Why Don't Entrepreneurs Scale?

I think the question on whether the entrepreneur is the one to take the company forward to an IPO or large scale venture is a complex one. It firstly has to start with what the individual’s aspirations are and whether they will feel comfortable taking on this role. This is not so much how capable they are, but how dedicated they are, and how much their values and long term goals fit with this role. This is separate to the needs of the business, as it might be in the best interest for the business if the inventor is the public face of the company, if these two sides are opposing, this could cause a conflict with the business.

A lot of the time the choice as to whether the entrepreneur runs the business isn’t up to the entrepreneur at all. If the venture succeeds in getting investment, or has the possibility to go to an IPO then the choice will be out of the entrepreneurs hands and be up to the board of directors, and usually ultimately the investors.

John Hamm has some interesting views on entrepreneurs and how they have difficulty transitioning from a start-up to a large organization. His main point is that the qualities entrepreneurs have to enable their ventures to succeed initially are the exact qualities that cause them to fail during the later stages of a business. These four tendencies are:
• Loyalty to comrades
• Task Orientation
• Single Mindedness
• Working in Isolation

Each has its benefits when working on a startup and can allow the startup to thrive
in its early stage. However as the business grows and the pressure from all areas increases, the entrepreneur will fail unless they are will to learn and adapt to their new situation and change their behavior. This is probably difficult to do from within, as the entrepreneur has to give up doing something that has been successful, but if they are willing to listen to their advisors and strive to understand the best way to behave there is no reason why they shouldn’t succeed.

Facebook has had to go through many of these issues, but has overcome everything that have currently been thrown at it, and Mark Zuckerberg has successfully navigated the company into new markets and successfully created a very lucrative revenue model for the site. I think it’s been successful by staying true to its core market and focusing efforts on rapid development and the user experience on the website. Areas such as photo sharing have proved far more popular than they could imagine, but the experience has been tweaked to make this the best they could make it. The user created applications have also been a huge help with its success, although it’s teetering on the edge of going too far with these applications.

There doesn’t appear to be a magic formula that will predict whether an entrepreneur will succeed into the future, it doesn’t matter what education, or even experience they have. The important factors, as echoed by John Hamm are they have to be open to learning and rise to the challenge.

Zoller Returns

Ted spent a couple of days with us this week, and covered a huge range of topics in a crunch style MBA program. The most valuable insights were the discussions of our Value Propositions that he had asked us to do for this week, and looking into the market and management of the business.

The number of lessons learnt from Ted was incredible, he consistently challenged me to look at things in new ways which was an great experience. He stressed the importance for a new venture to aim to be the primary player in the market, not to aim for number two or three. There was a lot of emphasis, quite rightly put on the customer, and he suggested to seek out the customer that cares about your venture, and hold hands with them to learn as much as you can about how you can solve their pain. Also he suggested that if you have done the work in the key areas of management, advantage and market, then the money will follow. This is different to where many entrepreneurs start, with seeking capital. The value proposition is a vital element in the business, and everything should flow from this original key idea.

In your network, you can generally only properly manage about 20 people, and only really work with 2-5 at any one time.
Regarding the pricing model, he made the point that you shouldn’t be selling you time, as time is a finite resource. Really you should be exploiting your value that you add to the customer through your product or service.
He covered a number of key areas in market strategy, including how to divide up a market, and which markets segmentation you should attack first to exploit the best opportunity. The customer will have certain preferences, and you should aim to exploit these, but also be aware that their preferences change, so you will have to consistently adapt to their needs. If you don’t then your competitors will exploit the gap you leave in the market. As a first mover, especially will a disruptive technology, this is very important, as you will be offering the market something that is beyond their preferences.
You shouldn’t rely on the physical characteristics of your product to differentiate it from the market, as this can easily be exploited by competitors, but try and fight on multiple fronts such as not just being faster, but also more efficient, or cost effective. Customers can pay less attention to the physical characteristics than the company.
Ted suggests the following as a model pitch outline when seeking investment in the company:
1. Audience connection
2. Opportunity and Value Proposition
3. Business model
4. Market and penetration strategy
5. Implementation and rollout
6. Management and personal
7. Financials
8. Financial opportunity/outcomes
9. Closer and exit

He also warns, not to extend beyond your own capabilities, if you stretch to meet areas such as marketing/business, they will see right through you. State that that's not your strong point, and reassure that the appropriate team will be brought on board.
He also provided some good insights into management and team. As a leader it is the bigger vision you have is what people invest in when they work for you. This is important because the team is the number one factor in investment ideas so much so that an idea without a team has no value. Market experience will trump education every day, apart from in an R&D situation and so either hire the best A team players, or beg and borrow them!

The amount of material Ted talked about was staggering, and it was tough to keep up with everything. However he was able to cover many key areas, and the combination with his slides, my notes and further research it will be a great resource.

I was truly inspired by Ted’s presentation, he is able to take familiar topics, and present them in such a way that I gained new insights into them, and expanded my understanding of the areas.