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Start Something!

Purple peanut butter. sold in a toothpaste tube. Believe me, kids will eat it up. Literally!

Hmmm, I sense your apprehension. Not a buyer? No worries, I’ve got more.

We all have great ideas (at least our moms think so), but often times these are ephemeral thoughts we might haphazardly jot down or make mental notes of. We don’t really do anything about them. This got me thinking: What’s the shelf life of an idea? When, if ever, does abstract conjecture become a concrete endeavor? What does it really take to make it as an entrepreneur beyond a great idea?

So I thought about it, and three names came to mind: Mark Zuckerberg. Bill Gates. Matt Damon. All pursued entrepreneurial ventures (does scriptwriting/acting count?), all struck gold, and all dropped out of Harvard to do so.

I’m not saying that one has to go to Harvard (well.) and then drop out (surely not!) in order to make it big, but there is something to be said about making that risky move – relinquishing a certain lifestyle with steady outcomes to pursue a venture with rather uncertain payoffs.

It’s a terrifying prospect, but maybe that’s the point. Maybe that’s what makes the successful ones so successful. Armed with an idea, they plough ahead into the unknown and benefit from the right combination of timing, luck, opportunity, preparation… the list and debate on exactly what contributes to their success goes on, but one thing is certain: they acted, they started something.

70% of polled HBS students have at one point in their adult and student lives given serious thought to the notion of starting a company.

So what’s the tipping point? When does that urge to start something materialize into actually doing so? How much risk is one willing to stomach to make it big? And how much of that future success comes at the cost of forgoing one’s current goals and objectives? What are the tradeoffs?

I sat down with Professor Shikhar Ghosh, a seasoned veteran in the entrepreneurial world, along with Marc Weiner, an EC who is currently working on an early stage startup, to answer some of these questions.

Interview with Professor Shikhar Ghosh
Shikhar Ghosh is the MBA Class of 1961 Senior Lecturer in the Entrepreneurial Management Unit. Shikhar has been a successful entrepreneur for the last 20 years. He has been the founder and CEO or Chairman of eight technology-based entrepreneurial companies and was the past Chairman of the Massachusetts Technology Leadership Council (MTLC) and The Indus Entrepreneurs (TIE), two leading entrepreneurial organizations. ÿ

He was selected by Business Week as one of the best Entrepreneurs in the US, Forbes as one of the “Masters of the Internet Universe” and Fortune as the CEO of one of the 10 most innovative companies in the U.S. Companies he founded were selected as both the “hottest” and “coolest” emerging companies by business publications.

Professor Ghosh, what decision criteria did you sieve through before choosing to make the leap into entrepreneurship? What were the tradeoffs?
After seven years of consulting, I had reached a point in my life where I had the security to pursue the entrepreneurial path. If the venture didn’t work, I could go back to consulting. It was a hedged bet. The career I had built as a consultant served as my safety net. Of course, after many years in any professional service, one becomes accustomed to a relatively high expense structure so you have to make some sacrifices. But it was an opportunity to run an early stage company that was backed by people with a good track record. It isn’t easy to go directly from an advisory role to an operational one so I thought that this was a unique opportunity.

Being in a startup company is difficult. You have to focus entirely on the business and live with the risk of running out of money at any time. On the other hand, you get to define your own rules. There is no one telling you how to allocate your time. There isn’t anyone else you can blame when things go wrong. You see the results of the actions you have taken and have to live with the consequences. On a day-to-day basis the highs are much higher and the lows are lower than a job in an advisory role or working for a big company. While the downside risk of going out of business is real, you build up a network of people you get to know in a growing market. If your company fails you are likely to get a position in another company in the industry. In a high growth industry where 90 percent of the companies fail, the successful ones take up most of the slack and create opportunities for people from the companies that have not made it.

What do you think are the key personal success factors for an entrepreneur?
Resilience, optimism, the ability to function in chaos and the ability to be comfortable with uncertainty. Entrepreneurs have to constantly make sense of opportunities that are not well defined. They have to be good promoters and find ways to infect others with their enthusiasm even when the odds are not in their favor. After the idea, they need to have the discipline to build the organization that makes the concept a reality. This requires getting a lot done with few resources and persevering in the face of many obstacles.

The start-up route is considered riskier than other professional avenues. Why exactly is that?
Entrepreneurs in high potential ventures face two types of personal risks. First, the venture may never get off the ground. You may not be able to raise money or get market traction. It may take longer and cost more to develop the product. The list of possibly fatal risks in the early stages of a venture is quite long. Second, if the business turns out to be successful, the founder may not be the right person to manage a larger enterprise. So, the founder or entrepreneur faces high personal risks both when the venture fails and when it succeeds.

Despite the personal risk that is inherent in entrepreneurship, good entrepreneurs do not seek risk. They manage the risk that is inherent in any new market. They generally tolerate more risk and can live with ambiguity. In the early stages almost every decision is critical and uncertain. Is there a market for the product? Will I get the capital to build the business? Will the technology perform as expected? How long will it take to get market traction?

OK, I have identified a market need. How do I know if my idea is any good? What should I be thinking about in terms of next steps to develop and fund my business?
It all comes down to customer acceptance of the entire proposition. Do customers need the product enough to pay for it or to go through the steps required to get it? Can I deliver the product at a cost that can yield a profit – eventually? Can I convince investors to give me enough money to get to a positive cash flow? Identifying a market need is necessary but not sufficient. The customer must want the product badly enough to be willing to get information about it and then to pay a sufficient amount, directly or indirectly. Once you identify a need you need to test every assumption in your business model to ensure that you aren’t fooling yourself that it is an important problem for the potential customer because it is an important problem for you. Building a viable business from an identified market need is usually done through a process of iteration – going through multiple observe, test, and improve cycles before you get to a stable model.

Lastly, never discount the importance of people and relationships in this business. People will ultimately buy goods and services from people they like, not from companies. All of these components thread a story of who you are as a manager and convey a distinct message to investors during the fundraising process of what consumer need your product will meet.

If a start-up becomes a fast-growth company, that can be a great prospect. But what happens if the company outgrows me? As the founder, do I have a duty or obligation to step aside?
Even if you founded the company, it is different from you, separate from you. I realize that concept may be difficult to reconcile. You and the company are two distinct entities. When you bring in outside money the company ceases to be yours alone. You have an obligation to maximize the potential value of the business by bringing in the best possible management and governance process. If this requires changing your role or even stepping aside, you should do so. Or, expect that the investors will be forced to step in and make the changes.

There are actually only a few people who have the management skills to cover all stages of a company’s growth. The type of person who can lead a small team of developers that live in a basement and survive on pizza is not likely to have the management skills to lead a complex multi-hundred-person organization.

What do you think are some interesting industries to currently launch start-ups in?
The most interesting spaces are usually created when there is a disruption caused by a change in technology, or a change in consumer preferences or new regulation. Big changes seem to occur every five to seven years. These changes are followed by several years of all the niches being filled by targeted companies that apply the new technology to targeted problems or find new ways of addressing altered consumer preferences. The areas that seem to be yielding the most opportunity right now are mobile technology – everything from payments to games to advertising, consumer internet, social media and clean tech. Each of these is a giant, complex space. In each case the first wave of innovation is well on the way. There are also huge intractable problems (and therefore entrepreneurial opportunities) in three of the largest sectors of the economy – energy, education and health care.

What are the most common mistakes first time entrepreneurs make?
First, believing that what’s in a plan is reality. You create this elaborate plan, and because it has an Excel spreadsheet and a logical structure you take it as a universal truth. It’s not. None of these plans means anything. It is all about execution. Being too invested in a static plan and taking too much risk on a personal level and not having a Plan B is dangerous. You need to be focused yet flexible and passionate yet realistic about what the chances are.

Second is not paying enough attention to cash. They forget that a company can be profitable and broke at the same time. They also forget that the promise of future profits does not pay current bills.

Third, thinking the world owes you something. First time entrepreneurs believe that good plans get financed. They don’t. Investors look first at the people and then at the idea. There is so much uncertainty in almost any start up plan that the decision to invest is usually an emotional decision dressed up as an analytical decision.

Remembering that VCs and investors don’t owe you anything will go a long way in prepping you for rejection. Being aware that it isn’t an objective play will help you to move on to those critical next steps: having the courage to revisit your business plan, rework some assumptions, regroup and ask for funding for the 105th time. Persistence, perseverance and believing in your cause -not taking no for an answer.

Student Perspective
Marc Weiner (OH) is the co-founder of Sell Your Events – Online Tickets Registration, an online ticketing/registration platform (sold tickets for Brown Sugar, Social Enterprise Conference, etc.) that is an early stage startup.

What is the business model of Sell Your Events – Online Tickets Registration? What is its value proposition to customers?
It simplifies and automates online what used to be a very manual process: community event ticketing and program/conference registrations.ÿ Value prop is all about making things easy for small time organizers who don’t have a web designer on staff: save time, paper, postage and manual data entry.ÿ We are built to be low cost and ‘customer as operator’ a la Zipcar, all of our customers set up events themselves and their attendees fill in forms and pay online, removing manual tasks from everyone’s plates.ÿ Try it out next time you’re organizing a charity event, conference or little league!

What motivated you to found the company?
Personal frustration with existing offerings. I was at BCG and organizing a New Year’s party and found creating paper tickets and collecting cash tedious.ÿNo good offerings were around at the time, and it was low CapEx to start (fast forward to the present and low barriers = lots of competitors).

What were the first steps you took in translating your idea into a company?
Talking to my friends about it.ÿ I’m always jotting down business ideas and my roommate at the time really liked this one, so he persuaded me to bootstrap it with him.ÿ We then found a Toronto-based tech lead through networking (we were also in Toronto) who took a combination of equity and cash to build v1.0, v2.0 and v3.0.

What challenges did you come across? How did you resolve them?
Many.

Initially with every idea startup, as opposed to a first-hand customer driven startup, you need to find customers.ÿ Even though we were fully functional, I kept having chicken and egg sales calls with potential customers that went something like, “We really want to use this, but you have no customers, so how do we know it works?”, “You can test it”, “True, tell you what, we are very interested and will proceed, once you have 10 substantial clients”. It took us a month of hard-core sales to get our first paying customer.

The launch (post-product development), though seemingly difficult at the time, proved to be relatively easy; you’ll always find some customers.ÿ I think scaling to a sustainable level is the real challenge, and Sell Your Events – Online Tickets Registration isn’t through the woods yet.ÿ That’s really the ultimate test of whether the market opportunity is big and if you can beat your competitors/substitutes to it.ÿ Resolving that challenge comes through an objective analysis of the situation (what’s working, what’s not-for instance, we stopped direct sales after experimentation) and feasible alternatives (partnerships, marketing initiatives, VC ‘jet fuel,’ key hires, exits, shut-down, etc.).ÿRight now challenges include: managing growth, new features, should we sub-brand in one vertical, should we sell to a strategic, can we patent concepts and how to allocate few resources.

5. What were some of the biggest lessons you learned during the launch of Sell Your Events – Online Tickets Registration
Major lessons:
– Everything takes 3 times as long as you think (especially getting customers, but tech development, scaling up and 3rd parties too)
– You can do a lot of things on the cheap – beg, borrow, offshore and get interns
– Try a venture soon because you’ll make a lot of rookie mistakes that won’t cost you as much now as if you do them later
– Key resources (e.g. your tech guy or key IP) need to be owners/aligned with the success of the enterprise so they stick through the bumps in the road
– Be easy to reach. Originally we hid our phone numbers and help emails from clients to try to be as low touch as possible.ÿIn the end we did a 180 because being accessible has a ton of – benefits: convert more leads, get suggestions easier, hear about bugs quickly and reduce churn.

Any advice for fellow entrepreneurs looking to materialize their ideas into start-ups?
Customers, customers and customers. Lock down as many, as early as possible.ÿEven before you have a finished product, sell some customers on a promise. ÿThey’ll tell you what they need you to build (likely not what you’re building), and they’ll show you early-on just how hard it is to get enough customers to be cash-flow positive (and hence talk you down from the cliff if it’s not worth jumping – the jury is out on that for me!).

April 4, 2010
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