Educators Corner: Tina Seelig, Stanford Technology Ventures Program - What I Wish I Knew When I Was 20
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- Technology Review: Ten Web Startups to Watch - Jun 27, 2008
Sunday, May 04, 2008
Educators Corner: Tina Seelig, Stanford Technology Ventures Program - What I Wish I Knew When I Was 20
Saturday, May 03, 2008
Sunday, April 20, 2008
MIT Sloan Professor Edward B. Roberts Awarded Monosson Prize for Entrepreneurship Mentoring
MIT Sloan Professor Edward B. Roberts Awarded Monosson Prize for Entrepreneurship Mentoring
CAMBRIDGE, Mass. - (Business Wire) Edward B. Roberts, the Sarnoff Professor of Management of Technology at the MIT Sloan School of Management, is the fourth recipient of the annual Adolf F. Monosson Prize for Entrepreneurship Mentoring. He was presented this prestigious award by Kenneth P. Morse, managing director of the MIT Entrepreneurship Center, at the April 17 reception for CEOs of the MIT Entrepreneurship Laboratory (E-Lab) host companies. Roberts was awarded for his extensive mentoring of aspiring entrepreneurs in the classroom and seasoned entrepreneurs active in the business world.
Roberts has been part of the MIT community since entering as a freshman in 1953, earning four degrees and moving through the academic ranks to become a full professor, former chair of the MIT Management of Technological Innovation & Entrepreneurship Group, and Founder/Chair of the MIT Entrepreneurship Center. Earlier at MIT, Roberts co-founded the MIT Enterprise Forum, which has nurtured hundreds of new companies in the Greater Boston area.
Robert’s latest academic achievement has been the launch of MIT Sloan’s new Entrepreneurship & Innovation MBA Program, which has attracted more than 25% of each MBA class since being launched two years ago. Many aspiring entrepreneurs have said they selected MIT Sloan because of its special commitment to Entrepreneurship and Innovation through the E&I Program.
Saturday, March 29, 2008
The Entrepreneurship Myth
The Entrepreneurship Myth
The Entrepreneurship Myth
Author Scott Shane seeks to dispel popular illusions about startups—starting with the myth that founders earn more than they would as employees
by John Tozzi
Entrepreneurship creates jobs and drives the U.S. economy, making smart founders and savvy investors rich in the process, right? Not so, says Scott Shane, professor of entrepreneurial studies at Case Western University and author of The Illusions of Entrepreneurship, to be published by Yale University Press this month.
Shane argues that increasing the rate at which new companies are formed does little for the economy or job growth; instead, expanding existing businesses would be a more efficient way to spend time and money. Shane, who is also a researcher on new businesses for the Ewing Marion Kauffman Foundation and an angel investor with the Cleveland-area North Coast Angel Fund, wants to give every aspiring business owner a reality check.
Shane's book reveals a bleak picture of entrepreneurship in the U.S. It shows the average new venture will fail within five years, and even successful founders usually earn 35% less over 10 years than they would working for others.
Shane spoke recently with BusinessWeek.com's John Tozzi about the myths of entrepreneurship. Edited excerpts of their conversation appear here. We also offer a playbook (BusinessWeek.com, 1/23/08) and a link to a quiz Shane put together to test knowledge of entrepreneurship.
You collect a lot of data in your book and come to some counterintuitive conclusions about entrepreneurship. What would you say is the biggest illusion?
I think the biggest myth entrepreneurs have is that the growth and performance of their startups depends more on their entrepreneurial talent than on the businesses they choose. I hate to deflate egos, but on the other hand I want people to have a realistic understanding of things. The industry a person picks to start a business has a huge effect on the odds that it will grow. If you go back 20 years or so, about 4% of all the startups in the computer and office equipment industry made the Inc. 500, 0.005% of startups in the hotel and motel industries made that list, and 0.007% of startups in eating and drinking establishments. So that means the odds that you make the Inc. 500 are 840 times higher if you start a computer company than if you start a hotel or motel.
The subtitle of your book is "The costly myths that entrepreneurs, investors, and policy makers live by." What's the cost of these misconceptions?
At the individual level, the core fact here is the typical, median, right-smack-in-the-middle entrepreneur is a failure. The cost is everything associated with that. So if you start a business and the business dies, you could have been working for somebody else. You could have been making a salary. You could have had the stability—you wouldn't have had that kind of stress that comes from the up and down of running that business.
So there's the personal costs. From an individual level, the myth is that somehow if you manage to hit the average or hit the median, you're going to be fine. The reality is that the distribution is so skewed you have to hit the top for it to matter, and in fact, you have to hit the top 10% to have income as an entrepreneur better than what you would have gotten working for other people.
Describe the typical startup that you found.
The median startup is a business that's capitalized with about $25,000. The financing of that business comes from the entrepreneur's savings. The business is a retail or personal service business, a hair salon or a clothing store, that kind of thing. The founder doesn't have expectations of a very high growth business, in fact [the entrepreneur is] probably thinking a goal of $100,000 a year of revenue is a good goal.
And it's most likely to be organized as a sole proprietorship and to have no employees besides the owner—is that correct?
That's right. And in fact we're getting close to half, very close to the median would even be home-based.
Why do you think the myth of entrepreneurship, the image that you're debunking, is so popular?
Part of it is we have a belief that entrepreneurship is good because it's associated with things that we like to believe about Americans: being independent, doing your own thing, going your own way. The other part of it is that paradoxically, there is one really, really good thing about entrepreneurship that people don't talk about, which is dominant and we have lots of evidence to support: People who run their own businesses have greater job satisfaction than people who don't. I think part of it is that we're trying to make sense of this paradox—that we really like it, but financially it isn't so great. So we create a myth that says because we like it and it makes us happy, it must also make financial sense, because otherwise there's a kind of conflict we can't resolve.
You do point to this data that people are so much happier working for themselves that they'd need to earn 2.5 times as much working for someone else to be as happy. If that's the case, then despite the personal financial risks they take on, is there anything wrong with that?
It makes a lot of sense if people say, "You know what? I'm going to earn less money running my own business, but I really don't like to work for other people, and that's why I'm doing it. It's making me happier and I really don't care." I think that's great. The part of it that becomes a problem is when people just won't admit the reality that it may make them happy and they're doing it because they want to be independent, [but] then they delude themselves into believing that also it's financially better.
One of the things you describe is the typical entrepreneur makes decisions that lower his chances for success. Why do you think that happens?
Part of it is that they're in a hurry and don't have time. So to give you a good example—a business plan. We have lots of evidence that all kinds of performance measures of startups are enhanced if you write a business plan (BusinessWeek.com, 1/7/08). But a lot of people, actually the majority of people don't write them. If business plans help and they don't do it, why don't they do it? I think one reason is if you're not going to raise money from another party, the sole purpose of the business plan is to help you run your business. But if you think, "But it'll take me a lot of time to write it and I could just be starting," if you're in a hurry, you just start, and it handicaps your business. So I think one part is the rush.
The second part is, unfortunately, ignorance about what does work. We don't have a lot of information out there about what it takes to make a business successful.
You write that "encouraging startups is lousy public policy," based on the data you've examined. What would you propose as policy alternatives?
The part that's lousy public policy is the idea that entrepreneurs, regardless of what kind, are good, and if we just have more of them, it's better. But what's a good public policy is if we picked certain kinds of startups, and we emphasized the increase in those. But the way the policies are set up, they don't encourage the specific high-potential startups. Most of the policies are: More entrepreneurs—just let's get volume. It's a very volume-oriented strategy. That's bad public policy.
The Entrepreneurship Myth
Author Scott Shane seeks to dispel popular illusions about startups—starting with the myth that founders earn more than they would as employees
by John Tozzi
Entrepreneurship creates jobs and drives the U.S. economy, making smart founders and savvy investors rich in the process, right? Not so, says Scott Shane, professor of entrepreneurial studies at Case Western University and author of The Illusions of Entrepreneurship, to be published by Yale University Press this month.
Shane argues that increasing the rate at which new companies are formed does little for the economy or job growth; instead, expanding existing businesses would be a more efficient way to spend time and money. Shane, who is also a researcher on new businesses for the Ewing Marion Kauffman Foundation and an angel investor with the Cleveland-area North Coast Angel Fund, wants to give every aspiring business owner a reality check.
Shane's book reveals a bleak picture of entrepreneurship in the U.S. It shows the average new venture will fail within five years, and even successful founders usually earn 35% less over 10 years than they would working for others.
Shane spoke recently with BusinessWeek.com's John Tozzi about the myths of entrepreneurship. Edited excerpts of their conversation appear here. We also offer a playbook (BusinessWeek.com, 1/23/08) and a link to a quiz Shane put together to test knowledge of entrepreneurship.
You collect a lot of data in your book and come to some counterintuitive conclusions about entrepreneurship. What would you say is the biggest illusion?
I think the biggest myth entrepreneurs have is that the growth and performance of their startups depends more on their entrepreneurial talent than on the businesses they choose. I hate to deflate egos, but on the other hand I want people to have a realistic understanding of things. The industry a person picks to start a business has a huge effect on the odds that it will grow. If you go back 20 years or so, about 4% of all the startups in the computer and office equipment industry made the Inc. 500, 0.005% of startups in the hotel and motel industries made that list, and 0.007% of startups in eating and drinking establishments. So that means the odds that you make the Inc. 500 are 840 times higher if you start a computer company than if you start a hotel or motel.
The subtitle of your book is "The costly myths that entrepreneurs, investors, and policy makers live by." What's the cost of these misconceptions?
At the individual level, the core fact here is the typical, median, right-smack-in-the-middle entrepreneur is a failure. The cost is everything associated with that. So if you start a business and the business dies, you could have been working for somebody else. You could have been making a salary. You could have had the stability—you wouldn't have had that kind of stress that comes from the up and down of running that business.
So there's the personal costs. From an individual level, the myth is that somehow if you manage to hit the average or hit the median, you're going to be fine. The reality is that the distribution is so skewed you have to hit the top for it to matter, and in fact, you have to hit the top 10% to have income as an entrepreneur better than what you would have gotten working for other people.
Describe the typical startup that you found.
The median startup is a business that's capitalized with about $25,000. The financing of that business comes from the entrepreneur's savings. The business is a retail or personal service business, a hair salon or a clothing store, that kind of thing. The founder doesn't have expectations of a very high growth business, in fact [the entrepreneur is] probably thinking a goal of $100,000 a year of revenue is a good goal.
And it's most likely to be organized as a sole proprietorship and to have no employees besides the owner—is that correct?
That's right. And in fact we're getting close to half, very close to the median would even be home-based.
Why do you think the myth of entrepreneurship, the image that you're debunking, is so popular?
Part of it is we have a belief that entrepreneurship is good because it's associated with things that we like to believe about Americans: being independent, doing your own thing, going your own way. The other part of it is that paradoxically, there is one really, really good thing about entrepreneurship that people don't talk about, which is dominant and we have lots of evidence to support: People who run their own businesses have greater job satisfaction than people who don't. I think part of it is that we're trying to make sense of this paradox—that we really like it, but financially it isn't so great. So we create a myth that says because we like it and it makes us happy, it must also make financial sense, because otherwise there's a kind of conflict we can't resolve.
You do point to this data that people are so much happier working for themselves that they'd need to earn 2.5 times as much working for someone else to be as happy. If that's the case, then despite the personal financial risks they take on, is there anything wrong with that?
It makes a lot of sense if people say, "You know what? I'm going to earn less money running my own business, but I really don't like to work for other people, and that's why I'm doing it. It's making me happier and I really don't care." I think that's great. The part of it that becomes a problem is when people just won't admit the reality that it may make them happy and they're doing it because they want to be independent, [but] then they delude themselves into believing that also it's financially better.
One of the things you describe is the typical entrepreneur makes decisions that lower his chances for success. Why do you think that happens?
Part of it is that they're in a hurry and don't have time. So to give you a good example—a business plan. We have lots of evidence that all kinds of performance measures of startups are enhanced if you write a business plan (BusinessWeek.com, 1/7/08). But a lot of people, actually the majority of people don't write them. If business plans help and they don't do it, why don't they do it? I think one reason is if you're not going to raise money from another party, the sole purpose of the business plan is to help you run your business. But if you think, "But it'll take me a lot of time to write it and I could just be starting," if you're in a hurry, you just start, and it handicaps your business. So I think one part is the rush.
The second part is, unfortunately, ignorance about what does work. We don't have a lot of information out there about what it takes to make a business successful.
You write that "encouraging startups is lousy public policy," based on the data you've examined. What would you propose as policy alternatives?
The part that's lousy public policy is the idea that entrepreneurs, regardless of what kind, are good, and if we just have more of them, it's better. But what's a good public policy is if we picked certain kinds of startups, and we emphasized the increase in those. But the way the policies are set up, they don't encourage the specific high-potential startups. Most of the policies are: More entrepreneurs—just let's get volume. It's a very volume-oriented strategy. That's bad public policy.
Friday, February 22, 2008
Lessons for Entrepreneurs from Prof. James Utterback's lectures
From MIT Course 15.354 and a lecture based on the book Mastering the Dynamics of Innovation
There is a great deal to learn for entrepreneurs from studying the dynamics of historical industries. You can often learn a great deal that you can't just by studying the newest and latest fads out there.
1) Strength of this approach is in knowing the weaknesses of large companies and where you can attack them! (Just like a lion or tiger hunting might wisely choose the weaker or diseased prey to chase.)
2) There is some difficulty in determining where you are in the industry life cycle. Assuming you can determine this, it is important to make strategic decisions as an entrepreneur (or investor or Board member) that are consistent with this location.
3) For the choice of the first application and user/market segment to target:
- there is always resistance to new ideas
- need to choose a first application that is the biggest "pain point" for
customers (not a set of customers that are more or less satisfied)
- customers with money (and status)
- where there is the least infrastructure and cost to install
4) Industry incumbents will respond and innovate - you have to be ready for that and to innovate in response. But they will often ignore you longer if you are in a niche segment of the market initially. There is a phenomenon of defensive innovation or a "last gasp" of incumbents trying to stop the inroads of the new competing technology.
5) Innovations are sometimes out there already in use but not diffused so if you can find a better application maybe in a different industry then you can get a head start.
6) Thinking through the problem and the ease of manufacturing ahead of time can give you a competitive advantage when innovating.
7) Often there are many people inventing at the same time - it's good to be aware of them so you can re-design, learn from their mistakes, and make your product differentiated as well as easier to manufacture.
8) Entrepreneurs need to try to adopt standard components. There are problems both for the customers and on the supplier cost sides to using custom components.
9) For network technologies, there are often standards wars. Competition sometimes comes down to strategic maneuvering in these rather than merits of the technology.
10) Importance of the system in competition - Swan just had a light bulb, Edison had a system
11) There are many incremental and step-wise innovations and it is not always the case (or even often the case) that innovation follows science. Many times the innovation comes before scientific understanding of it.
There is a great deal to learn for entrepreneurs from studying the dynamics of historical industries. You can often learn a great deal that you can't just by studying the newest and latest fads out there.
1) Strength of this approach is in knowing the weaknesses of large companies and where you can attack them! (Just like a lion or tiger hunting might wisely choose the weaker or diseased prey to chase.)
2) There is some difficulty in determining where you are in the industry life cycle. Assuming you can determine this, it is important to make strategic decisions as an entrepreneur (or investor or Board member) that are consistent with this location.
3) For the choice of the first application and user/market segment to target:
- there is always resistance to new ideas
- need to choose a first application that is the biggest "pain point" for
customers (not a set of customers that are more or less satisfied)
- customers with money (and status)
- where there is the least infrastructure and cost to install
4) Industry incumbents will respond and innovate - you have to be ready for that and to innovate in response. But they will often ignore you longer if you are in a niche segment of the market initially. There is a phenomenon of defensive innovation or a "last gasp" of incumbents trying to stop the inroads of the new competing technology.
5) Innovations are sometimes out there already in use but not diffused so if you can find a better application maybe in a different industry then you can get a head start.
6) Thinking through the problem and the ease of manufacturing ahead of time can give you a competitive advantage when innovating.
7) Often there are many people inventing at the same time - it's good to be aware of them so you can re-design, learn from their mistakes, and make your product differentiated as well as easier to manufacture.
8) Entrepreneurs need to try to adopt standard components. There are problems both for the customers and on the supplier cost sides to using custom components.
9) For network technologies, there are often standards wars. Competition sometimes comes down to strategic maneuvering in these rather than merits of the technology.
10) Importance of the system in competition - Swan just had a light bulb, Edison had a system
11) There are many incremental and step-wise innovations and it is not always the case (or even often the case) that innovation follows science. Many times the innovation comes before scientific understanding of it.
Monday, February 18, 2008
YoungEntrepreneur.com Blog The Top 10 Mistakes People Make When Starting A Business
YoungEntrepreneur.com Blog The Top 10 Mistakes People Make When Starting A Business
What are the common mistakes that new entrepreneurs make and how can you avoid making them yourself? Here is our top 10 list of mistakes people make when starting a business:
1) Not enough money.
The most common reason why new businesses shut down is that the owner runs out of money. Cash flow is critical to a startup business. You could be profitable and still have to close your doors because your customers are taking too long to pay you. Cash is king in a startup venture and you need to prepare for it.
One option is to make sure you have enough startup capital from your own investments or outsiders (bank loan, private investors, etc). A second option is to ease into the business so that you start doing it on a part-time basis until you know that it will make enough money to support you.
2) Not thinking survival.
Starting a business is all about survival. How do you stay around one more day so that you can learn more about your market and close new customers?
At the beginning stages of a business this may mean doing work that might not be completely what you want to do but it helps pay the bills. You need to do whatever it takes to survive and get through until the business can fully support yourself.
3) Losing momentum.
Many new entrepreneurs have ambitions to start a business so they create a website, try to make a few sales, go all out for a few months and then stop completely. Building a business is all about momentum. If you had 24 hours to spend on a business they would be put to far better use by spending one hour a day than for 24 hours straight.
It takes time to develop a new company and for people to react to what you have to offer. Never lose the momentum and even if your business is only a part time initiative for you at the moment, make sure that every day you are making progress of some sort to move your company forward.
4) Doing it all alone.
Nobody is perfect or has the skills to do everything themselves. You need to understand what it is that you bring to the table and what you need to surround yourself with. If, for example, you are very strong at inventing but don’t want to sell then you need to find a salesperson to help you.
You won’t succeed by forcing yourself to do things that you truly don’t enjoy and will never be good at. Know where you stand and what value you can offer. By getting people around you who complement your skills, you will be able to achieve your goals and have a lot more fun along the way!
5) Not hiring right away.
You should begin looking at who can be brought on board to help you from the first day of starting your company. There will be tasks in any business that you, as the owner, should not be focusing on if you hope to build any sort of sizable organization. Why are you doing admin work when you should be out closing customers, talking to the media, and landing new partnerships?
But I’m broke! How can I hire someone? Even if you have a $0 budget you can find people to work for you through high school and foreign student internship programs. Once you have a budget, you can bring people on board for as little as one hour a day (what I first did) and then increase their hours when you can afford it. You need to be spending your time working on the business and not in the business.
6. Doing it just for the money.
If you don’t truly love your business then you won’t be successful. If you read the stories of famous entrepreneurs and how they built their organizations you will find that it all comes down to the root of loving what you are doing.
Money is definitely important, as most companies are for-profit enterprises, but it will often take a long time to come and if you don’t truly enjoy your work then you won’t be able to convince yourself to keep going. You can only do something that you don’t really love for so long before you give up.
7. Getting to year 1, past year 2.
Many entrepreneurs have a hard time getting to the end of year one. Typically it’s because they started the business on a whim and got excited about an opportunity but didn’t do the proper research. These entrepreneurs usually run out of money and close down after a few months.
A second challenge is getting through year two. It usually takes three years of hard work to make a business. Year one is all about the excitement of getting started. You’re high on energy and ready to take on the world. In year two entrepreneurs often find themselves still not making much money and the startup excitement has faded. You’ll need to work your way through the downturn and know that the money is coming if you keep at it.
8. Don’t build around a customer.
The best way to make a lot of money quickly is to find a customer who has a problem and is willing to pay you to solve it - and then you go out and build the solution. Most entrepreneurs take the opposite mentality of “if I build it, then will come” only to realize that they’ve built it and nobody is coming. Instead of talking to customers as to why they’re not coming they decided to continue building and building. Soon they find out that they’ve invested years of work and nobody is interested in buying from them.
The companies with the highest failure rates are restaurants because they are usually built around an owner’s personal tastes. Meanwhile, the entrepreneurs with the lowest failure rates are lawyers and accountants because they are based around a service that we all need (whether we like it or not!) Talk to potential customers, see what they are interested in, identify who has money and what their pains are and then create your product / service around them.
9. Don’t seek mentors.
A great way to get a business going is to find out what other people have done to achieve success and implement those strategies into your own company. Find mentors who have knowledge of your industry and will give you time out of their day to help you.
You could set up a formal board of advisers and compensate people for their time but if you’re a startup you can play on the fact that most entrepreneurs are willing to help out a fellow business owner as a way to give back. If you show genuine appreciation and approach the right people, the advice you get will help make or break your company.
10. Don’t get involved in the community.
Tied in with not seeking mentors is not getting involved in the small business community. Countless opportunities are generated by connecting with other young entrepreneurs and finding out what they are up to and how you can help. You will get new business opportunities, partners, investment, media attention, ideas for productive tools to use, advice for your company, and many other resources that otherwise would take you years of trial and error to figure out (if you ever do at all).
A great community to be involved in, needless to say, is the Young Entrepreneur Forums, where there are over 32,500 entrepreneurs waiting to meet you and help you grow your business!
Friday, February 15, 2008
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