Skip to content


Esta resumido, falta cambiarlo…

The mission adopted for the Introduction to Venturing (ITV) course is to prepare graduate students to start and nurture their own businesses. The mission is based on the premise that student interests lie mainly in starting and building ventures in which they have a significant equity stake.

Today, many are skeptical of long-term careers in large corporations. They belong to a culture that celebrates entrepreneurial individuals. They are also older and more cognizant of the realities of corporate ladders, and they may have directly witnessed the effects of downsizing. Therefore, although only a handful of students start businesses right out of school, a large proportion expects to do so some years later. The ITV course seeks to develop the knowledge, skills, and attitudes that will support and enhance their entrepreneurial activity.

Studies Conducted

But issues derived from the entire population of new ventures or small businesses might not hold much interest for my target audience. In 1992, for example, about 21 million U.S. businesses filed tax returns. Seventy-one percent of these returns were from sole proprietors, and only 4% reported revenues of more than $1 million. The typical business apparently starts small and stays small. Although two-thirds of net new jobs in the private sector have originated among small firms in the past 25 years, only a few rapidly growing companies have created these jobs. Duncan and Handler found that only 24% of companies that started in 1985 and surviving in 1994 reported any increase in employment. Birch and Medoff estimate that between 1988 and 1992, 4% of all firms—about 350,000 so called “gazelles”—generated 60% of all the new jobs in the U.S. economy.* Thus we may infer that a random sample drawn from the 700,000 or so businesses started each year would not generate useful data for aspiring MBA entrepreneurs.

* See “The Wonderland Economy” by John Case in The State of Small Business 1995, published by Inc. magazine, for a full discussion of the studies and data summarized in this paragraph.

1989 Inc. “500” list.

fastest growing privately held companies.

“The Road Well Traveled,”

Opportunistic adaptation

also had a national dealer network established within a year of exhibiting its first prototype.

They merely replicate or modify an idea they encountered through previous employment or by accident.

† Amar Bhidé, “The Road Well Traveled,” HBS No. 396-277.

‡ Amar Bhidé, “Bootstrap Finance,” Harvard Business Review, November-December 1992, pp. 109-117, Reprint 92601.

The lack of innovative ideas and capital also limits the entrepreneurs’ ability to attract exceptional talent and requires them to make do with average, and sometimes marginal, employees.

An overwhelming proportion of the Inc. ventures I studied followed the improvised approach because their founders did not have the concepts or credentials to do otherwise. More than 80% of the Inc. founders bootstrapped their ventures with modest funds derived from personal savings, credit cards, second mortgages, and so on; the median start-up capital was about $10,000. Only 5% raised their initial equity from professional venture capitalists. The Inc. founders also could not afford to pay for high-quality talent. They therefore usually provided most of the crucial skills themselves and recruited whomever they could for the tasks they were too stretched to perform personally.

* See Amar Bhidé, “Hustle as Strategy,” Harvard Business Review, September-October 1986, pp. 59-65, Reprint 86503. The difference between the two models parallels the distinction made in this article, between businesses whose profits derive mainly from structural advantages such as brand names and patents and those whose profits depend on the quality of their execution. I was surprised at the time by the enthusiasm for the article, particularly because I had gone to some pains to describe the limited conditions under which a business could rely on strategies of “hustle.” I came to realize, however, that although pure hustle works only under specialized conditions, good execution is universally important.

Module 1. Evaluating and Developing Opportunities

In the typical improvised venture, the entrepreneur must analyze opportunities quickly and cheaply. Large companies have the resources and time to conduct extensive industry and market analyses. The aspiring entrepreneur, who is probably working at a full-time job while exploring and evaluating opportunities, does not. Moreover, entrepreneurs often compete in rapidly changing industries where reliable information is scarce and opportunities are fleeting. The marginal costs of additional research and analysis, therefore, rapidly exceed the marginal benefits.

Entrepreneurs must also evaluate opportunities in the light of severe capital constraints (the typical entrepreneur I studied relied mainly on personal capital) and the lack of personal diversification—factors of little concern to most large corporations. They must also pick opportunities from a usually unpromising pool. The data show that entrepreneurs often have to start with a “me-too” idea or opportunities that more established players have turned down. In fact, opportunities often exist for an entrepreneur because the problems have scared away capable potential rivals. Therefore, entrepreneurs have to be more tolerant, at least in some dimensions, than decisionmakers in large companies. At the same time, entrepreneurs have to be careful that their enthusiasm does not blind them to fatal flaws; somehow they need an evaluation process that distinguishes “opportunity making” issues from “deal breakers.”

My HBR article “How Entrepreneurs Craft Strategies That Work”* describes the core elements of the approach suggested in this module for resolving the distinctive problems entrepreneurs face in evaluating opportunities. Core MBA courses provide many tools and analytics for evaluating opportunities, but application of these tools by entrepreneurs without much time, money, or strong proprietary ideas is problematic. For instance, decision-makers are offered little guidance on how they can balance the costs and benefits of research and analysis. Taking the special circumstances of typical entrepreneurs into account, my HBR article suggests the following guidelines for entrepreneurs.

• Screen opportunities quickly to weed out unpromising ideas before doing much research.
• Assess the attractiveness of a venture (assuming that it has passed the initial viability test)
using several financial and nonfinancial criteria.
• Research and analyze even promising ideas parsimoniously.
• Integrate action and analysis.

Module 2: Securing Resources

Securing resources—capital, employees, suppliers, and customers—for a new venture usually represents a
serious challenge for the individual entrepreneur. The data suggest that the aspiring MBA entrepreneur often starts off with limited resources, whereas the established corporation seeking to expand its activities already controls many of the critical resources it needs. Indeed. The entrepreneur also usually faces severe credibility problems in securing “outside” resources. Consequently, resources may not be available at all or their price may be so prohibitively high as to make the venture unviable. At the same time, because the typical entrepreneur often lacks a proprietary concept, success may turn on a superior ability to secure and deploy the limited resources that are available.

This module explores strategies that entrepreneurs who start improvised ventures typically use to resolve these resource issues. My research suggests that they employ the following strategies.

1. Provide quick payoffs. My research suggests* For instance, in our Inc. survey we found that customers were willing to take a risk on a start-up if its products or services could provide immediate and sizable advantages. The tangible payback period for customers that were at risk rarely exceeded a year.

Other participants in the venture also realized immediate benefits. Employees escaped from unrewarding jobs or even unemployment. Suppliers who provided goods and services in small volumes to start-ups realized higher profit margins than from larger, well-established customers. Any outside investors in the start-ups were repaid quickly—most of the firms in our Inc. sample achieved profitability in a year or two, if not in months.

Apparently the resource providers heavily discounted long-term outcomes. Employees did not usually ask for—nor were they offered—equity or options. They overlooked, or could be persuaded by the entrepreneurs to disregard, the long-term risks such as being let go if they could not grow with the company. The small banks that provided credit when the big banks would not apparently did not worry that, as the venture grew, it would naturally look for more prestigious lenders with higher credit limits. The customers who took risks often did ask the entrepreneur about what would happen if the start-up failed—but they proceeded to buy anyway.

2. Craft emotional appeals. The entrepreneurs I studied compensated for their inability to providecompelling, well-specified rewards and reassurances by using more amorphous, psychological inducements. Moreover, entrepreneurs did not rely much on their “social capital,” such as standing in the community, friendships, or family ties. Most entrepreneurs had limited prior experience and contacts in the businesses they entered, or they entered new markets where relationships among the players had not yet formed. Rather, they won over strangers or near-strangers by appealing to their sympathy for an underdog, vanity, need for attention, and so on.

The emotional or psychological appeals were especially important in allaying fears. Entrepreneurs could not provide credible, contractual protections against the losses that others might incur if their enterprise failed, so they sought to establish their personal trustworthiness and competence. Through charisma, empathy, enthusiasm, or persistence, the entrepreneurs convinced others that they cared and would deliver. They worked on appearances that they believed would influence others’ perception of their credibility. They paid attention to their dress (“always wear blue suits,” one told us), address, the look of their stationery, how telephones were answered, and so on.

3. Cast a wide net. Entrepreneurs generally did not use a systematic search process to find the resource clients whose short-term needs could be easily satisfied and who were willing to overlook long-term risks and respond to emotional appeals. They followed a shotgun rather than rifle shot approach, following as manyleads and calling on as many prospects as they could.

4. Learn to do without. Bootstrap Finance, make do with inexperienced or unskilled employees. They could not, of course, do without customers. Even in this respect, however, entrepreneurs often had to work their way up gradually, starting with small or difficult customers whom others did not want to serve.

† But, the Inc. companies started their venture with a pittance.
In contrast, all ventures need customers, and in booking orders they usually have to overcome the “liability of newness” and concerns about their longevity.

face-to-face selling.
selling is a crucial skill
Entrepreneurs cannot afford to advertise or implement the marketing programs commonplace in large companies. Good sales representatives also are hard to attract and may lack the zeal and conviction of the founders. Therefore, the entrepreneur has to call on customers personally to secure orders.

• a much weaker position. Their products or services often perform the same functions as rival
offerings and may represent a discretionary purchase.

• The real-time integration of selling with marketing and strategy formulation. The data suggest that entrepreneurs often differentiate their wares by offering custom features or ancillary services. Moreover, entrepreneurs who have limited access to prospects have to make on-the-spot decisions about what features to offer, what to charge, and so on.

We also suggest to students that selling is not an ineffable art form—there are techniques (for objection handling, closing, and so on) and mental disciplines that they can practice and learn.

Training programs at companies like IBM or Xerox. Specifically, course material suggests that effective selling by an entrepreneur usually requires the following.

• A low-key, nonthreatening approach.

• A systematic (rather than ad-hoc) process.

• Persistence and mental resilience.

• Willingness to make quick decisions.

Developing Skills and Attitudes

My research suggests that a venture’s success depends as much on the entrepreneur’s ability to use and apply ideas as on the ideas themselves.

Skill building in refers to:

• the ability to applycare business concepts to entrepreneurial situations. I have observed in case discussions and field studies that many students routinely fail to apply basic concepts of strategy and marketing in analyzing new or young ventures, perhaps because they have been exposed to these concepts mainly in the context of more stable, going concerns.

• Selecting the framework (or frameworks) most appropriate to the situation. Entrepreneurial problems do not come labeled as “marketing,” or “interpersonal,” or “negotiation” problems. Indeed, the best approach to solving entrepreneurial problems often entails using multiple theories and frameworks.

Attitudinal developments this course tries to facilitate include:

• Sophisticated empathy. Entrepreneurs rarely have power over others and often start from weak bargaining positions. They should, therefore, try to understand the expectations, hopes, and fears of the individuals whose resources they need in order to offer the appropriate terms and reassurances. They need be good at listening and picking up on cues. They can also be prone to focus on others’ pecuniary interests, overlooking the importance of perceptions and emotions. We relentlessly stress the importance of seeing the situation through others’ eyes.

• “Smart audacity.” Entrepreneurs who are willing to act in the face of great uncertainty, limited information, and widespread skepticism have an almost arrogant self-confidence. They believe they are smarter, more creative, harder working, and therefore more capable of recognizing and exploiting opportunities than everyone else. These attitudes are useful. Entrepreneurs need great confidence in their talent and ideas to help them persevere through adversity and rejection.

Entrepreneurs who strongly believe in themselves must also, however, have the smarts to recognize their mistakes and change their strategies as events unfold. Successful ventures do not always proceed in the direction in which they initially set out—many have to adopt entirely new strategies. Therefore, although perseverance and tenacity are valuable entrepreneurial traits, they must be complemented by flexibility and a willingness to learn. Capable entrepreneurs are like good bond or currency traders, who have confidence in their ability to outwit markets but will close out their positions if events disprove their initial assumptions.

No comments yet

Leave a Reply

Note: XHTML is allowed. Your email address will never be published.

Subscribe to this comment feed via RSS