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What advice can successful new entrepreneurs give to business students about getting a company off the ground? At one conference discussion moderated by HBS assistant professor Andrew P. McAfee, panelists—with some pride and the occasional wince—told students about the real-world lessons they've been learning.
A sense of humor, the ability to cope with change, and even the necessity, when making a merger, of checking out the number of filing cabinets maintained by your prospective partner—these factors emerged among the key characteristics of making a new business work.
One subject not taught per se in business school—the importance of salesmanship—must never be discounted, panelists added. Said Joel Bines (HBS MBA '99), CEO of Peranet, Inc., a marketing solutions firm, "As CEO, you're selling 100 percent of the time. You're not wearing a trench coat with watches inside," he joked, but nonetheless you must constantly promote your product and your company.
Changing and adapting
All four panelists confessed to changing their business models at least a couple of times in the course of building the business. Sophisticated investors, they stated, expect that companies will need to shift and maneuver before hitting it right. "It's not 'changing.' It's 'refocussing,'" quipped Adam Kanner (HBS MBA '98), chairman and CEO of edu.com, an e-commerce channel aimed at students.
Inexperienced companies can easily be tempted to alter their model to follow the newest new thing. Panelist Ric Fulop, founder and cochairman of Broadband2Wireless, builders of a mobile wireless network, acknowledged with a sigh that his stewardship has also been guilty of that practice. "There's an HBS case study on all our permutations," he said with a wry grin.
Panelist John Pepper, founder and CEO of the New England restaurant chain The Wrap, said his model began as "a healthy food type context." Realizing that customers actually preferred taste and convenience to good intentions and nutritional factors, The Wrap was compelled to reformulate its menu.
Getting others to buy in
Aside from the stress of instituting new business models and switching direction, though, panelists said some of their most trying experiences came with trying to get employees to ride out the storm. Most people are uncomfortable with change, noted Fulop. It's important to make them understand, when you're hiring them, that the business will likely change.
A CEO has to get used to the idea that he or she isn't running a popularity contest, he reminded students in the audience, before asking for a show of hands on how many have ever fired someone. (About half the students raised their hands.) "A business is not the same as a family," Fulop pointed out. The "biggest cancer" for a company, according to Fulop, is when employees lose confidence in the CEO, yet keep coming in to work.
"Don't be afraid to make decisions," added Bines. "That's your responsibility. Just don't make decisions in a vacuum." Have a group of advisors within the company, he said, and above all don't surprise your VCs. And if you're reluctant to involve your team in discussions of problems, he counseled, you should never have hired those people in the first place.
Senior management, of course, needs to be warned about any impending problems, Bines said. The skill of a CEO is in knowing your people and in knowing how to discuss problems with them individually. "It's not misinformation," he said, adding, "If you keep them in the dark, they will definitely leave."
The expanding team
An entrepreneurial atmosphere within an entrepreneurial business can sometimes be a bit difficult to handle, Kanner acknowledged. It's great that people are enthusiastic about their work, of course. But "when 60 people are all being entrepreneurial," he said, it's time to set some boundaries. "Process does not equal bureaucracy," he added, explaining that a lack of controls will result in duplication of work. The boss needs to know who's doing what, and that process can make for a good feeling within the company.
One big headache, Bines noted, comes in hiring management. He said he prided himself—as a matter of principle and for as long as he could—on avoiding headhunters and forking up their exorbitant fees. Eventually he had to admit defeat and ask for their help. Now he considers it a price of doing business that he doesn't like, but can't forego. "Other than selling," Bines told the group, "I spend the majority of my time recruiting."
Wrapping the wrong deal
Part of the learning curve, too, involves the strategic partnership or merger. Pepper's The Wrap learned the hard way about pursuing a merger too early. After a deal had been signed with another restaurant chain, he told the HBS audience, the partner company showed up at the new office with six filing cabinets of records in tow.
"We had one filing cabinet," Pepper marveled. Before making the deal, he told the students, he should have gone to the prospective partner's office and counted the filing cabinets. The number of cabinets, the amount of paperwork, and of the attendant company bureaucracy and different culture they represented proved such a wrong match for The Wrap, he confessed to students, that "The merger was a total bust."
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