Ventures & Entrepreneurship – Page 3

July 31, 2009

What The Entrepreneur And The MBA Taught One Another

Two topics that I frequently see discussed in online forums, blogs, and articles are entrepreneurship and MBA degrees. In such venues, perspectives and responses are often very polarized, and it would not be unusual to see different camps characterizing the relationship of entrepreneurship to MBA training as either highly relevant or highly irrelevant to one another.

Rather than taking an argumentative approach to distill relevancy, one of my former colleagues (Paul Brown, an entrepreneur & founder, PhD degree) and I share a few things below that we specifically learned from one another (with Steve playing the role of non-entrepreneur, MBA degree). The context is during an enterprise software startup that went from Seed financing to Series A corporate venture capital to Deloitte Rising Star to sale/merger over a period of five or so years.

Some key things Paul got or learned from Steve (my notes taken from discussion and correspondence with Paul):

Level of professionalism added – Having an MBA-trained person on the team changed professionalism not so much in demeanor but in the total approach to business. The MBA perspectives complemented a very technical, software R&D organization that sold highly technical products.
Concrete methods and processes added – As opposed to piling receipts in the corner of the room and calling the pile "our accounting books", having an MBA on the team introduced discipline and methods in finance, sales, competitive intelligence & benchmarking, Board meetings, etc.
Business literacy added - Perhaps an understated item but by adding an MBA competency to the team it helped to make a difference in key company situations as to whether we were taken seriously or not by others (e.g., partners, investors, customers).

Key lessons that Steve learned from Paul:

Business experimentation is part of the entrepreneurial spirit and approach – Although I may have paid lip service to this in the past, I recalibrated myself away somewhat from business role models where managers are expected to "know the right answer" a priori. When you are paving new ground as in an entrepreneurial venture, there is tremendous value in conducting safe tests (such as floating an idea with another entrepreneur or an industry veteran, presenting a new pricing plan to a niche distributor).
There is value in tapering the need to make hasty decisions – Something that has always stuck with me for many years was something that I remember reading about the Harvard Business School training method. Students were pressed to make decisions and calls based on information (however limited) in a case study. In reality, this type of mentality is reinforced in many business school and business settings. The mentality is that one will always have incomplete information whether in a managerial, case study, etc. setting, and one needs to make decisions as a manager. Boom, boom, boom, done. Although I have not fully formulated my thoughts in this area, what I believe I learned from Paul was that the entrepreneur may benefit not from procrastination but by delaying critical decisions as long as there is time to either gather additional information, see activities play out, or let management team emotions clear. (I know – my idea is a bit convoluted in its current form, but I am onto something and will revisit).
If you want to appreciate entrepreneurship truly, you must witness someone with total willpower, drive, and endurance – I don't think I need to say more here, other than Paul has these characteristics.

Paul, thanks for the lessons!

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May 1, 2009

Blog Interview On Consulting For Chicago Booth Corporate Strategy and Management Group

I did a blog interview for the Chicago Booth Corporate Strategy and Management Group (student-run organization for part-time and evening program). The interview (link here) covers areas such as typical week in the life of an independent consultant, common problems currently facing clients, and the most helpful MBA training I received at Chicago.

Aside from the fund raising item I mentioned in the interview section on current client issues, I also shared the following (which characterizes one current client philosophy on approaching prospective consulting projects):

… The other theme I have been seeing more of is in the operational process improvement area. The themes here, however, have not been so much around improving profits as they have been about weathering the economic storm and making improvements that increase either customer satisfaction or quality of services and products. Clients, on the balance, are more conservative right now. Whereas the smart executives and managers may have been going for broke before and taking bigger chances, they now see making continuous improvements as a must-do (not necessarily demonstrating immediate margin or revenue improvement until after the storm lifts). As additional light, some executives are missing their revenue numbers in the current (bad) market climate, but they are making their net profit numbers. These companies are using the stable net profits as their bulletproof vest with their Boards while using consultants in very targeted ways or in controlled “entrepreneurial experiments” to help build for the future.

As an independent consultant, I increasingly need to use my network to read the market (as opposed to having information flow to me from "The Firm". Don't know whether others are seeing similar things or not. Please feel free to share your thoughts.

November 30, 2006

Venture Capital Test Suggests Some Weaknesses About MBAs and Consultants

Paul Brown tipped me on Guy Kawasaki’s post on the Venture Capital Aptitude Test. (Disclosure: Paul’s kind words come from years of he and I working together in a startup where he and the other developers did all the hard work) . Thanks, Paul.

In Guy’s post, Guy gives two positive nods two areas I’ve had lead roles with (engineering & sales) and disses two other areas I’ve been also been involved with (MBA and management consulting) in terms of how it affects one’s ability to be a venture capitalist.

Guy writes about management consultants:

The three worst backgrounds for a venture capitalist are management consulting, investment banking, and accounting. Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups.

Guy writes about MBAs:

Finally, there is the issue of the pertinence of an MBA to venture capital. The upside is that such a degree can provide additional tools and knowledge (such as calculating that 25% of $1.6 billion is $400 million) to help you make investment decisions and to assist entrepreneurs. The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside.

While I won’t address Guy’s claim about the whether these areas are good or bad for venture capitalists (as I can’t claim to be an expert about picking good venture capitalists), what I will address is Guy’s claim that "Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups" and "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside."

On the point about management consulting I simply disagree (with no disrespect) with Guy. Guy’s statement is an overgeneralization. There are different types of consulting firms out there, and Guy’s perspective may be more influenced by pre-2000 practices. Consulting firms pre-2000 that were focused on strategy might have more of a tendency to be focused solely on stategy, but these firms got burned by making recommendations without focusing on ease of execution. On the other hand, there were firms that grew of of an implementation background (and potentially interim management background) and moved upstream into more strategy consulting. Although markets started to overlap a bit, structurally I think consulting firms and client were better off by having this type of cross breeding.

All said, if one has not spent any time managing or working in a business role prior to management consulting, I think this can be a weak point that one needs to work on careerwise. But there are strong benefits to management consulting that should not be underestimated either – by working in management consulting, one can get exposed to the internal operations of a lot more firms than one could by working for one firm straight for five to ten years. In five to ten years as a consultant, one may have seen the detailed operations of twenty to forty firms versus two to five as an operating person.

On Guy’s point, "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested."

To this, all I can say is that my hypothesis would be that MBAs may tend to attract arrogant people [who overstep their bounds in terms of what they think they’ve accomplised over non-MBA entrepreneurs]. I don’t think the MBA naturally breeds this type of person.

Overall, I think Guy is onto something when he says people should value the difficulty of implementation and value and proximity of market insight. I also think he’s onto something when he talks about arrogancy affecting the ability of VCs to do the job effectively. But Guy’s characterization overly discriminates against consultants and MBAs. What about the negatives to engineers who only think about technical beauty and miss the market need? What about the salespeople who only sold what the customer already bought and never hunted for a deal?

Updates (12/4/06): Guy here. Charlie here.

April 28, 2006

What I Didn’t Learn From Bjorn Borg I Learned From My Brother and From Startups (The Importance of Sales)

Last month I was bit dismayed to see that one of the great tennis players of all time, Bjorn Borg, was putting up his Wimbledon trophies up for sale to help with financial security for those close to him. Bless Bjorn and his family, but the news was a bit sad for me.

When I was growing up playing tennis, I identified more with John McEnroe, who was a lefty, serve-and-volley type, and phenomenally natural player (true McEnroe had a temper on the court). Borg, on the other hand, was a baseline player, more of a machine and a model of physical perfection, disciplined, and gentleman-like. Borg played with an exaggerated Western grip which facilitated huge, looping forehand swings, and topspin shots that were out of this world.

One of my first tennis racquets was a Bjorn Borg Bancroft racquet. I got it as a reward for selling probably hundreds of candy bars in the Little League. OK – I didn’t personally sell more than two of those hundreds of candy bars. My parents and my brother were the salespeople that should be credited for the sales. My brother, who has always been a genuine, people person, was eager to bring happiness to others door-to-door in the form of chocolates and his bright smile.

Prior to working directly in new sales (not existing clients) for a startup, I had a total aversion to salespeople. Salespeople were a bunch of scum suckers, slimeballs, and shysters looking to rip off innocent people. But working in a startup forced me to understand more about the craft, process mechanics, compensation structure and legal docs, management and measurement techniques, and styles of salespeople from a hands-on point of view. In short, I developed a deep appreciation for sales, and I came up with my own style of sales. I basically develop a sales style that is oriented towards helping other people first and then allowing sales to stem naturally from that (as opposed to forcing things unnaturally).

Digressing a bit, at Chicago’s b-school (before my sales experiences), I took a new business venture course from a visiting Harvard b-school professor. The Harvard professor taught the class with an heavy emphasis on the entrepreneur having strong sales qualities. I found this to be in stark contrast to the entrepreneurial finance course that I took from a Chicago professor which emphasized a more holistic look at a venture in its approach.

I never really appreciated the importance of deeply understanding sales until somewhat longer into my professional career. Now I live, breathe, and appreciate sales in all of my jobs, even when sales are not my responsibility. Cutting one’s teeth in sales has been one of my best professional experiences, and I would especially encourage those seeking entrepreneurial endeavors to try out the profession/functional role at least once. If you can get in a situation where you must both source and close the deals, that’s an ideal opportunity to pursue. Not only does understanding sales help one appreciate the "cash is king" mantra in a venture but also it helps one to understand other people better.

February 1, 2006

Musings On Surviving The Bends When Moving Between Small and Large Companies

The "bends" refers to decompression sickness and is often associated with divers who surface from a dive too rapidly (e.g., because of an emergency like running out of oxygen) and where the pressure transition of moving from deep to shallow water can be so shocking that it cause gases to bubble out of one’s blood – very painful. Though I haven’t read up on the facts on how many people die from the bends, for one reason or another I often associate the experience as very traumatic experience with a high probability of casualty (which may not be true). In any case, I spent lunch the other day with a successful entrepreneur that I work with (who raised tens of millions of dollars from top VCs in two ventures), and we shared some stories about our own startup and big company experiences, other friends’ experiences, etc. The talk made me reflect upon how people can switch between entrepreneurial ventures and large corporations (both directions) and not get the equivalent of the "bends".

From my vantage point, there seems to be a high probability of people failing to make the transition.

Here are some example sickness conditions that one might find when switching from small company to large company:

getting frustrated with (perceived) excessive processes
failing to recognize sensitivities associated with chain of command or organizational structures
having to hold specialist positions that may not see end-to-end workflow (such as beginning of customer prospecting through contract closing and delivery)
moving from being a big fish in a small pond to a small fish in a big pond (and the associated reduced scope of control)

For this post, I’m going to ignore the positive aspects of switching between small and large company, and I’ll turn to some example sickness conditions that one might find when switching from large company to small company:

having difficulty operating with no to little human resources (e.g., VPs in big companies where they had people working for them and not knowing what to do when they have to deliver on their own)
wanting to expand the organization prematurely (e.g., building up large sales teams before product is even close to alpha)
working with colleagues who may neither have the experience of working with large companies nor speak the same language
getting accosted by management for failing to realize that a small company may have much smaller margins for error

For myself, I found that imagining how life was going to be on a day-to-day basis before I made the switch had helped quite a bit. For example, before I first left the management consulting field to work for an angel-funded startup, I told the CEO something to the effect that I was mentally prepared to scrub toilets and live life by eating only canned beans. I knew that in a transition from a well-paying management consulting job to a bootstrap – well things were going to feel financially different. On the other hand, when I returned back to becoming a management consultant in a large company, I knew that there would be more processes, organization, etc. to work with. Projecting how life would be back in a large company had helped me to make the transition.

What I suggest is an internal readiness testing of sorts.

To digress a bit, I have seen some folks apply interview testing (or sorts) to see whether a large company person would work out in an small company/entrepreneurial setting. The test might have been to have a candidate for a VP of Sales job develop a sales presentation (or revise the startup’s existing sales presentation) and present the deck to the startup management team and board itself.

If the transition can be accomplished successfully, great things can happen. Sometimes business connections and credibility from someone from the big company world can be leveraged quite nicely into a small venture. Soimetimes entrepreneurial attitudes and fresh blood can help with large companies that need a revival. These are just tips of the iceberg in terms of potential benefits.

But transitions can be rocky. The bends exist, and they need to be actively managed before, during, and after a transition. At least, methinks so.

December 7, 2005

Musings On Jack Of All Trades, Entrepreneurs, and Position Players

Andy has a post over at his blog which highlights how an entrepreneur distinguishes himself from MBAs and venture capitalists, the latter two types of people characterized as those that frequently suffer from a "Jack of All Trades [Master of None] Syndrome". The entrepreneur cited in Andy’s blog writes (brackets added by me for clarity):

The reality is that VCs suffer from the same problem that most MBA graduates face: “Jack of All Trades” Syndrome. Put simply, they know a little about a lot but lack real depth when it comes to a particular field. Starting a successful company [as an entrepreneur] involves solving a critical problem for a targeted group of customers. To be able to do that, you have to understand the customer extremely well, and be an expert in their interests, needs and problems.

I don’t disagree with the need as an entrepreneur to be focused on the specific problems of targeted customers. What actually struck me as a little funny though was (my perhaps incorrect) perception of a distinction between Jack of All Trades-types and entrepreneurs.

In some ways, many entrepreneurs benefit from having some Jack of All Trades skills. If one is an engineer or software developer, having some innate sales skills or knowledge of the sales process can be invaluable in testing out ideas in the field early on. Having some knowledge about finance is beneficial too, especially if looking for angel or venture money and trying to understand their concerns at a deeper level. Knowledge of marketing also helps in a bootstrap environment as one tries to figure out how to develop that magical, self-referencing customer ecosystem. Having knowledge about how other businesses are run is also very valuable.

To digress a bit, a couple of months ago a venture partner indicated that my Jack of All Trades appetite was that of a classic entrepreneur. As context, his firm was about to draw a second round of institutional money (so the firm was little bit beyond startup), and he was contemplating having me run business development. An interesting question that came up was what was my appetite was for being a position player (a person that can fill a specific role exclusively, e.g., VP of Business Development, VP of Marketing, VP of Sales). In essence, this person was saying that Jack of All Trades-types were fine for early ventures, but as the company moved out of startup mode that it needed specialists.

All said, I believe that many entrepreneurs can benefit by being a Jack of Some Trades and a master of something. Note that the utility player in the baseball world is practically extinct (but then so is the 80s Rock Drummer). And while I made a case for utility players in entrepreneurial settings, there is a strong case for the utility-types being replaced by position players down the road as a venture gets more mature. Don’t overvalue or overdiscount the Jack.

Continue reading “Musings On Jack Of All Trades, Entrepreneurs, and Position Players”

December 7, 2005

My Former Employer/Startup Acquired (The Fluid Nature of Startups)

Intalio (a company funded by 3i, Cargill, Woodside Fund, SAP Ventures, et. al.) has acquired my former employer, FiveSight Technologies, a manufacturer of one of the highest (if not the highest) quality business process execution language (BPEL) engines the world has ever seen. eWeek reports on it here. Congrats to the team of companies as they enter a new era. Maciej Szefler, formerly chief architect for FiveSight, takes over as chief architect for Intalio. FiveSight had some of the smartest guys (excluding myself) in the world working for it, and I thought I would take a moment to congratulate them, in particular founders, Paul Brown, Maciej Szefler, and Justin Guinney. I’d also like to thank the three of them for letting me join the team.

I thought I’d take a moment to reflect upon one aspect of FiveSight in its life as a startup. Perhaps it will shed some light on the fluid nature of the startup environment.

I joined FiveSight at the end of 2000 (close to concurrent with its seed round of funding) before we had offices, and I was the first non-programmer (aka business guy) to join the company. The company had a concentration in automating business processes using low-level, highly technical infrastructure and had a few clients exclusively in the healthcare space. The product that was sold was in the integration space, sort of like a toolkit, and it was *not* the product that was sold as part of FiveSight to Intalio. The standards around BPEL were not that well-formed around the time we were in that original business. We raised corporate venture capital (pre-BPEL) through Union Pacific Corporation (NYSE:UNP) and got some big name clients with our first product, such as Nomura and Hitachi in Japan, and Harley-Davidson. Probably the accomplishment of which I am most proud at FiveSight was locating a prospect (by cold calling them from a magazine article), selling our first enterprise deal into an industry sector where we had no references, and then negotiating and facilitating the venture funding with Paul. It is very hard to line up deals when you have no customer references, no brand name to speak of, no venture capital or big financial backer, and when you need to compete against brand name, larger firms.

To make a long story very short, the first product that we got out the door, served as FiveSight’s experience and drove a lot of the intellectual property that went into the BPEL engine now owned by Intalio. When we started the journey, we did not know we would wind up with a new product. But we listened to customers and the market. We also did not know how the proprietary versus open source playing field was going to pan out. FiveSight managed to focus on the shifting landscape. We went with proprietary until it made sense. While doing all of the basic blocking and tackling associated with near-term sales and startups, we also had to focus on the larger picture as to how the industry was shifting.

I left FiveSight at the end of 2004 due to a relocation from Chicago to Dallas (as my wife finished her PhD). To this day it is still hard to keep someone part of core management if they are not within HQ.

Open source is here, and with FiveSight, Intalio is even more at the forefront of a class of products provided via that means. Technology aside, Intalio got some of the smartest guys I have ever worked with. They are and will continue to be legendary.

Disclosure: I am an investor in Intalio and formerly part of the management team of FiveSight.

Update (12/8/05): Paul has some additional experiences to share here. Paul, thanks for the kind words.

November 28, 2005

Small Businesses And Lawyers

Anita Campbell has an interesting post that covers small business owners’ net satisfaction with lawyers. She writes:

Don’t just take my word for it that business owners have confidence in
their attorneys. A recent survey by the National Federation of
Independent Businesses (NFIB) found that small business owners in the
United States rely on their lawyers for help — and generally seem
satisfied with the help they get.

Having worked with (and negotiated against) numerous lawyers, I have to say that good lawyers are precious.

That said, and while I have not dissected the study, there are some additional considerations that I see as applicable to startup businesses because legal bills may not be cheap (just as the lawyers chant out, "an ounce of prevention is worth …"):

Try to get smart on when you really need a lawyer ("do you know a real business/personal risk when you see one?") – Easier said than done, but I have seen some early organizations rack up tens of thousands of dollars in legal fees before coming out of the gates with anything but a stack of legal documents (not even the sales pipeline, marketing pitch documents, or product concept). Keep your eyes open for warning signs. Sometimes it takes time to coach your lawyer to help you maximize entrepreneurial opportunity while mitigating risks appropriate for where you are at companywise. Lawyers are about minimizing risks. Entrepreneurs are about maximizing opportunity. Work on getting the balance right very quickly.
Try orienting your lawyer around deal flow – All businesses have risks. Small businesses cannot afford Fortune 50 company-style legal protection. At least they can’t afford this up-front. Consider orienting your lawyer around a staggered plan. For example, for your first big deal, you may want extra review of certain areas of deal documents. Once things are rolling, you can come back and put in more complete deal document review and legal document portfolio creation. The total nominal cost out may be more in the long run, but the cash out flow will better match the cash in flow.
Entrepreneurs that do not manage their lawyers closely in the early stages of a relationship may be setting themselves up for a shock – Anecdotally, I have seen "first bill from a lawyer" shock many entrepreneurs and kill the trust relationship on both sides. Given the professional services relationship, one would think that this would work itself out and get structured right from the beginning. That said, I think entrepreneurs get too comfortable letting lawyers worry about all the risks. In the end, entrepreneurs end up failing to watch the relationship closely up-front, and bridges can get burned.