| ||||
How does an entrepreneur make the switch from inspiring a tiny group of followers in a metaphorical garage to leading what eventually becomes a multibillion-dollar business?
The ability to translate individual creativity into sustained organizational capabilities is a key success factor for entrepreneurs, says HBS professor Nancy F. Koehn.
In Part One of a discussion about her recent book—in the April 16 issue of HBS Working Knowledge—Koehn described the brand-building savvy of three entrepreneurs in the past, as well as their clear lessons for managers today. The three were Josiah Wedgwood, the eighteenth-century pottery and china manufacturer; H.J. Heinz, who started the famous food company in 1869; and Marshall Field, the late nineteenth-century Chicago retailer.
Below, in Part Two, Koehn shares her thoughts on how three present-day entrepreneurs—Estée Lauder; Howard Schultz, of Starbucks Coffee Company; and Michael Dell—all successfully navigated the transition from "garage" to global business.
· · ·
No detail too small
All three of them made that transition very successfully, but my research suggests it was rarely easy.
Estée Lauder started her business in her kitchen; Howard Schultz's early office was the prep room for his first café; and Michael Dell began assembling PCs in his college dorm room. How did they go from these beginnings to creating global organizations that became industry leaders?
First, each had a huge amount of determination and commitment. Determination to make what they regarded as best-of-class offerings tailored specifically to consumers' emerging needs. They knew their products and services fit consumers' preferences because each had spent enormous time and effort thinking about such preferences.
Second, they also had the commitment to bring their offerings to large numbers of people, to make a market for prestige cosmetics, specialty coffee, and made-to-order PCs at moments when these products were new.
In starting out, each of these entrepreneurs believed—and this conviction remained strong—that their products fit well into the changing social and economic environments in which consumers live, and that their offerings enhanced people's lives in meaningful ways.
A third important factor in understanding how these entrepreneurs created such successful products, brands, and organizations is their individual knowledge of the products. Estée Lauder, Howard Schultz, and Michael Dell, like the other entrepreneurs in the book—Josiah Wedgwood, Henry Heinz, and Marshall Field—knew an extraordinary amount about the goods and services they were offering.
| ||||
For example, Estée Lauder spent more than two decades mixing and selling skin care formulas before she undertook to build a national market for her products. Howard Schultz did not grow up drinking specialty coffee, but as soon as he was introduced to the business, he learned as much about it as he could. He even trained for months to learn to roast beans—becoming one of only a small group of people in Starbucks' history to be judged qualified to do so. As a teenager, Michael Dell enjoyed taking complex computers apart, repairing or upgrading them, and putting them back together.
Because they knew so much about their offerings, no detail was too small for their attention and their stewardship. Their determination, commitment, and experience, in turn, flowed partly from their passion for what they were doing. It was—and is—part of their lifeblood. And that passion is a key part of the inspiration of getting going in the metaphorical garage and of building an institution that eventually outgrows the garage.
 | |
| No one does it all alone. | |
 |
|
| —Nancy F. Koehn |
An eye for talent
A fourth factor has to do with recognizing talent. Somewhere along the way—and there is no single defining, easily discernible, moment—each of the six entrepreneurs in Brand New also developed the ability to identify ability in others: organizational and strategic talent, as well as commercial imagination. Lauder, Schultz, and Dell—like the three entrepreneurs in the past—shared a willingness to delegate responsibility to talented people, to learn from these people, to institutionalize the capabilities they were helping to develop, and create a company from them.
Each of the six individuals—and we can see it clearly in the examples of Lauder, Schultz, and Dell—played a critical role in this process. But they understood, as Hillary Clinton once said about raising a child, that "it takes a village" to build a successful business. No one does it all alone.
So the ability to identify, motivate, and retain talent—and cede authority to others—is a necessary condition of entrepreneurial success, of moving the enterprise out of the garage and into corporate headquarters.
| |
| As Howard Schultz once said, successful businesses cannot sustain themselves on exhilarating ideas alone. | |
|
|
|
| —Nancy F. Koehn |
Lasting dedication
Each of the entrepreneurs in Brand New had the ambition and confidence to create not only new offerings and brands, but new institutions—and each built his or her organization to last.
A fifth, related factor is that all six of these individuals also wanted to stay with their businesses. Each wanted to be part of the translation of entrepreneurial inspiration into sustained organizational capabilities.
Lauder built her company one customer at a time. And then—with her family and other colleagues' help—she created a global leader in the industry. Schultz did the same thing with Starbucks. So did Dell. And each stuck with the enterprise as it grew and changed. For example, Lauder was very active in the business until her later 70s and early 80s. Her son, Leonard Lauder, who has been instrumental in building and leading the company for more than 30 years, is the current chairman.
So in making the transition from the garage to company headquarters, one very important issue is dedication: the wish to see a start-up become an institution. There is also the talent for choosing other great institution builders, and the inclination and willingness to give them the power to do this.
Sharing the vision
An additional element is the ability to translate what was initially one person's inspiration into a set of organizational functions that, over time, become integrated capabilities.
For example, when Lauder was starting out, she was the company's only salesperson. She was an extremely gifted spokesperson for her products—warm, knowledgeable, and interested in individual consumers. She built her brand by literally touching hundreds of women, offering them free makeovers, demonstrating her products, and providing a sense of the elegance and self-definition that her cosmetics offered customers.
As the brand and company grew, these qualities were translated into a trained and motivated salesforce that works to build meaningful connections with consumers, one at a time. In doing this, they use a range of tools that Lauder herself developed, such as gift-with-purchase. But their most important assets are their understanding of what customers want, their ability to help buyers enjoy purchasing cosmetics and the benefits these products provide.
| |
| Each entrepreneur stuck with the enterprise as it grew and changed. | |
|
|
|
| —Nancy F. Koehn |
In an analogous manner, Starbucks provides an engaging, sociable experience to the more than 12 million people a week who visit its cafes around the world. This is the translation of Schultz's vision-providing top-quality, custom-made coffee beverages and related products in an inviting, interesting environment that offers people community and comfort.
It is clear that each of these people—from Wedgwood to Dell—has been blessed with vision, commercial imagination, ambition, and other talents. But the stories in Brand New would not have been written if these entrepreneurs had not also been institution builders, if they had not figured out how to organize the production of top-quality offerings on a large scale, or the stewardship of a powerful brand, or the hiring of talented men and women. Without the ability to create a company that transcends the talents of its founder, even initially successful entrepreneurial enterprises are not likely to endure.
Lessons for business leaders today
There are clear lessons for entrepreneurs in this. If you want your company to survive and prosper through the ceaseless gales of creative destruction that lie at the heart of capitalism, you must figure out how to institutionalize its core capabilities.
You must learn, as Howard Schultz once said, that successful businesses cannot sustain themselves on exhilarating ideas alone. They require a healthy balance between the forces of vision and motivating passion and those of process, structure, and efficient systems.
| ||||
I think there are also lessons for established businesses in Brand New in terms of the ability to translate a single person's creativity into a scalable capability and into powerful demand-side connections with consumers.
One of the most interesting lessons of the recent fallout in dot-com companies concerns the demand side. No matter how efficient the technology, if it cannot be harnessed to a business model that profitably serves customer needs, the enterprise is unlikely to endure. In moments of great change—when consumer preferences are shifting—comprehending and meeting these needs becomes a critical, potentially enduring, source of competitive advantage.
Each of the people in the book—Wedgwood, Heinz, Field, Lauder, Schultz, and Dell—understood this well. And the stories of how they developed and used such customer intimacy to build best-of-class businesses lie at the heart of Brand New.
· · · ·
The Ins and Outs of Brands
Nancy F. Koehn is not one to limit research to studying documents or interviewing key players. So when she began research on Starbucks, Koehn was glad to work behind the counter in two Starbucks stores in Seattle.
Weighing beans, interacting with customers, and keeping the cases stocked, she gained valuable insights about the power of brands both inside and outside a company. It was "a terrific experience," she enthuses.
"The manager in each Starbucks store is an incredibly important artery in the 'circulation system' of effective brand stewardship for Starbucks," Koehn says. Not only do managers collect and carry information from customers back and forth to headquarters and staff, but they also lead and inspire employees, many of whom are some of Starbucks' strongest advocates and educators.
Another element that struck her was the tremendous diversity of consumers at Starbucks and how they've made the brand and café experience their own.
"I worked the afternoon shift in one of the Seattle stores," says Koehn. "And I remember looking up and taking note of the very pleasant, comforting din of social interaction unfolding in the store at 3:30—not at the morning coffee rush or at the lunch hour, but smack dab in the middle of the afternoon. There were all kinds of people—parents, students, shoppers, solitary readers, and teenagers—enjoying the coffee, the place, and the people in Starbucks."
"And I thought to myself, 'Hey, this is the way Howard Schultz envisioned it. And here it is.'"
Brands have very powerful motivational effects on attracting and helping retain workers, she adds.
"What is a brand? Part of it is defining the company's priorities, and value propositions, and distinctive characteristics. Not just to end consumers, but also to employees—to internal customers."
As Esty traveled between beauty parlors, she always carried extra supplies of her offerings and wax paper. She would leave samples of her products with the women she met-a shaving of lipstick, a dollop of All-Purpose Crème, a spoonful of turquoise eye shadow. This practice was unusual at the time. In the 1920s and 1930s, cosmetics makers did not generally hand out products. But the entrepreneur believed strongly in the quality of what she made and the power of giving women something for nothing.
In distributing samples or applying makeup, Esty listened to consumers. She solicited their opinions about her offerings, adjusting specific products and her selling techniques to suit them better. For example, if several women complained about a specific cream's texture, she tinkered with the formula. Analogously, when women reacted negatively to a particular sales approach, she jettisoned it. Esty learned never to greet a potential customer with the question "May I help you?" The entrepreneur saw this as a redundant and possibly off-putting opening. Instead, she approached women in beauty parlors by saying, "I have something that would look perfect on you, madam. May I show you how to apply it?"
— from Brand New: How Entrepreneurs Earned Consumers' Trust from Wedgwood to Dell
Howard Schultz and Starbucks Coffee Company
Some customer preferences ... seemed to threaten the brand's evolving identity. In 1989, for example, [Howard] Behar [first president of the Starbucks International Division] noticed that some buyers were asking for skim milk in specialty coffee drinks. He knew that Starbucks' competitors were making cappuccino or caffe lattes with lowfat milk and urged Schultz to test the idea. But Schultz, [Dave] Olsen [a partner], and other executives strongly resisted the proposed change, maintaining that anything but whole milk jeopardized the authentic Italian espresso bar experience that the organization was committed to providing. ...
Uncertain what to do, Schultz visited a Starbucks store one morning, stationing himself behind a newspaper close to the counter where customers ordered. He heard a woman ask for a nonfat latte. When the barista explained that he only had whole milk, she turned away, saying she could find what she wanted at a nearby competing cafe. In a young market, Schultz reasoned, lost customers were too high a price to pay for unjustified dogmatism in defense of the brand. The company started testing milk varieties at selected stores. Low- and non-fat milk quickly proved popular, and all outlets soon offered them.
— from Brand New: How Entrepreneurs Earned Consumers' Trust from Wedgwood to Dell
Word of Dell's enterprise spread. Sales climbed quickly. By early 1984, working from his dorm room, he was selling $50,000 to $80,000 a month in upgraded PCs and components. ...
Michael's parents grew increasingly worried that he was neglecting his academic work for business interests. In the fall, Alexander and Lorraine Dell flew to Austin for a surprise visit, calling Michael from the airport. He barely had time to hide the computers in his roommate's shower before they arrived. Arguments erupted between parents and son. During one such discussion, Alexander Dell asked Michael what he wanted to do with his life. "I want to compete with IBM!" the son replied. As Michael remembered it, his father "was not amused."
— from Brand New: How Entrepreneurs Earned Consumers' Trust from Wedgwood to Dell