In his new book, The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, HBS Associate Professor Noam Wasserman tells readers how to anticipate, avoid, and, if necessary, recover from the landmines that can destroy a nascent company before it has the chance to thrive. In this excerpt, he discusses the pros and cons of recruiting friends and family members as investors.
Strategy theory often takes for granted the role of state institutions in providing stable, predictable environments in which new firms are founded. Yet, many states around the world (such as Iraq, Sudan, South Sudan, Syria, and the Democratic Republic of Congo) lack political institutions of sufficient strength to ensure personal safety and public order, thereby creating environments where civil and political violence can ferment. This paper explores the impact of such violence on new venture processes. Results show that comprehensive planning was negatively correlated with venture survival in such environments. While there are implications for strategy theory, the study is also relevant to entrepreneurs and organizations promoting new venture planning in less-developed countries, particularly those experiencing political and civil turmoil. Currently, prospective entrepreneurs are taught the importance of business planning by both universities and non-governmental organizations that offer entrepreneurial training. But this study suggests that such training will have mixed effects on new venture survival, depending on the extent to which these entrepreneurs pursue ventures in violent and uncertain environments. In such contexts where governments fail to maintain public safety and order, these training programs may actually increase the likelihood of new venture failure.
Summing Up Is small business overhyped as a panacea for our economic troubles? Jim Heskett's readers don't think so.
Published in 2011
There had not been an innovative breakthrough in alarm clock design since the snooze button until entrepreneur Gauri Nanda created Clocky. Her runaway hit has been the inspiration for several cases written by Professor Elie Ofek.
Despite its recent economic advances, India's gender balance for entrepreneurship remains among the lowest in the world. Improving this balance is an important step for India's achievement of greater economic growth and gender equality. This paper uses detailed micro-data on the unorganized manufacturing and services sectors of India in 2000-2005 to identify and quantify the importance of existing female business networks for promoting subsequent entrepreneurship among women at the district-industry-year level.
Has India's political revolution been accompanied by corresponding changes in the economic sphere? This paper argues that for the most vulnerable, whether in villages or cities, the social structure has not changed. While Scheduled Castes, Scheduled Tribes, and traditionally "middle-level" castes have made significant progress at the level of political representation in independent India, their progress in entrepreneurship has been uneven. By looking at the ownership of enterprises across the country, this paper sheds light on two larger narratives about India's emerging political economy: first, that the rich have benefitted more than the poor, the towns and cities more than the villages, and the upper castes more than the lower castes has acquired salience in several quarters. And second, that "Dalit entrepreneurship," a category conspicuous by its absence in India's business history, has become a significant trend. Findings by Lakshmi Iyer, Tarun Khanna, and Ashutosh Varshney show that while the "middle-level" castes have made progress in entrepreneurship, the Scheduled Castes and Scheduled Tribes are considerably under-represented in the entrepreneurial sphere. That is, for Scheduled Castes and Scheduled Tribes, political gains have not manifested themselves in greater entrepreneurial prowess.
In South Asia, which regional traits encourage local entrepreneurship? While multiple studies have considered this question in advanced economies, especially for the manufacturing sector, there has been very little empirical evidence for developing countries like India. While India has historically had low entrepreneurship rates, this weakness is improving and will be an important stepping stone to further development. In this paper, the authors explore the spatial determinants of local entrepreneurship in India for both manufacturing and services. At the district level, their strongest evidence points to the roles that local education levels and physical infrastructure quality play in promoting entry. They also find evidence that strict labor regulations discourage formal sector entry, and better household banking environments encourage entry in the unorganized sector. The paper then evaluates how incumbent industrial structures of cities shape the type of entrants that emerge in local areas. Startups are more frequent for a city in industries that share common labor needs or have customer-supplier relationships with the city's incumbent businesses. This is among the first studies to quantify the spatial determinants of entrepreneurship in India. Moreover, it moves beyond manufacturing to consider services, which are very important for India's economic growth.
In this paper, HBS professors Nanda and Rhodes-Kropf examine how the environment in which a new venture was first funded relates to its ultimate outcome, by specifically looking at what happened to venture capital-backed startups funded between 1980 and 2004. Results show that firms that were funded in "hot" markets were more likely to fail but created more value and had more highly cited patents when they succeeded. These results suggest that that flood of capital in hot markets lowers the cost of experimentation for early stage investors, and therefore allows them to fund more novel projects in periods of heated financial activity.
The history of entrepreneurs in green industries is largely unwritten, a fact that Harvard Business School business historian Geoffrey Jones is trying to remedy. In a new paper, Jones explores the edge-of-society pioneers who created the wind turbine industry.
In his new business fable, I Moved Your Cheese, Professor Deepak Malhotra challenges the idea that change is simply something we must anticipate, tolerate, and accept. Instead, the book teaches readers that success often lies in first questioning changes in the workplace and, if necessary, in effecting new changes ourselves. Q&A plus book excerpt.
Since 1997, Hundreds of student-entrepreneurs have tested their ideas at Harvard Business School's annual Business Plan Contest. Here is what they have learned about success, failure, and themselves. From the HBS Alumni Bulletin.
Entrepreneurs may be great innovators, but not necessarily great presenters. Associate Professor Thomas Steenburgh teaches them the fine art of product pitching.
While starting a new company usually requires an independent spirit and self-sufficient nature, the decision to jump into entrepreneurship is often influenced by the acts of others. In this paper, Josh Lerner and Ulrike Malmendier explore how the entrepreneurial tendencies of peers affect not only one's decision to start a company, but whether that company will succeed. The researchers use data from a decade of first-year class sections at Harvard Business School.
When starting a company, entrepreneurs must decide how to divide shares among the founders. The simplest way is to split the shares equally, which is what one third of startups decide to do. But that may not be the fairest or most effective way—especially in cases where some founders are doing more for the company than others. In this paper, Thomas F. Hellman (University of British Columbia) and Noam Wasserman (Harvard Business School) examine when and whether teams are likely to divide shares equally among all the founders, and explore whether such an equity split is good for the company.
Most startups fail because they waste too much time and money building the wrong product before realizing too late what the right product should have been, says HBS entrepreneurial management professor Thomas R. Eisenmann. In his new MBA course, Launching Technology Ventures, Eisenmann introduces students to the idea of the lean startup—a methodology that has proven successful for many young high-tech companies.
At a panel discussion on entrepreneurship, professor William A. Sahlman and several successful start-up veterans discussed the case of John Osher, father of Dr. John's Products, Ltd., and the wildly popular battery-powered toothbrush, the SpinBrush.
Leading a doomed company can often help a career by providing experience, insight, and contacts that lead to new opportunities, says professor Shikhar Ghosh.
In HBS professor Noam Wasserman's second-year MBA course, Founders' Dilemmas, students study the quandaries that virtually all entrepreneurs will face when trying to realize the dream of launching a start-up—from deciding when to start the company to learning how to make a graceful exit. Guest speakers discussing their experiences include All-Star pitcher-turned-entrepreneur Curt Schilling and Tom & Tom, the Nantucket Nectars guys.
For retailers offering deals through the wildly popular online start-up Groupon, does the one-day publicity compensate for the deep hit to profit margins? A new working paper, "To Groupon or Not to Groupon," sets out to help small businesses decide. Harvard Business School professor Benjamin G. Edelman discusses the paper's findings.
Published in 2010
While start-up firms are key to any technological revolution, they also run a high risk of failure. To that end, investors often provide limited capital in several careful stages, gaining confidence in a firm before doling out another round of funding. However, these investors still face the possibility that other investors won't provide follow-on funding, even when the firm's prospects remain sound. That's a big risk for individual investors who can't afford to fund a new firm all by themselves, and whose investment will flounder if others don't invest, too.
Research by HBS professors Ramana Nanda and Matthew Rhodes-Kropf explores why future investors may not fund the project at its next stage even if the fundamentals of the project have not changed.
