and Human Resource Management departments and is a noted authority on mentoring, executive development, and the challenges of creating and effectively managing a diverse workforce.

Do you feel that there is a level playing field for venture funding?

Everything that we know about decision-making under conditions of uncertainty says that people seek ways to become more comfortable with uncertain decisions. To do this, people generally seek to identify with the person on whom they are placing a bet. To the extent that the two people are similar, it will make the investor more comfortable making that bet - especially if there are large amounts of money involved. This supports the view that all things being equal, if a minority entrepreneur approaches an investor that doesn't know any other people of color, the investor will undoubtedly be more comfortable with someone with whom they can identity and may, therefore, not invest in the minority-run company.

In these situations, it is important to create some other type of connection with the investor so he or she can identity with the minority entrepreneur. Having both graduated from HBS is often such a connection. So is having a previous employer in common. For these reasons, credentials are often much more important for minority entrepreneurs than for their white counterparts.

Being involved in the same networks as investors is also important. Unfortunately, gaining access to certain networks is often very difficult for minority entrepreneurs. The venture capital networks do not go very deep into communities of color. So I think that's another part of the issue that doesn't make it a level playing field.

Part of your research focuses on managing culturally diverse organizations. How relevant are these issues in the early stages of a company's life - when the company has, say, twenty employees or less?

This is a great question. I think diversity should be on people's radar screens from the very start. In my research and the other work I do, I have had the opportunity to look at companies that have grown exponentially over a period of five to ten years and examine the issues that they encounter over time. One of the big differences that I have observed is that companies that started out with a founding group that possessed substantial diversity tended to grow into organizations that were much better able to attract and manage a diverse workforce. On the other hand, companies that started out with a homogenous founding group tended to encounter significant difficulties in this area later in the companies' lives. For example, in one company that I examined, the founding group consisted of five white men from Stanford. In the beginning of their company's life, they basically hired their friends - who tended to be more white men. As the company grew larger, though, they recognized the need to attract a much wider pool of talent to the company. The company is now two hundred people and their inability to manage diversity in the organization is just killing them. They have rapid turnover and they don't know how to think about it or how to stop the bleeding. So, in my view, entrepreneurs should begin thinking about diversity from the moment they think of their business idea, because what we know about firms is that the founding group puts a stamp on the firm that lasts a long time.

How should entrepreneurs approach the issue of diversity for their companies?

Entrepreneurs should establish a value for their companies that they want to be as diverse a group as possible along a host of dimensions. Race, ethnicity, culture, and gender are one set of dimensions to think about. More generally, I think entrepreneurs should bring together as many different backgrounds, perspectives, and life experiences as possible. This will enable the company to examine the challenges facing the business over time through many different lenses.

Along these same lines, I think it's important to think up-front about creating an environment in which employees can use their uniqueness to help the business. Whether you have ten employees or ten thousand employees, all of those people must feel comfortable bringing forward their unique perspective on a problem and explaining to others where that perspective comes from instead of hiding their true feelings. Their perspective could be grounded in something as simple as being from a certain community and realizing that people in that community will think about the company's product in a certain way. But if they have to hide that aspect of their background, the company can not be effective. So you need to create an open environment - and that's about diversity. You can't assume that everyone in the company is the same just because they share certain characteristics that enable them all to feel comfortable with their similarities.

What advice would you offer aspiring entrepreneurs?

My first piece of advice for future entrepreneurs at HBS is to begin early thinking how they can build an organization that has diversity as a natural strength of it. This goes back to the idea of wanting to create an environment in which each member can bring whatever is unique and particular about them to help the company do its work. The other thing that I would say to aspiring minority entrepreneurs in particular is to really take advantage of their time at the Harvard Business School to build a strong network. They need to keep in mind that even though they might be at a comparable disadvantage to their white peers in terms of the openness of the venture capital community to them, it's only a relative disadvantage. The advantage of being at HBS can go a long way to counter whatever disadvantage comes with skin color. But you have to work at building that network and this is a great time to do it. To the extent that HBS enables students to develop good relationships across lines of race, culture, and gender, students will export to the world a network of contacts that is already diverse. I think that has a lot of potential for shaping the future.

Entrepreneurship Outside the United States

[Originally published 10/11/99]

Given the number of teams at HBS working on business plans focused on foreign markets, the Harbus decided to sit down with Professor Walter Kuemmerle and discuss the entrepreneurial climate outside the US. Professor Kuemmerle teaches the popular "International Entrepreneurial Finance" in the second-year elective curriculum. Professor Kuemmerle's research and teaching interests focus on entrepreneurial finance, cross-border entrepreneurship and global technology management.

What commonalties have you observed among successful entrepreneurs - both personal traits and in their experiences?

There is not that much of a difference between entrepreneurs in the US and abroad. I think the traits are pretty general across borders. The first common trait, in my opinion, is intelligence. That doesn't necessarily mean doing well on standardized tests, but most entrepreneurs are street-smart. There might be people who are unable to define a profitability ratio, but they intuitively know what it is and how to improve it.

The second thing that I think entrepreneurs have in common is that they understand that launching a new venture is ninety-five percent perspiration and only five percent inspiration. Often, people who are extremely intelligent and who have never had to work hard to get anything in an academic environment have trouble when they make a shift to becoming an entrepreneur because it's really hard work. And a lot of the work is mundane - very basic and often boring stuff. You need to be somebody who can deal with this daily challenge of grinding through the thick stuff before finally doing something intellectual or otherwise innovative or creative.

I think the third thing is something that I call the "ability to convert." Say you're playing golf. You hit a great drive and a great second shot. Now you have to make the putt for a birdie. There are people who are just not very good at doing that and there are others who, under pressure, can do that.

I think the final characteristic of successful entrepreneurs is the ability to live with ambiguity. It comes in several forms. You must subscribe to the basic statement that "what's good today might be wrong tomorrow and I'm willing to stand up to my team and explain to them why things changed."

How do the trade-offs between risk and reward change outside the US? For example, are the consequences of an unsuccessful entrepreneurial endeavor more severe in other countries?

I think that in some countries you can basically only fail once. In continental Europe and Asia, especially Japan, this is still true - which keeps people from being entrepreneurial. I think things are converging pretty quickly however. What is really characteristic of Silicon Valley is that the entrepreneur, even if he or she fails, is somebody who has been coached through the process by a venture capitalist. When such a venture fails, people say that a good team with a good coach tried, it didn't work out, and that the team is experienced and might as well try again with a different coach. If you recreated exactly the same constellation in Japan or continental Europe and the venture failed, I don't think the failure would carry the stigma that the "lone" entrepreneur currently faces in these countries. So, if you team up with a reasonable capital provider and you replicate a similar model in Europe or Asia, I think there would be very little reputation loss if your venture were unsuccessful.

Do investors evaluate potential investments differently outside the US? Are there different factors that they focus on?

Yes. There are at least four criteria that are applied more heavily than in the US. The first one is relationships. In many cultures, existing relationships are somewhat more important in getting a business off the ground than in the US. There is research that shows that, on the margin, US buyers have a much higher propensity to buy services when they get a cold call than in other countries. In Japan, for example, you see much more of a referral situation where you call somebody and then get introduced to a service provider. It's a much more common pattern. So, if you start a company outside of the US, quality of local relationships becomes very important.

The second criterion where the US and any other country (with the possible exception of the UK) differ is the availability of exit opportunities. In many countries, exit vehicles are not as readily available. Once again, this is changing rapidly. In continental Europe, there are new exchanges similar to NASDAQ in Germany and France and Softbank is actually talking with NASDAQ about creating a similar exchange in Japan. But exit opportunities are still different.

Companies with small domestic markets have a larger propensity to think early about cross-border expansion. This is a third area in which the US and other countries differ and one, in my opinion, that favors entrepreneurs abroad. For example, Sweden is a small country, but the small domestic market should not necessarily be considered a drawback if you invest in a Swedish company. What you would be looking for, though, is whether the entrepreneur is somebody who is culturally versatile - not just in securing capital but also in selling products abroad.

The fourth issue is differing incentives. As an investor, it is very important to understand what makes the entrepreneur tick and it's not necessarily the same thing as in the US. For example, if the entrepreneur is motivated by sales-growth and the desire to build a large organization, what you have to do as an investor is make sure that profitability does not suffer. It is important to understand the motivations of the entrepreneur and structure incentives in such a way that you reach a desirable outcome for all involved parties.

How transportable are US business models to other parts of the world? In what ways do they need to be modified to adapt to the requirements of global markets?

I think most business models from anywhere, particularly from the US, are increasingly transportable and transferable for two reasons, the Web and TV. People everywhere watch TV and a lot of TV content is produced in the US. So the aversion towards a new business model is drastically reduced simply because of news coverage about it. Therefore, any business model is increasingly transferable.

Having said that, most business models require local adaptation. I think the best advice that you can give to anyone to learn about how far you need to take adaptation is to study multinationals in marketing; specifically Procter & Gamble and Unilever. These are companies that think about these things constantly - how global can a product be, how local does it need to be.

What are the major centers of entrepreneurial activity outside the US? What criteria should you use to determine where to locate your new company?

In Europe, I think one region that is growing rapidly in biotech, media, and high-tech is Munich, Germany. Spain has seen amazing growth and will probably see even more growth. And then there's clearly London. In Asia, Japan will continue to be special. For any business with mainland China, it will be Shanghai rather than Hong Kong. Hong Kong is more of a financial center. In South America, it's Sao Paolo, Brazil and Buenos Aires.

When you're trying to decide where to headquarter your company, you need to ask "which supply or demand factor is really important for my company" and "where is this factor located." In your planning, you need to prioritize these factors. If you are a service company, for example, it is generally important to be close to your customers. Also, if you're not the first mover, you should generally go where your competitors are. They shouldn't scare you. If you're a small entrant, you can only benefit from the environment of supporting industries that already exist in that location due to an incumbent.

Aside from the strategic issues, I think you should setup your company where you want to live and where your key employees want to live. I think you should also be able to speak the language of where you live or at least get by if you're going to have to raise a family there. I think the family aspect is something that often gets neglected by entrepreneurs and they realize how important it is a little too late, when their family and their company fall apart.

Thomas Weisel - CEO and Founder of Thomas Weisel Partners LLC

[Originally published on 10/11/99]

Investment banking startups are few and far between, but they do exist. People who have founded multiple successful investment banks are even more rare, but Thomas Weisel has done just that. In the early seventies, Weisel was a founding partner in the first technology-focused boutique investment bank, Robertson Coleman Siebel and Weisel. After a falling out with partner Sandy Robertson (which lead to the creation of Robertson Stephens), Weisel renamed his firm Montgomery Securities. Weisel led Montgomery Securities for twenty-seven successful years, but chose to leave the firm during its recent merger with NationsBank-BankAmerica. It didn't take Weisel long to start another bank. On January 1, 1999, Weisel started up San Francisco's newest merchant bank for growth companies, Thomas Weisel Partners LLC. Less than a year later, the firm has grown to include 66 partners and 385 professionals and now operates out of offices in San Francisco, New York, Boston, and London.

What challenges did you face while starting your new investment bank? What lessons have you taken away from those experiences?

While starting our investment bank, we faced two main challenges. First, we needed to quickly construct an investment bank with scale and quality to become a major player. We were helped by excellent market conditions and a significant and available talent pool created by the consolidation among Wall Street Firms that left many bankers and brokers unhappy with their current positions. But we still had to build the firm quickly so we could surprise competitors and prevent them from thwarting our efforts. Our second major challenge was the need to commit significant amounts of capital to build the business ahead of a revenue stream.

Based on those early experiences, we discovered that building a new investment bank in this era was not just about money. Attracting the best and brightest has more to do with having a vision, a strategy to execute that vision, and a culture that fosters an entrepreneurial spirit and allows people do what they do best. With this "pitch," we have been able to compete very effectively against the major Wall Street players offering multi-million dollar packages to bankers, brokers, and analysts.

How has your business school network come into play over the years? How should students think about leveraging their personal networks while starting a company?

My business school network [from the Harvard Business School] was very important early in my career. When I was trying to build a business out on the west coast where no investment banking franchises existed in the early seventies, it was very important to leverage Wall Street relationships I had from business school with people such as Michael Bloomberg. You must also understand that these relationships in some ways compensated for the lack of formal education provided at that time at business schools in investment banking and entrepreneurship. Students should think of networks in terms of advice, potential customers, vendors and outsourcing.

You have helped many different companies go public over the years. Are there certain attributes that all of those entrepreneurs had in common?

Yes and no. There are a lot of differences, but there are also some similarities. What stands out as the common denominators of successful entrepreneurs are leadership, passion, great work ethic, and the ability to think out of the box and develop unique ideas.

Investment banks and startups are competing for business schools' best and brightest recruits. What advice do you have for students deciding between investment banking and a startup?

Follow your passion, not the money. Startups present more risk but greater return and the opportunity to make a mark. Arguably, investment banking offers a more diverse career and a skill set that is applicable throughout a lifetime, but you must have a passion for the markets, finance, and serving others. (Sometimes it is easy to forget that investment banking is a service business.)

Gopi Mattel - CEO of Again Technologies

[Originally published 10/4/99]

Since founding Again Technologies in 1995, Gopi Mattel has carved out a niche for sales-force incentive plan administration software. The San Mateo, California-based company has grown slowly during its first four years but is poised for rapid growth. In fact, it was named one of Red Herring's 1999 "Ten to Watch".

How would you describe your path to entrepreneurship?

I was a Director at the Gap in the Information Systems (IS) area, and they needed incentive plan software. One of the things that IS management does is go out and see what products are available, so I did the market research and really didn't find any products. There was one product available, but it didn't do what we needed so I proposed that we develop the system in house. For a couple of different reasons - other management's perception of risk, politics, etc - we went with a vendor that I found unacceptable. So I just went out and started a business.

What major challenges did you face when you were starting up your company?

Starting a company was a sudden thing - a baptism by fire - and I had to figure out what to do. I wasn't fully prepared to start something like this. I didn't have a lot of savings. I just had an idea and a real passion to do something about it.

The problem was that the company was literally a single person for the first year. I built the product and went out and sold it. I did things I had never done before like selling, doing demos and all of those things. By the second year, there were two of us. And at the same time, we were constantly trying to appear large.

So, even though we were profitable starting our first year, we definitely didn't have enough money. We also didn't have enough understanding of what it takes to be successful - such as doing good financial work, etc. None of that was fully done. If you were going to VC's, they wouldn't even consider you if you took that approach to business development. But a lot of companies are successful that way regardless of what the VC's say.

How did you overcome those challenges?

Working with Christine Comaford has helped. It's really been about learning what investors expect. Before, it didn't matter if we had someone doing sales, as long as we had sales. Now, it's very important to have a VP of Sales to do channel strategies, etc. Christine has also helped with contacts. We had literally no contacts for the first four years.

After we got funding, we also set up a board of advisors comprised of six well-recognized industry executives. They get options, but they're actually helping us because they like us. The VP of Sales we just hired came from one of the advisors. Having someone that you trust refer a job candidate is worth a lot. I'd say it's about 90% of the valuation of a prospective employee, with the other 10% being the interview and other references. So that's very valuable - plus you don't have to pay the recruiter. Our advisors have also helped with references and prospects. Also, being able to say that a certain person is on your board of advisors gives the company respect and credibility. So having a board of advisors is an idea that Artemis gave us. Which is probably something that all companies do once they have gotten involved with VC's. But if you're not part of that loop, you just don't know that. You can get a couple of books like High Tech Startup but you won't find that said there.

Based on your experiences, any other words of advice for aspiring entrepreneurs?

You don't need money or anything else as long as you have a good market space, a company with passion, and a good product. But if I were to do it again, I would learn about the startup process. I would set up a lot of contacts. I would talk to a lot of VC's. I would explore ideas and get a track record behind me.

The other thing I'd suggest, if you can swing it, is to pair up with someone with a complementary background. If you're a marketing person, pair up with a developer (or vice versa). You need two that work together - that's ideal. You kind of bolster each other. At some point, you'll hit a downturn and, if you're not prepared, you can take your company down with you.

Neville Fridge - Co-Founder and Managing Director, Asquith Court Limited

[Originally published 9/27/99]

The United States might be the "land of opportunity", but many entrepreneurial opportunities exist outside the US. After graduating from the Harvard Business School and spending five years in consulting, Neville Fridge and a partner started Asquith Court Limited in the UK. Having overcome some initial difficulties with their investors, Asquith Court Limited continues its rapid growth twelve years later and has been recognized by the EC Commission as one of the 500 most dynamic and entrepreneurial companies in the European Community.

What caused you to take the entrepreneurial plunge?

My partner's family had owned a private school in the UK for decades. We perceived a business opportunity to bring US-style day care to the UK market. In the US, day care is available eleven hours a day, fifty weeks a year. In the UK, the standard then was to be open only six hours a day, thirty-six weeks of the year - not much help for a full-time two-career family.

For regulatory reasons we found that we had to buy existing private schools for school-age kids and add on the day care facilities; but the cost of the private schools was low enough, and the shared marketing worked so well, that the numbers were still very good.

How did you finance the venture?

Our backgrounds, a couple of personal contacts and an attractively laid out business plan quickly got us in front of several VCs. We learned that the key to cutting short the due diligence was finding that one person who really personally wanted to do the deal. This took several weeks. As soon as we had a lead investor who had committed to the deal, however, everybody else we had been talking to wanted in. We became aware that the negotiations on this issue that ensued were primarily about trading favors between the VCs - our introduction to their numerous "across-deal" agendas.

How would you describe your relationship with your VCs once you got funded?

Unfortunately venture capitalists experience their own turnover, and our lead investor left to work for the World Bank within a couple of months. When this happens, your new lead investor will never have had to look his partners in the eye before the initial funding and say that he or she is committing to you, your team, and this deal. This issue caused us problems until, at the cost of much distraction, delay and expense, we brought in a new lead investor eighteen months later. To break out of the local UK VC "cartel" (as it seemed to us), we found we had to go all the way to New York.

What else did you learn about working with VCs?

We naively thought that the worst thing we could do to a VC was run out of cash, and were careful not to. We later realized that our particular VCs loved having management teams do this to a good business as the deal terms can then be rewritten in a non-competitive environment. Most VC investments are not instant smash hits, and on those deals the renegotiations were where our VCs were expecting to make their money.

Our VCs then made it clear that they were willing to wait us out. They were confident that they could do so because the business was sound and they believed nobody in the local UK venture capital network would make a competitive financing offer to a company in another leading VC's portfolio. They would all have too much to lose if they started doing this. We found that their confidence was well founded, and that raising capital in the US was our only option.

We later learned that our VCs had plenty of people in their portfolios who would have been happy to explain all this to us, but we were never introduced to those people and at the outset we never went looking for them as hard as we might.

The US venture capital market is much broader and more competitive, and so some of these problems may be less severe. My advice, however, is that in order to assess a VC anywhere, you do need to look beyond the management teams they will introduce you to as their "greatest hits." You should also go looking for the other ones - who will often be at least as eager to share their experiences with you.

Rajat Bhargava - Co-founder & Senior Vice President Strategic Planning and Integration of Interliant Inc.

[Originally published 9/20/99]

Rajat Bhargava is certainly not your average 26-year-old. After graduating from MIT in 1994 with a degree in Electrical Engineering and Computer Science, Bhargava founded net.Genesis, an Internet software company in Cambridge, Massachusetts specializing in statistical analysis tools for Web sites. In three and a half years as President and CEO, Bhargava grew the company to over fifty employees and firmly established net.Genesis as an early player in the Web tools market. In 1997, Bhargava co-founded recently-IPO'd Interliant Inc. (formerly Sage Networks), a Web hosting and services company also in Cambridge. Trading under the symbol INIT since July 8, 1999, Interliant's market cap has fluctuated between approximately $600 million and $1 billion.

Did you always plan on becoming an entrepreneur?

No, I didn't always. But after a couple of years in college, I did. After a few summer internships at Intel, I figured out that if I wanted to have a great impact and a lot of responsibility that I needed to have a business of my own.

While you were starting net.Genesis and Interliant, what were the biggest challenges that you faced? How did you overcome them?

I think the greatest challenges are generally people issues - how to hire and recruit people and create a culture that people want to be a part of. I don't think that you really solve any of those issues. All you can expect to do is make progress towards them. There's really no magic. It just takes a lot of hard work by the whole team.

What has been the most surprising aspect of being an entrepreneur?

I guess the most surprising aspect has been how hard the startup process is. Everyone walks in with certain feelings or impressions of what the process requires, but it always turns out to be much harder than you imagine. But if you knew how difficult it is going in, I'm not sure that anyone would actually do it. You don't always want to know how much you don't know.

How should entrepreneurs think about equity distribution to founders, employees, and investors?

There isn't one right way to think about equity in a startup. The parameters to think through are the market value of the company at an exit, the investment necessary, and to a great degree the level of people required. You also need to honestly think through where you personally want to be at the exit. For example, do you want to make $1M, $10M, $100M or $1B? All of those parameters need to drive your thinking. Right now, for venture-backed startups with potential market caps in the hundreds of millions, I would suggest thinking about it in thirds - a third for the founders, a third for the management team that you will hire (i.e. the option pool/ESOP), and a third for the first round investors. This generally works when you're raising between $2-5M in the first round. It will break down below and above that since you will either give away too much equity or the venture folks will find the valuation too rich. Obviously, this is only a guide and depending upon the team, investors, etc. you can adjust it to make more sense for the particular situation.

In your opinion, what personal attributes do successful entrepreneurs have in common?

Drive for success is one common theme. I bet each individual also has some fear for failure that keeps them motivated. I think the most successful entrepreneurs are full of contradictions. On the one hand, they are focused on their vision and very stubborn. But these people also listen, accept a lot of input, and work closely with their teams. They know when to move quickly and make decisions and when to sit back and perform more analysis to fully understand the broader issues and the implications of their decisions.

Any final words of advice for aspiring entrepreneurs?

I think people should definitely try it. People coming out of great schools will always have something to fall back on. If you're a really bright person, you'll always be able to get a job so you might as well try it. You have a safety net if things don't go well.

Victoria Hadden - Owner and Co-Founder of SERAFINA

[Originally published 9/13/99]

With all the attention the Internet receives these days, it's easy to overlook non-Web-related business opportunities. SERAFINA capitalized on one such opportunity in the special occasion dress business. Since the fall of 1997, Victoria Hadden and her two partners have bootstrapped their way to stores in New York City and London and trade relationships with specialty stores in over 15 different states.

How would you describe your path to entrepreneurship?

It just sort of happened. I met my partner Mary Greenhill while my husband was at HBS. When we went back to New York after graduation, Mary got engaged and she was telling me what a nightmare the search for bridesmaid dresses was. I had heard the exact same thing from every single friend of mine who had gotten married. I had a few dresses of my own. You either leave them in the closet or burn them as soon as you wear them. Based on our conversation, Mary and I started SERAFINA a week later with our third partner, Lisa McAtee.

Was there a big break that helped launch the company?

One of our first customers was a woman who was writing for The New York Times and she wrote an article on us in the Sunday style section. That pretty much launched the company. After that, we had hundreds of people calling us for dresses. As soon as the word got out about us, one referral led to the next. If you plan a wedding, you always ask all your friends who they used and what they did.

Are there challenges that are specific to the fashion industry?

First of all, everyone will tell you that it can't be done. That was the first thing that we heard from every industry professional that we went to for advice. But we decided to try it anyway. Our model makes us different from other fashion businesses because we're a made-to-order business. We have a lead-time of about three months before people get their dresses. So we don't have inventory and, at the same time, we can test styles in our catalog, Web site, and showrooms to see what works and what doesn't work. With a regular fashion business, you often have a huge up-front investment in a style and once you manufacture it, you could own thousands of pieces. It could kill your company in one season if those pieces don't sell.

What's the most important thing to think about when starting out as an entrepreneur?

Start by choosing a great team. Your partners/team should have complimentary backgrounds, so you can work seamlessly. Establish the rules, goals and responsibilities up front, so everybody knows what they are working towards and what the company structure will look like. Be clear about this in your business plan. Also important is a very specific agreement. This will protect everybody, especially when you are planning to be in business with your friends.

Is it possible to have a personal life as an entrepreneur?

You do not have a personal life the first year. When we opened our first shop in New York, the three of us were doing sales, packaging, designing, lugging boxes to FedEx - everything. It was a true startup. Whether you have a personal life depends on what you do, but I haven't talked with anybody who has started a company who has said that it was easy in the beginning. You might think that at first. In the initial research phase, things are more flexible. But as soon as you have customers and orders and people banging on your door, there are just certain things that have to get done by the end of the day. And at the same time you want to grow the company, so you're dealing with two different things - running it and growing it. That is time-consuming.

When you start a business, you will have to do everything at first. If you set the tracks right though, you can craft the perfect job for yourself. After only 15 months, we are at the stage where this is happening. You can focus on your area of expertise and at the same time, you have more flexibility and can be more creative than somebody who is working for a large corporation. The fact is that when you own a business, every task is viewed as getting you towards the end-goal. That in itself is extremely motivating and gets you going in a very positive way day after day.

William Lohse - Founder, Chairman, and CEO of SmartAge

[Originally published 9/7/99]

During his career, William Lohse has been a door-to-door salesman, a magazine publisher, an angel investor, and a trade-show organizer. He has also been involved with many successful software companies - both as an employee and as an entrepreneur. His latest pursuit is San Francisco-based SmartAge, an e-commerce and Web services company focused on the small business market.

You've done so many different things in your career. How have those experiences prepared you for your current entrepreneurial endeavor?

Those of us who have been around the computer, software, and networking industries for a while joke that all of that was simply a dress rehearsal for the Web revolution. What we're doing now is playing the real play. So everything that I've done before has helped - like playing Des Moines before you get to Broadway. Specifically, I have learned the fundamentals of starting and building companies. Especially for a small company in a young industry [like the Web] where there is so much to do, the danger is to be in early, see the opportunities, and try and do it all. So the first thing I've learned is focus.

The second thing I've learned is "be early." Between 1994 and 1997, the early entrepreneurs did a super job of business-to-consumer. But my observation was that business-to-business really wasn't being done on the Web - in a Web way. So we decided to go after business-to-business and be the first ones to do so. Being early also makes you lucky and luck is a wonderful thing to have on your side.

The next thing I'd recommend is to hire people who are better than you are. As a human being, it's emotionally so hard to do. You want to be a leader so your instinct is to hire people who you think you can make a contribution to - whom you can lead, whom you believe you are better than in some way. Instead, I think you should hire people who can make you look silly, clumsy, and stupid sometimes. Hire people who are better than you in significant ways, delegate to them, and then get out of their way. It's only by hiring better experts than yourself and supporting them in their success that you can grow at the speed of a revolution.

The final thing is "have a purpose." My view is that one should start with a market need, a purpose, that is big and worth doing. If that need exists, a company generates itself naturally. If it doesn't, keep on looking or go work for somebody else until you find it.

Regarding hiring people better than yourself, how do you recruit, retain, and motivate a group of highly talented people?

To me, hiring is the most fun part of my job. And having hired them, the next most important part is training them. And having trained great people, managing them - in that order. Most people think that they should manage to success. And if that's not working, they should do some training. And if that's not working, they better do some hiring. I think if you can do an effective job of hiring and training, managing is easy.

Over the last 25 years, it has been hard to convince really great people to come to a little company. In the last couple of years, it has gotten easy. Now everyone wants to be an entrepreneur. But you still have to convince employees that you're actually going to empower them. That means that you are willing to have them be better than you are and that you'll trust their judgement.

You have quite an extensive personal network. How should students think about building their own networks?

I think networks are fundamental. Every year that I continue in business, I have more friends and relationships. People put it backward in my view. They think that they should build networks. What I would say - to quote Al Davis [owner of the Oakland Raiders] - is "just win baby!" Decide what you're going to do and win. By winning, you'll gain a network of happy employees, customers, and investors. From there, you'll have the opportunity to do something else. If you win again, the cycle continues. My success has come from winning right here, right now - and from that comes a network.

Discovering Your Path to Entrepreneurship

[Originally published 9/7/99]

Are you working on a business plan in your spare time? Have you ever dreamed of running your own company? Has someone whom you know become fabulously wealthy through a successful IPO or acquisition? If you answered "yes" to any of these questions, you're not alone. Business school students across the country are turning down six-figure salaries with large, established firms to take the entrepreneurial plunge.

But there's a lot more to starting a successful company than coming up with a unique idea and preparing a well-written business plan. Aspiring entrepreneurs must finance their companies, attract and retain talented employees, develop a compelling product or service, convince customers to actually purchase their product or service, and form strategic partnerships - all in addition to such mundane tasks as finding office space, buying equipment, and handling benefit and payroll issues. For first-time entrepreneurs, the startup process can be overwhelming.

Fortunately, there are a lot of entrepreneurs who are willing to share their experiences with students. In a new weekly column called Paths to Entrepreneurship, we will speak with approximately thirty entrepreneurs during the school year to find out what lessons they've learned along the way and what advice they have for students considering a startup of their own. While the majority of the entrepreneurs will be from high-tech companies, we'll also profile entrepreneurs in other fields such as biotech, financial services, non-profit, real estate, and family-owned businesses.

In the column, we will also explore the career path that led each of these people to become an entrepreneur. While starting a company right out of business school is certainly one option, most entrepreneurs wait until later in their careers to jump into an early-stage startup. For example, many future entrepreneurs join established, pre-IPO companies upon graduation and observe the founders and executive management team in action. Others join large firms and become "corporate entrepreneurs" by aggressively pursuing new business opportunities for their employers. In either case, these entrepreneurs solidify their business school training in a real-world setting and establish an extensive network of contacts within a particular industry before starting companies of their own. As we'll see, almost any career path can lead to an entrepreneurial venture. The important thing is for students to honestly assess their skills and experience, lifestyle factors such as work/life balance, and their ability to deal with uncertainty to determine the best time to pursue entrepreneurial aspirations.

Throughout the school year, if you have suggestions regarding entrepreneurs to profile or ways in which the column can be made more relevant to you, please send your feedback to gpal@mba2000.hbs.edu. We hope you enjoy the column. Good luck with your entrepreneurial endeavors, now or in the future!

Welcome to my blog

During my second year of business school (1999-2000), I wrote a weekly column for the school newspaper called "Paths to Entrepreneurship". In it, I interviewed 33 entrepreneurs and 7 business school professors regarding various aspects of entrepreneurship - and published their remarks in their own words in Q&A format. I originally posted the content of the column to a Web site on Geocities but decided to transfer the content to this blog - both to experiment with blogging and to make it easier for me to post additional content on this topic over time. I hope you find this information useful. Even though these interviews were conducted during the "dot com" era, many of the lessons contained in them are timeless.