What's Right for Your Idea? Incubators, Accelerators, or VCs?
The best way for new entrepreneurs to answer the question: "Should I go with an incubator, accelerator, or a VC?" is to research those possibilities extensively—really grill the executives at the decision-making level.
According to one conference participant, Carl Stjernfeldt, senior associate at Battery Ventures, who spoke with students at a panel on this topic, anyone embarking on a business today would be well advised to "do more research on the VC than the VC should do with you."
"Interview us," invited Jeff Crown, vice president and general manager of LycosLabs. "Ask us: ‘What is your expertise exactly?'
"You've got to ask yourself what you want," Stjernfeldt told students. "If you walk into that beautiful incubator space, with the water fountains and it's all pretty—someone's paying for that. It's actually you paying for that. You've got to pay with equity."
Incubators do present an advantage that can't be matched by accelerators or VCs, pointed out Todd Hixon (HBS MBA '74), a director of Cambridge Incubator and managing director for DFJ New England Fund. The efforts of incubators, he said, are much more aligned with a start-up "in the spirit and the approach" than are other options.
Students were also advised, as a first step, to build legitimacy for their ideas by talking with all parties who could conceivably help them, be they incubators, accelerators, or venture-capital firms. "It doesn't cost you anything to talk, and get feedback and validation and access," pointed out Jill Krzewina, associate at YankeeTek Ventures. "It shows you know how to do business development." That skill, panelists agreed, might well turn out to be one of the most valuable in the long run.
Finding the Right Partner: The Role of Strategic Alliances for Entrepreneurial Companies
Strategic alliances may be important for entrepreneurial companies, but they are certainly not easy. That's true whether the partner is a major corporation or a small start-up itself.
"As a small dot-com, one thing that's challenging is going up against big companies in creating a relationship, because they can take forever," said Andrew Beebe, cofounder and chairman of Bigstep.com and a participant in the panel on "Finding the Right Partner."
"Their model in doing deals is pretty simple," Beebe continued. "They can throw more people and more lawyers at any scenario than you would ever be able to stand up against, so you eventually get beaten down.
"Doing deals with big companies, unless you know exactly what the goal is, unless you know that you're ultimately going to align interests perfectly with that partner, can be a huge waste of time."
Trying to partner with a big company, added Mike DiFranza (HBS PMD'71), CEO of Captivate Network, "is like being a long-tailed cat in a room full of rocking chairs. It's dangerous, because they can roll over and crush you if they want to. The best thing you have going is you can move fast, you're on purpose, and you have a single focus. They're looking at a lot of different things simultaneously. That's your competitive advantage and you need to know that you still have that."
Jeffrey Glass (HBS MBA '94), cofounder and president of Zooba.com, learned a lesson about small partners when a deal with an online bookseller left Zooba holding the bag.
"The facts that these guys were willing to do a deal with us so quickly should have been a warning sign," said Glass. "You sort of look back in retrospect, and you say, 'Boy, there are a bunch of questions you need to ask before you do strategic alliances.' That's true. But its also easy in the throes of being entrepreneurial, and trying to move quickly, and trying to get stuff done, to say, 'Okay, I'm going to overlook some of these flags.'
"You need to be entrepreneurial," said Glass. "You need to be aggressive. You need to make things happen quickly, which we did. But you also need to bring to bear the stuff that you learn about and think about from a strategic perspective on the questions to ask and the thoroughness with which you evaluate a strategic partner."
Ultimately, said the panelists, making alliances comes down to goal alignment. "There's a whole level of business and strategic discussions that happen before you get to the real terms," said Jennifer Floren, cofounder and president of experience. "You have those discussions first. You have to have pretty clear business objectives: Are you trying to get traffic out of this? Are you trying to get revenue? Are you trying to get new customers? Are you trying to share customers? What are you trying to build and what is your partner trying to get out of it?"
How to Do Smart Marketing
What should an entrepreneur look for in a marketing partner?
Besides the usual answers—rapport, chemistry, an understanding of what the entrepreneurial business is all about—another factor, access, seems vital.
"Decide up front what you want. Try to be a big fish in their pond," advised Lyn Rundell, director of corporate initiatives for Lot21, an ad agency whose modus operandi is entirely digital. In a conference panel focused on marketing, Rundell told students that as new entrepreneurs, they should try to align their businesses' need for prominence with the agency's, to avoid getting lost in the shuffle.
Entrepreneurs, whether they like it or not, end up spending at least two-thirds of their time on marketing, added George Vidalakis, cofounder and CEO of the agency Viandi, Inc. One of the "big secrets" of advertising, he noted, is that the creative side of an agency usually operates at a loss. Media buying is where it makes its money. Entrepreneurs, then, should be aware that an agency might want to slot their product into a medium that is not aimed at their target audience, for the sake of convenience. "Make sure your media is appropriate for your message," he cautioned.
All clients inevitably believe they themselves are creative, panelists agreed with sighs of resignation. Operators of new companies, remarked one panelist, tend to be "anal and over-controlling," and instead should let the agency do what it's been hired to do.
Public relations may be the most effective first step for new companies, though its effects are harder to gauge than traditional marketing techniques, said panelist Scott Schopen of Coremetrics, a company that monitors Web visitors. The creative side of marketing may soon be overwhelmed by new capabilities that can analyze marketing data much more efficiently than in the past, he told students. As a result, Schopen added, "There will be more accountability for creative genius."
Hiring the Dream Team
How do you find, engage, and keep the right people for your management team?
It's one of the most critical pieces of building a successful company, said HBS professor Lynda Applegate as she turned to a panel of entrepreneurs and recruitment specialists for advice.
A lot of first-time entrepreneurs don't properly address the issue, said Dana Ardi, human capital partner at Flatiron Partners and a columnist for The Industry Standard. "They are so anxious to get people who can help them realize their dream, that they overcommit and find themselves with good people who can't grow into the roles that need to be filled.
"Buy into a team that doesn't pay attention to roles and functions—good utility players," said Ardi. "Don't commit to lofty titles and option packages up front."
"If you approach a candidate and find they have reservations about start-ups and risk-taking, that should put a little light on," said Paul Conforti (HBS MBA '97), owner and president of Finale, a Boston restaurant that was a semifinalist in the 1997 HBS Business Plan Contest. "If this person really needs to be sold, then if your company doesn't blast off the launch pad they may not be happy."
Stever Robbins (HBS MBA '91), president of Venture Coach, said most people overlook interpersonal qualities when hiring a team. "Go for a balance of interpersonal styles, people that can work together and pay attention to a lot of different aspects of the business," said Robbins.
"If you go for a mix, ultimately you'll have enough representation, with some good coordination, that you'll get things to work."
Laura Morse, recruiting principal at Atlas Venture, agreed on the need for a mix. "You tend to want to hang out and do things with people who are like yourself, but that's not always what builds the best team."
"All-star games," added Ardi, "are fun to watch, but they are never as good as when teams play together."
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