What are the basic but critical factors for being successful in entrepreneurship?
We are fortunate that the basic building blocks for starting great new companies are all available in Massachusetts. It is even better that there is broad support from both business and government leaders to enhance the Massachusetts’ entrepreneurial ecosystem by making MassChallenge and other key initiatives successes so they can further strengthen this already formidable ecosystem.
But what do you need to have as an entrepreneur to succeed?
- You have to have a team. Companies buy from teams and people invest in teams, not lone wolves.
- Your team must have technology at all levels of the supply chain to achieve a sustainable competitive advantage.
- There must be a clear, salable value proposition. As charming as you entrepreneurs may be, people will not buy from you unless your product makes money for them as customers; clients pursue their own financial self-interest. This is particularly important as you go global with your enterprise; you have to have a market that is large and that has customers who are likely to buy, and pay you money. This will only work if you have a clear value proposition.
Best Source of Funding for Startups
What is the single best source of funding for your new business? Should it come from venture capital? Maybe, but probably not at first.
The single best source of funding is almost always a customer.
Why? What is good about customers as a source of funding?
- Customers are demanding.
- Customers force you to build what they want, not a “science project.”
- Your customers keep your company alive.
- Customers keep you focused and if they like your product, they buy more.
Customer money is the cheapest, most productive form of capital.
How much of the company do you own after you get money from your customers? Do you still have 100%? Yes. And is that a good thing? Well, it certainly is not a bad thing. At the Venture Capital Conference at MIT a few years ago, the keynote speaker was a guy who said, “For goodness’ sake, don’t take VC.”
Whomever you invite to help your company, be it government agencies, venture capitalists, or friends and family, they should have an extensive Rolodex. They better have relationships and a productive network. They better be keenly interested in helping you recruit the best possible people and put in place what it takes to build your enterprise. Everyone that is involved with the company has to help you build it.
The Need for Practical Experience to Complement Top-notch Academics
We are in an interesting situation because our universities teach you how to think, but do not always teach you how to get things done. You need to get real world experience in order to be more effective in building your businesses. In the post-bubble era, a line of Bull and a PowerPoint presentation is not enough to get a company going. You need to have good people, in a team, who know something and have actually done something.
What is the right kind of practical experience to get as a young, aspiring entrepreneur? We just heard that the way to start your business is by getting early customers, so a good practical experience is sales. You have to experience hunting for customers. As you make your decisions about where to work before you launch your own business, I urge you to give serious consideration to getting as close as you can to the intake valve of the companies that you are involved with, and work hard to make customers successful with your solutions.
Characteristics of a quality entrepreneur
- Integrity is probably the most important thing. Without it, nobody’s going to join your company. Integrity at all levels of management is critical, particularly in start-ups. Nobody is going to quit a good paying job to join you in a frozen garage, unless they trust you completely. Companies are not going to buy from you – a small, poorly funded company – unless they are sure they can count on you. Integrity is the foundation for any start- up, and only then can you see the other characteristics coming in, such as leadership and quick clock speed.
- Most entrepreneurs are itchy to move forward; they are biased toward action.
- The best entrepreneurs are people who are extremely ambitious, but have low ego. This is because ego gets in the way of listening.
Ultimately, you need an “A” team, you need to know your market, and you better have a value proposition that is compelling, quantifiable, provable, easy to reference, and easy to explain. It should be simple for potential customers to make the decision to buy from you.
Technology is only part of the picture: Sales is Key
We surveyed literally hundreds of CEOs of start-up companies, and they all said that sales is harder than technology. Technology is a part of the picture, but only a part.
How many of you can think of examples of outstanding companies with amazing technology that were handily defeated by firms with inferior technologies, but better sales forces?
There is VHS vs. Betamax, Oracle vs. Sybase, Microsoft vs. Apple, and many more. The key point is that the sales and the distribution model can trump technology every time.
I suggest that you name your first 10 customers in your business plans. There is no better way to show that you know what you are doing than to say “These are the 10 customers that are going to buy.” You have to say, “the Vice President of Engineering is going to buy this software”, and you also have to include the buyer’s first name, middle initial, last name, title, e-mail address, and cell phone number. It is good even to know what he/she eats for breakfast! If you do not know these things about your early, lead customers, you are not ready to start a business.
Getting Credibility
When you are starting a company, you need a certain credibility to help you get your first customers. But how do you get this credibility when you are young and possibly just out of school? It is a very good idea to have advisers who have done it several times before. Probably they will have grey hair (or no hair).
Conclusion
The critical success factors are:
- You must believe that startups can succeed, despite all the obstacles, and friends who tell you it’s a crazy idea.
- You have to be willing to be unconventional.
- You got to be a workaholic maniac who wants to do something that will change the world. If that is your goal, many of you will be successful.
Kenneth P. Morse is a serial entrepreneur and the Founding Managing Director of the MIT Entrepreneurship Center. Ken played a key role in launching several high-tech startups, including 3Com Corporation, Aspen Technology, an expert systems company, and a biotech firm. Ken’s batting average is 0.833: five of his start-ups went public or were successfully merged; one was a complete disaster. At the MIT Entrepreneurship Center for the last 13 years, Ken and his team were responsible for inspiring, training, and coaching new generations of entrepreneurs from all parts of MIT. He holds the Chair in Entrepreneurship, Innovation, and Competitiveness at Delft University of Technology.
Ken is currently working on a book, tentatively titled “Making It Happen Globally.” Each chapter profiles a brave entrepreneur, far from Silicon Valley or Rt.128, who pursued an opportunity and built a great company.
The Governor and I haven’t heard anyone question that we have all the basic elements that we need for a strong innovation economy: great ideas, experienced entrepreneurs, access to capital and a talented and educated workforce. What we have heard is that we need to do a better job of “connecting the dots”, especially in two areas. First, we need to improve the pathway between great ideas and commercial products, which involves our doing a better job of identifying when and how our research discoveries have near-term commercial applications. Second, we need to improve the support structure for start-ups in the state, both with respect to funding and with respect to getting good advice from experienced entrepreneurs and business people. We think that we can make the most progress on both of these issues if business, academia and government are all working together on them. And we see Mass Challenge as a tremendous opportunity to address both areas.
The world has fundamentally changed in the last 5-10 years because of technology and connectivity. 10-15 yrs ago, all economies were local economies, but connectivity has opened up the potential to touch all 6 billion people around the world.