Cyberposium 2000 - Growing a Sucessful Internet Business: What They Don't Teach You at Harvard Business School

by Martha Lagace, Staff Writer, HBS Working Knowledge

You hear so many stories of Internet start-up successes these days, it's easy to believe the words "start-up" and "success" automatically go hand-in-hand.

But what about the start-ups that flunked the test of Internet time? Are there any abject failures? And why did they go wrong? We may not read about them as often, but surely mistakes do happen. Even big mistakes.

According to a panel of Internet experts at Cyberposium 2000 who've "been there" in companies that flunked the market test, one principal problem boils down to "the people issue" and all its many side-effects: hiring, firing, motivating and retaining people, and instilling trust.

The five panelists – four of whom have HBS MBAs – shared their knowledge, advice and hard-won experience with the audience in a conversation that was forthright and revealing. According to the panelists, these people skills and other vital leadership qualities, such as nerve, accurate self-assessment and finely tuned intuition, just can't be taught in a business school setting, but have to be earned through trial and error.

As HBS Professor Lynda Applegate, who moderated the discussion "Growing a Successful Internet Business: What They Don't Teach You at Harvard Business School," told the audience, "It is impossible to learn all you need to learn while sitting in an Aldrich classroom."

One of the tough lessons panelist Steven Robbins (HBA MBA '91) shared from his own work as a founder or early-stage employee at seven start-ups was that it's terribly important -- yet highly complicated -- to motivate and manage a lot of creative people. Now President of VentureCoach.com, an incubator company, Robbins advised the group, "If you're building a team, hire people who complement you. A lot of people who are not experienced at hiring seem to hire in their own image.

"Don't do that," he said. "If you have two people who agree on everything, one of you is redundant." More important, he discovered, is to hire people who will disagree in such a way that the team can constructively build a stronger plan based on the ideas that spring from all differences of opinion. Friction is good.

Robbins also sought to dispell the common notion of finding smart people and trying to slot them somehow into a company. "A lot of people say, ‘If you find a really good person, hire them and find a place for them later,'" he told the audience. The inevitable result, he learned, was that he ended up spending an awful lot of time dealing with dissatisfied, disgruntled, very smart people who didn't quite have a place and didn't quite have their needs filled. His advice: "Know the needs of the business and hire accordingly."

"Hire people who are smarter than you," he added. "Or with every new hire you are lowering the average intelligence of your company. If you've done a good job, you'll be the stupidest person at your company -- and hopefully you're pretty smart."

"The team matters and the extended team matters as well," observed Christine Comaford, Managing Director of Artemis Ventures, an incubator firm. The extended team who must feel engaged, she said, includes not only immediate staff at all levels of the project but also venture capital investors. "In the beginning, emotional equity is a lot more powerful than financial equity" to get something off the ground, she asserted.

The subject of titles was also an issue for Megan Weeks Adams (HBS MBA '97), now Product Manager of Amazon.com. Titles should be applied and accepted very judiciously, Adams told the audience, with the most impressive titles bestowed as an exception, never as a rule. "Do not over-inflate people's titles," she said. Everyone right out of business school thinks they're going to be CEO within a year, she said, and everyone thinks they should walk in the door to a new job as a senior vice president. "Everyone is VP of something, and the titles are meaningless," said Adams. "As the company grows, you have to keep room, from an options perspective, for gray hair and experience."

Money is a particularly touchy issue, all panelists agreed. It is obviously a huge motivator for employees, said Robbins. From a hiring perspective, he advised, "Be willing to pay people what they're worth even if they're willing to go below that. Pay people to play. And, frankly, if your company is going to be worth a hundred million dollars, you'll never miss five or six. So be generous."

Robbins also noted, in terms of compensation, that the majority of people working at start-ups do not understand how stock and options work. A wise CEO, therefore, needs to be extremely careful about how he or she explains the company's offerings. People he's worked with, he said, have deliberately dispensed misinformation to their employees. He observed, "This is an incredibly good way to have every good person at your company walk as soon as you go public."

The company's values need to be identified and, ideally, used as both an attraction and a maintenance tool, said Robbins. He also advised the audience to try to not make compensation an issue, should they be on the hiring side. "The more companies I work with the more I see that compensation does not motivate, but compensation does de-motivate," he said. "And the goal of a good compensation plan is not to maximize motivation: it is to minimize de-motivation. The motivation comes through things like the values, the environment, the people, the products, and the markets."

Savvy hiring and motivating are important, allowed panelist Alec Hudnut (HBS MBA '91), CEO and Co-Founder of UniversityAccess, Inc., an online learning site, but equally vital is the art of firing. One of his own surprises as a manager was to learn that sometimes it's necessary – counter-intuitive though it may sound — to fire customers as well.

A business model is always changing, he told the group. His first batch of customers, he realized, turned out to be appropriate for another business model entirely, not his. "We were so happy that we had them," he said, "but they were unprofitable, they were hard to deal with, they were never going to scale." Leaders, therefore, need to be bold enough to admit mistakes when they occur, Hudnut said.

Preventive measures mean avoiding and fending off mistakes before they can fester and, in the best of worlds, one's intuition kicks in to ensure that problems don't happen, according to Comaford. Intuition is also not something that can be taught in any school but the school of hard knocks.

"Trust your intuition," she told the group. "The good part about aging is that your intuition gets a lot better.

"A lot of other things go, but I'm seeing that my intuition gets better, and that's encouraging to me."