Creating the “Born Global” Company

In a panel on Entrepreneurship in a Global Setting moderated by TEM Professor Toby Stuart, three panelists discussed the types of businesses that are best suited to be born into a global economy. The panelists were: Donna Dubinksy (MBA ’91) – Founder and CEO of Numenta, Inc. and former CEO of Palm Inc.; Hiroshi Mikitani (MBA ’93) – President and CEO of Rakuten Group, Inc. , and Robert Higgins – General Partner at Highland Capital Partners and HBS Professor.

Many of us will become entrepreneurs. Some of us will succeed. Some may fail. But at some point, we will all have to ask ourselves, “what types of businesses are right for born global companies?” Professor Toby Stuart posed this question to the panel, and you might be surprised to find that globalization isn’t always the answer.

In 1997, Hiroshi Mikitani founded the Internet shopping mall, Rakuten, which has grown to become Japan’s largest e-commerce business and one of the country’s most visited websites. Mr. Mikitani, who as Professor Stuart mentioned is seen as the “Mick Jagger of Japan,” is one successful entrepreneur who sees disadvantages for the global company. As he explained, “There is always a conflict between creating extremely strong local focus and diluting your focus as a global company.” Mr. Mikitani chose to keep his business in Japan, and create a more complex company than would be possible if he tried to expand globally. Rakuten now has operations in E-Commerce, credit services, portals and media, travel booking, online brokerage, and professional sports (he owns a baseball team).

Mr. Mikitani believes that the decision on whether or not to go global should not be based on the type of business that you are in, but in how you execute your global strategy. He mentioned eBay, which he said did a “bad job in Japan” by offering the same exact product in Japan as in the U.S. Successful global companies in his view often need to be able to give up authority, either by finding local partners or going it alone but allowing the local management to control the decisions. He views Yahoo! Japan as a success story of a global business model, particularly because it is not majority owned by Yahoo! in the U.S. As a result, local management was able to use proven U.S. Yahoo! technology to tailor its business to Japanese culture. Today, Yahoo! Japan is the biggest website in Japan.

Of course, some businesses lend themselves perfectly to the “born global” model. Numenta, Inc., the “little teeny company” founded by Donna Dubinsky in 2005 began with a global focus. Ms. Dubinksy, who I am sure most ECs remember from the LEAD case on Palm Inc. (maybe you do too RCs, I don’t know) co-founded Numenta Inc. in 2005 to create software that makes computers “smart the way the brain is smart.” The idea in its most basic form is that a computer might one day be able to differentiate between a dog and a cat if you presented un-tagged pictures of each, and which in its most complex form has endless applications for the future of computing. While her company is currently only 15 people, she indicated that they are looking at a global environment from the start, particularly because “it is not a narrow platform,” meaning that it is less susceptible to the idiosyncrasies of different countries.

Ms. Dubinsky explained that success on a global scale requires that you “simultaneously create a vision and take a first-step.” Some of the most pressing challenges come from managing growth (and hopefully hyper-growth), challenges that she met head-on while at Palm Inc. and Handspring. As she explained, “The way to handle hyper-growth is to hire the best possible people and let them run. You tolerate lack of perfection.”

Professor Higgins has viewed the growth of the global setting for entrepreneurship from the perspective of the financier. As a General Partner at Highland Capital Partners focused on the Healthcare industry, Professor Higgins explained that the mantra of VC firms has emerged from “be local” in the 80s to “be bi-coastal” in the 90s” to “be global” in the present day. However, Professor Higgins isn’t “sure that small tables with a small number of partners isn’t the right thing.”

The worry associated with the global VC firm is that entrepreneurs often need attention from their VC partners, especially when their businesses are just taking off. Professor Higgins often would employ what he calls “the breakfast test”- “if an entrepreneur calls you at 9PM, can you meet him for breakfast the next day?” This idea, which one member in the audience referred to as “the beer test” is particularly relevant in the wake of the wide availability of capital over the past several years, which has inflated valuations and often given entrepreneurs lots of leeway. As Professor explained, with “too much cash, [you make] too many mistakes.” This may be an argument for keeping the VCs closer to their portfolio companies.

Indeed the “born global” company is an attractive idea for any entrepreneur or VC financier, however, as we heard on this panel – not every business makes sense on a global scale.

October 20, 2008
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