Sunday, June 5, 2016

2001: A (Cyber) Space Odyssey

What I’ve said that turned out to be right will be considered obvious, and what was wrong will be humorous.
—Bill Gates, The Road Ahead, 1995

In 2001, I wrote a book explaining why accelerated growth strategies created value for some Internet companies and destroyed value for others. The book, Speed Trap, was poised for publication as I came up for promotion that year at Harvard Business School. However, in a reversal of the familiar prescription for scholars, my mentors told me, “If you publish, you might perish.” They were concerned that Speed Trap had been written in a hurry—a cruel irony, given its title and topic. I had confidence in the quality of my work, but not enough to bet my job. I canceled publication and forfeited my advance. It was painful to scuttle Speed Trap, but I don’t second guess my decision: I got promoted.

I recently read Speed Trap for the first time in many years, curious to see if its ideas had stood the test of time. I was surprised by the book’s sober tone. It has a morning-after hangover vibe: ”I guess last night was amazing, but I can’t remember it all; I must have blacked out. Now it hurts just to blink. Let’s never do that again.” 

Speed Trap shows how we thought about online opportunities one year after the dot com bubble burst. In retrospect, many of my thoughts about the Internet’s future evolution missed the mark. If you think history repeats itself, then these forecasting errors might be germane, since startup valuations and VC investments are once again declining. Reasoning that today’s tech entrepreneurs and investors might value a history lesson, I’ve published Speed Trap as an ebook, which is downloadable for free in ePub, Mobi and PDF formats, and available in the iBooks Store for free and in the Kindle Store for $0.99. 

With the benefit of fifteen years worth of hindsight, it is evident that Speed Trap, when looking ahead, had a profound status quo bias. The book did anticipate that broadband and wireless Internet access technologies would spread. Otherwise, Speed Trap didn’t foresee major changes in how consumers and businesses would use the Internet. As a result, Speed Trap’s errors of omission are alarming. Here’s a sample what I didn’t see coming as I wrote the book in 2001:

  • Google’s dominance. Speed Trap devotes just two paragraphs to Google, which, by 2001, already was the 15th largest U.S. website. Despite this traffic, Google’s ecosystem impact was still modest at the time. The company was still a year away from adopting the paid search model that would revolutionize digital marketing.
  • Apple’s iPod.  As I finished writing Speed Trap, the music industry was celebrating the shutdown of Napster, and the major labels were busy organizing their own download services.  A few months later, like a bolt out of the blue, Apple launched the iPod and changed everything.  
  • Amazon’s Kindle. Speed Trap speculates about whether Microsoft or Adobe would be better positioned to establish the dominant ebook standard. The possibility that the world’s biggest bookstore might eventually win that race hadn’t dawned on me.  
  • Social networks. We’d had hints of strong demand for social networking services, including AOL’s chat rooms and SixDegrees, a social networking site that peaked at 3.5 million members before failing in 2001. Despite these developments, I didn’t foresee the rapid rise of Friendster (founded in 2002), MySpace (2003), and Facebook (2004).
  • User-generated content. Although GeoCities had demonstrated the appeal of user-generated content during the late 1990s, Speed Trap failed to anticipate that blogging and user-generated video would become mainstream phenomena within a few years.

Because it turned a blind eye to these black swans and big trends, Speed Trap assumed that market shares would remain stable in key online markets. For example, the book asserted that by 2001 online recruiting was a mature category, and predicted that was unlikely to be usurped as its leader.  By 2012, according to Reuters, Monster’s 23% U.S. market share lagged CareerBuilder’s 34%. LinkedIn, propelled by the social networking wave, had captured 16% of the market in 2012 and was poised for explosive growth.

Readers who are too young to recall the dot com crash might reasonably ask whether my interpretations in 2001 were idiosyncratic—perhaps because I was, as an academic, either excessively cautious or simply clueless. With respect to my understanding of Internet businesses, I’ll let Speed Trap’s content speak for itself. With respect to the book’s conservative tone, I do think I was reflecting the Zeitgeist. If you are skeptical, read Michael Lewis’s 2002 New York Times Magazine article, “In Defense of the Boom.” Lewis writes, “The markets, having tasted skepticism, are beginning to overdose. The bust likes to think of itself as a radical departure from the boom, but it has in common with it one big thing: a mob mentality.” Likewise, the economist Charles Kindleberger, in his seminal 1978 book on the history of stock market bubbles, Manias, Panics and Crashes, explains that after a bubble bursts—during what he calls the “revulsion” phase—most investors lose their appetite for risk taking. 

Our collective conservatism in the immediate wake of the dot com crash might be seen as what management scholars call a threat-rigidity response. Individuals and organizations, when confronted with a severe threat, tend to constrict their information processing, focusing “tunnel-vision” attention on dominant rather than peripheral environmental cues. Threatened parties then tend to rely, in a rigid manner, on familiar responses to those cues—often with bad results. 

If this premise seems plausible, then we should ask: Have recent declines in startup valuations and VC investments have been big enough to elicit another threat-rigidity response? Probably not—at least not yet. But when bright shiny objects—akin to today’s virtual reality or Internet of Things—finally fail to attract investor interest, then we might posit that the cycle is reaching its trough. 

So if, in the wake of a future sector crash, entrepreneurs and investors anticipate a sector-level threat-rigidity response, what should they do? In a severe downturn, entrepreneurs must, of course, cut costs and conserve capital. Dozens of VC blogs over the past few months have already offered this advice. VCs face a more difficult decision if they expect an industry-wide threat-rigidity response: When most peers are cautious and skeptical of radical new venture concepts, maybe it’s time to be a contrarian? 

Likewise, during a bubble’s revulsion phase, established corporations face interesting opportunities to acquire valuable assets at firesale prices. One surprise from the early 2000s was how few corporations exploited this opportunity, despite having strong balance sheets. Only a handful of Internet startups were acquired by big incumbents during 2001: HotJobs by Yahoo, MP3.Com by Universal, and Peapod by Ahold. The pace of acquisitions didn’t really pick up until 2004.

If you read Speed Trap, I hope you will find value. For Internet veterans, the book should rekindle nostalgic memories of startups that bring to mind my favorite line from the movie Blade Runner: “The light that burns twice as bright burns half as long.” Remember, Webvan, eToys,,, and Kozmo? Disney’s $790 million debacle? For tech entrepreneurs who may have been in middle school during the late 1990s, Speed Trap may provide some historical perspective on the origins of the business models upon which you are building, and some lessons for navigating a boom-bust cycle.

Thursday, November 12, 2015

The Example Larry and Sergey Should Follow (It's not Buffett)

Originally published at

Coverage of Google’s restructuring has focused on the idea of Alphabet as a new kind of internet-era conglomerate. Optimists compare the new entity to Warren Buffett’s Berkshire Hathaway; skeptics point out that the conglomerate model seldom works.

But there’s a better comparison than Buffett: it’s John Malone, the “mastermind” who built the cable TV powerhouse Liberty Media. Malone is a brilliant financial engineer, who creates separate capital structures — each with a unique stock — for his different lines of business. Liberty Media, Malone’s holding company, owns a portion of the stock in each business. This approach allows Malone to attract equity and debt investors whose preferences regarding risk and payoff horizon match those of the business in question.

Having separate stocks also allows Malone to place bets when he believes that one line of business is not correctly valued by investors. If he thinks one of Liberty’s companies has a rich valuation, he can sell more stock to outside investors at a high price. Or, if investors are enthusiastic about a new business that Liberty is incubating inside one of its existing companies, he can spin out that business as a “newco” with its own stock. Conversely, if Malone thinks that the market has undervalued one of the companies, Liberty can buy back its shares.

As The New York Times put it in 1997, when describing the spinoff of TCI Ventures, which provided innovative new broadband internet services:

For Mr. Malone, the spinoff is a way to get more value from assets that he believes have been neglected by investors and overshadowed by Tele-Communications’ prime business, the ownership of cable systems with 14 million customers.

In this case, Malone traded investors some of his shares in the core cable business for a bigger equity stake in risky new ventures, which he thought the investors didn’t fully appreciate. Sound familiar?

To be clear, Google has thus far given no indication that it plans to create separate stocks. But its new structure would making doing so much easier. As Todd Zenger wrote here earlier this week, many investors want to buy stock in a safer, maturing search advertising business without buying into Google’s riskier moonshots. Alphabet promises to make the financial performance of its companies more transparent, but the big change would be if some of these companies traded under different stocks.

At that point Alphabet could sell shares of Google to more risk-averse investors; it could raise capital for its self-driving cars from the same sort of people who are betting on Uber or Tesla; it could seek funding for its renewable electricity projects from energy financiers.

A potential downside to this strategy is that it would make it more difficult for the ad business to directly cross-subsidize riskier tech investments. Formal contracts would be required for transactions between the companies, and each side would need to be able to make the case that a transaction was in the best interests of its respective shareholders.

And there’s still the question of why a holding company with full or partial stakes in a diverse set of somewhat unrelated businesses can be expected to create value. We know from years of academic research that on average, diversification into unrelated businesses doesn’t create value for shareholders. Why should Alphabet be different?

But Google’s founders seem more than happy to challenge the conventional wisdom. “Google is not a conventional company,” they wrote in their original founders’ letter. “We do not intend to become one.” Google’s founders have strong views about where technology is going, and where it should go, and they don’t seem that bothered if others disagree. Malone — also a technology visionary — feels similarly; he’ll bet against the market when he thinks that it is wrong. That’s something he has in common with Larry and Sergey.

Saturday, July 4, 2015

Resources for Getting Started With Data Science

Many of my MBA students who pursue jobs in product management, on growth teams, or as founders want to build data analytics and data science skills.

Peter Jamieson, a former student of mine who is now a data scientist at Pixability, a Boston-based video ad analytics startup, shared the following suggestions for getting started with data science:

Here's a list of some of the resources that have been helpful for me as I've gotten up to speed in data science. 

My go-to tool for working with data these days is Python. It can be tough to get everything you need to get started. Fortunately, Anaconda and Enthought both offer free distributions that are nearly plug-and-play. 

IPython is a tool, included in those downloads, that (among other features) lets people manipulate snippets of code in their browser. Becoming comfortable with launching and using IPython notebooks helps you take a number of online courses and share code. 

There is an incredible amount of content out there and it can be hard to sift through it all. I've picked some highlights, some of which are focused on business understanding, some on implementation. 

  • Data Science for Business:  Some math but no programming; a good resource for getting started that provides business use cases.
  • DataSmart:  Implements popular data science models in Excel and contains an intro to R. I'd recommend this for people without a programming background who are just starting out.
  • Here's a list of more advanced machine learning titles from Quora -- very technical, not for the faint of heart.
  • Other (free) books covering everything from coding to managing data science teams.


Online Classes:


Other Lists -- places to look if you can't find what you want above:

Thanks to Peter for sharing this list. Readers: if you have items to add, please use the comments section.

Addendum, Oct. 26, 2015: has compiled a list of free ebooks about data science (thanks, Brendan!).

Saturday, September 6, 2014

Failing Better

I recently kicked off a research project on entrepreneurial failure that I hope will result — in a year or so — in a book to be titled False Start. In tandem, with my colleague Shikhar Ghosh, who has been studying the causes and consequence of startup failure for years, I plan to develop a new, case-based MBA elective on the topic.

I've written before about how entrepreneurs' egos can contribute to their ventures' demise. As I kick off my new project, however, I feel motivated to share a personal reflection on failure. Last summer, I gave the commencement address at my high school alma mater, Padua Franciscan High School. I spoke about failure and what we can learn from it. Here's what I said:

*   *   *

Hello, Class of 2013. Thank you for inviting me to your graduation. And congratulations: you’ve got a lot to be proud of! But I’m not here to celebrate your achievements. I want to talk about your failures — and about how you can fail better.

You can fail better if you follow the example of entrepreneurs. As Father Ted mentioned, I’m a professor at Harvard’s Business School, where I teach entrepreneurship. The most important thing we teach is that three out of four startups fail. Dreams are destroyed; it’s often heartbreaking. But great entrepreneurs persevere, against the odds. For them, setbacks are valuable. Figuring out what won’t work puts an entrepreneur one step closer to a solution that will work. And when an entrepreneur finds a solution that works, magic happens. They create something out of nothing. The best entrepreneurs create something that makes a big difference in the world. Think of Thomas Edison. Henry Ford. Steve Jobs. Oprah Winfrey. You can make a difference in the world too, but only if you accept the risk of failure. And only if you learn from failure. Only if you fail better.

It took me years to figure this out. I hope this talk tonight gives you a head start down the same path of discovery.

My education about failure started at Padua, when I had a reptile brain like yours. Insulted? Don’t be. It’s a scientific fact: compared to adults, teenagers rely more on their amygdala when responding to stimuli. The amygdala is the primitive part of the brain that we share with reptiles. It controls the fight-or-flight response. Adults, by contrast, are more likely to use their frontal cortex, which controls reasoning and allows rational planning.

So, graduates: until you turn 20, if you do something really dumb, you can just blame it on your amygdala — on your reptile brain. Try this on your parents if you dent the family car; I’m sure your father’s frontal cortex will tell him that you’ve offered a perfectly reasonable excuse.

My reptile brain was hard at work when I was at Padua. During my senior year, it masterminded an epic fail. I was the starting catcher on the varsity baseball team. Don’t be impressed. I may still have the lowest batting average in Padua history. So, not surprisingly, about two-thirds of the way through the season, with our team out of contention for league leadership, my coach benched me and put our 2nd string catcher — a junior — into the starting lineup.

Now, our coach was the strong, silent type. He wasn’t big on explanations or reassurance. He didn’t tell me why I was benched. You can probably guess that he was thinking ahead to next year, and he wanted my teammate to get more practice. But through the blind rage and deep shame that surged through my reptile brain, I couldn’t see that. Fight, or flight? My amygdala picked flight. I sulked through the game, and when we got back to the locker room, I announced that I was quitting. My coach just shrugged, and my teammates didn’t try to talk me out of it. They were probably dumbfounded by my shocking immaturity and my self-centered behavior. No one on the team spoke to me for months afterward, and I can’t blame them.

It was a true failure of character. But it took me a while to see it that way, and even longer to understand my mistake and learn from it.  Lance Armstrong, before his own colossal failure of character was exposed, summed up the lesson well. He said, “Pain is temporary. Quitting lasts forever.”

Failure came into sharper focus for me years later when I started studying entrepreneurs. I learned that running from failure, like I did at Padua, is a common response. Our egos are easily bruised, so we often avoid situations where we might fail. But the best entrepreneurs are different. They seek out new challenges and view failure as a necessary part of the learning process. If you can’t fail, you can’t learn. And if you can’t learn, you can’t improve.

Entrepreneurs fail, over and over. Steve Jobs, the founder of Apple, is a great example. He was fired from Apple in 1985, just one year after launching the original Macintosh computer. He said, “The focus of my entire adult life was gone; it was devastating. I thought about running away from Silicon Valley. But I still loved what I did. So I decided to start over.” Over the next eleven years, in exodus from Apple, Jobs led Pixar to greatness. He also launched another computer company that Apple eventually acquired. That set the stage for Job’s triumphant return to Apple in 1996, and for the dazzling iPhone that’s in your pocket.

In 2001, I got a chance to put these lessons into practice — and to atone for quitting Padua’s baseball team. I was up for promotion at Harvard Business School. Like most universities, we have a “publish or perish” promotion process. If you don’t publish compelling research, and plenty of it, you perish. Promotion odds at my school are low: three out of four new professors eventually get fired. So, I was facing the same odds of failure as a typical entrepreneur.

I thought I was in good shape. I was studying internet companies, and a publisher had paid me a big advance for a book about this hot new phenomenon. But the senior professors who reviewed a draft of my book and my other work saw things differently. They said my research seemed like it was done in a hurry; it had a lot of intellectual loose ends. That was ironic, because my book was titled Speed Trap. The book analyzed mistakes that many internet companies made by growing too fast.

My boss told me that I wasn’t being fired — at least not immediately. Instead, the School would put me on probation and give me two more years to try to improve my research. But he added, “There are no guarantees that this will work. You should think about whether you are cut out for this job, and you should seriously consider leaving academia now. You’ve got plenty of good opportunities in the real world.”

I was shell-shocked. You may be familiar with the five stages of grief: denial, anger, bargaining, depression, and gradual, grudging acceptance. We experience these stages when we confront impending death or some other extreme, awful fate. The risk of getting fired after spending seven years trying to reach my goal seemed truly terrible. So, I passed through the five stages of grief. I lingered at anger.  

But I also recalled my regrets after quitting the Padua baseball team. And like Steve Jobs, I knew that I still loved my work. I resolved to not run from my failure this time. I would try to learn from my setback, even though that would expose me to the risk of future failure. My book was finished but not yet printed. I told my publisher to cancel my contract. I gave them their money back, and I kissed goodbye to a year’s worth of work. I put my head down and cranked out better research. I lived on edge for two years, but I got promoted. The pain was temporary, but worth it.

If you want to fail better, accepting risk is just half the battle. The other half is learning from our mistakes. As Henry Ford said, “The only real mistake is the one from which we learn nothing.”

Learning from failure isn’t easy. Our brains are wired up to see what we want to see. As a result, we often ignore signs of failure. And when we acknowledge the signs, we often misdiagnose causes. We are prone to blaming others or events outside of our control, rather than attributing failure to our own shortcomings.

Because our brains conspire against us, learning from failure requires discipline. The Army knows something about discipline, so it shouldn’t surprise us that they do a great job with learning from failure. After every engagement, an army unit runs what’s called an “After-Action Review.” The team asks four simple questions: What was our objective? What happened? Why did it happen? What do we do next?

Great entrepreneurs are likewise disciplined about learning from failure. They rely on the scientific method, formulating hypotheses about their new business and structuring experiments to test those hypotheses. They expect that many of these tests will fail. Thomas Edison knew this when he invented the light bulb. He famously said, “I have not failed. I’ve just found 10,000 ways that won’t work.”

You don’t have to join the Army or launch a business to learn from failure. You are about to enter the world’s best learning laboratory: college. College is a safe place to fail — one that offers tremendous freedom to experiment. This freedom will feel amazing after high school. At college, you will be a blank slate. No one will have preconceptions about who you are or what you can and cannot do. You can reinvent yourself.

Try new things at college. Experiment with different courses. Different causes and clubs. Different kinds of friends. Different jobs. But be disciplined about what you are learning. Approach these experiments with hypotheses, and end them with an After-Action Review. Most importantly, accept the fact that if you try new things, some of them won’t fit. But some will, and if you try, you may find lifelong soulmates. You may find your true calling, your way to make a difference in the world. As Steve Jobs would say, a way to “put a dent in the universe.”

So, Class of 2013, I hope you find great happiness and success. But I hope you embrace failure, too, as a path to improvement. And I hope you’ll live by the words of the playwright Samuel Beckett: “Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”

Wednesday, February 26, 2014

Tonight We're Going to Party Like It's 1999

(originally published on March 27, 2011 on the Launching Tech Ventures course blog)

Are we in a new bubble, as Steve Blank recently wrote, or do current high valuations for early- and late-stage consumer Internet companies reflect sound fundamentals, as argued by Ben Horowitz?

From an academic's perspective, this is a difficult question, and I won't tackle it here. Instead, I'll share some data on the performance of Internet startups launched during in the late-1990s boom.

The table below compares the market value at the end of 2001—the trough of the valuation cycle that began in the mid-1990s—to total capital raised since inception (private and public) for all 2,121 U.S-based Internet companies that had ever got funding from VCs or public markets (see appendix below for my definitions and methods). The firms had an aggregate market value of $99 billion at the end of 2001, and they had raised $85 billion of capital. This doesn't imply an attractive return for someone who invested pro rata in all rounds, especially if you consider the time value of money and the fact that investors had to share part of the $99 billion with company founders. But it's not a wipe-out, either.

Of course, focusing on sector-level, aggregate results may mask serious problems with overinvestment in individual markets, for example, online pet supply retailing—where four rivals burned through over $500 million and all failed.  Also, it's important to note that returns from individual companies were very skewed. As the table below indicates, only 139 (7%) of the 2,121 Internet companies completed an IPO. Among these public companies, only 37 had a market value at the end of 2001 that exceed the total capital they had raised historically. A full 42% of the sector's $99 billion in yearend 2001 market value was accounted for by just five companies: Amazon, eBay, E*Trade, Yahoo!, and WebMD.

In summary, if the Internet sector had been subject to grossly excessive rates of entry and investment during the last bubble, as conventional wisdom holds, we would have expected a significant sector-level capital loss, rather than a shoulder shrug, "got-my-money-back" aggregate return. Conventional wisdom exaggerates the economic damage wrought by the late-1990s bubble. In considering the impact of valuation bubbles, it's important to separate stock market gains and losses—transfers of wealth between traders—from poor long-term returns on the capital invested directly in companies. It is also important not to conflate the high business failure rates that result from excessive rates of entry with the high failure rates we would normally expect to observe in new markets with “winners-take-most” potential and low entry barriers—like those targeted by many Internet companies. Given lottery-style payoffs, high rates of entry and failure are consistent with rational economic behavior.

As a new bubble emerges around social media startups, we should expect to see similar performance patterns.


Definitions. The table above includes all U.S.-based Internet companies that raised capital from professional investors prior to 2002. Internet companies were defined as firms that relied on the Web as their principal channel for delivering products or services to consumers or businesses. This definition excludes: 1) companies that earned most of their revenue by providing professional services, software, or hardware to Internet companies; 2) firms that provided Internet access or hosting services; and 3) the online units of established, brick-and-mortar corporations. Professional investors were defined as venture capital firms (including corporate venture funds) and institutions that purchased public securities. Firms funded exclusively by angels or by strategic investments from non-Internet companies were excluded, although strategic investments were included in estimates of total capital raised by VC-backed firms.

Valuations. Enterprise values were estimated as of December 31, 2001. Valuations for private Internet companies reflect only the market value of equity; few such firms had any debt. Enterprise values for public firms reflect the market value of their equity as of yearend 2001, plus the book value of any debt.

For active, private Internet companies that raised funds sometime during 2001, yearend 2001 equity market value was assumed to equal 98% of total capital raised historically, based on average post-round valuations for funding transactions completed during the second half of 2001. For active private firms that did not raise funds during 2001, yearend 2001 equity market value was assumed to equal 49% of total capital raised historically, based on analysis of performance for VC funds launched during 1999.

For merged firms, valuations reflect their contribution to the yearend 2001 market values of the companies that acquired them, rather than proceeds realized by the merged firms’ shareholders. 
For mergers involving two Internet companies, the acquired company’s value is included in the acquiring company’s yearend 2001 market capitalization. Capital raised by the acquired company is added to the capital raised by the acquiring firm. 

For acquisitions of Internet companies by non-Internet companies completed during 2001, yearend 2001 market value was assumed to equal announced merger transaction proceeds, which averaged 76% of total equity capital raised historically by the acquired companies. For such firms acquired prior to 2001, yearend 2001 market value was conservatively assumed to equal the total capital they raised historically.  

Source: Eisenmann, "Valuation bubbles and broadband deployment," Ch. 4 in The Broadband Explosion, edited by Austin & Bradley, HBS Press, 2005

Tuesday, February 25, 2014

No Regrets (Mostly): Reflections from HBS MBA '99 Entrepreneurs

(originally published on March 28, 2011 on the Launching Tech Ventures course blog)

MBA students who are debating whether to launch a startup upon graduation often ask me, "What are the career consequences if my business fails? What do MBAs who founded failed firms do now?  Do they regret their decision to launch a business right out of school?"

We have plenty of experience with student entrepreneurship at HBS. Over the past 15 years, an average of 3-4% of students in each class of 900 HBS MBAs have founded firms upon graduation, and another 4-5% have joined startups in non-founder roles. [author's note, 2/26/14: the comparable statistics for the HBS MBA Class of 2013 were 7% founding and 4% joining startups.]

At the dot com bubble's peak in 2000, 11% of our MBA class founded firms upon graduation. To determine whether we're in another bubble, I'll track this figure for the Class of 2011. Interest in entrepreneurship has been rising at HBS, but so far, it lags 1999/2000 levels.

To respond to my students' questions, I assembled some data on career outcomes for a sample of a dozen MBAs who founded firms upon graduation in 1999 or 2000. I also asked these alums whether they had any regrets about their decision to follow an entrepreneurial path. Most of the startups in my sample failed. A pattern of highly skewed outcomes—with just a few big winners, a modest fraction of firms that earned back their investment, and many failures—is just what we'd expect from any portfolio of VC-backed tech startups.

Specifically, in my sample, one firm is still a going concern; one was sold at a price that roughly yielded a breakeven return to early investors; two were sold at prices that returned only a small fraction of capital invested; and the rest were complete wipeouts. So, most of the alumni I contacted can comment from direct personal experience about the career consequences of startup failure.

What are these alums doing now? One is still CEO of the firm he cofounded upon graduation. Three are serial entrepreneurs who have been successful—so far—with a second startup. Three are partners in VC firms. Two are presidents of medium-sized businesses, having stepped in as professional managers to replace founders. One is at Boston Consulting Group. One is planning to launch another startup after holding a senior marketing job in a public Internet company. One is searching for a role in a new venture after a hiatus to start a family. As a group, the alums are in impressive positions. Those whose first startups failed do not seem to have suffered negative career consequences.

Do the alums regret their decisions to found firms upon graduation? Eight of nine who answered my email query said "no." Here's a sample of their comments:

  • No: There is no substitute for the sense of pride and accomplishment that comes with starting a business. 
  • No: But you need realism, an understanding of drawbacks and most importantly, to be passionately entrepreneurial. Starting a business is not for the timid. You need to be resilient, optimistic, able to deal with uncertainty, and strong-willed.
  • No: The lessons learned have applied to my subsequent businesses. Each has been less stressful, because the experience provides groundwork for doing a better job the next time.
  • No: Right after graduation is a great time to get start a business. You have amazing drive, focus and a smaller personal overhead. 
  • No: I got to participate in every aspect of my company as a true general manager. I never would have that opportunity in a large, established company.
  • No: The Internet boom was a unique moment and I could not pass up that opportunity.

One alum did voice regrets:
Yes. But I have no regrets about launching another business later. For me, it was just a matter of timing. Coming out of HBS, I had blind spots. I was an engineer undergrad, and even after HBS, a couple years with McKinsey or on Wall Street would have made a world of difference in developing structured thinking and hardcore analytics. I also needed more experience in areas like partner selection and more maturity in dealing with negotiations and employees. These blind spots introduced founder risk and reduced the likelihood of our success. The smart investment would have been to spend 2-5 years doing other stuff, getting paid while addressing blind spots.

More Advice from HBS MBA '99 Entrepreneurs

(originally published on March 28, 2011 on Launching Tech Ventures course blog)

I recently wrote some former students from the HBS MBA classes of 1999 and 2000, asking what advice they'd give to current students considering an entrepreneurial path. In a prior post, I shared their responses to the question, "Do you have any regrets about founding a firm upon graduation?" Below, I present their advice to current students.

In 2000, Rod Harl co-founded GiftwareExchange, an online B2B marketplace that connected gift stores with product suppliers. The business never gained traction, and after several career twists and turns, Rod is now President of Alene Candles, a business he and a partner purchased in 2008 that manufactures custom candles. Rod shared this advice:
Ample low-cost funding can compensate for founders’ weaknesses. In such periods I might endorse aggressively pursuing new businesses regardless of your experience or the quality of your idea. Playing musical chairs, you can make a lot of money. But outside those periods, entrepreneurship is about creating value for your customers before yourself.
HBS doesn't teach about handling failures, which represent a very large proportion of outcomes. Be aware of the personal risks associated with starting a business. Many of my classmates attached themselves so strongly to their startups that it cost them their life savings, marriages, or years of their professional lives. This should not dissuade a true entrepreneur, but it is rarely discussed. 
When Guy Miasnik co-founded AtHoc in 1999, the company provided a browser toolbar that presented alerts and updates from online content companies — akin to today's RSS. After some early pivots, AtHoc identified an attractive opportunity in emergency mass notification systems. Guy, still AtHoc's CEO, shared this advice about founding a firm:
The decision is not so much a matter of timing or financial upside. It is about the passion to create something new, to shape the world in ways you believe it should be, and to lead those around you — co-founders, investors, employees, customers, business partners, and media — to accept and adopt your vision. It is about incredibly positive thinking despite many rational negatives. It is about willingness to work extremely hard; to be relentless and persistent while still being flexible as you listen and learn.
As you go down the entrepreneurial path, you should build skills in two areas. The first is sales. Getting a customer to buy your product means you’ve learned how to gain trust, convey value, and extract commitment. The second is product management. 
As you embark on this path, don’t forget your family. Your partner’s buy-in to an entrepreneurial life style is crucial, and your family will help you keep things in perspective in good times and bad.
In 1999, Joel Silver launched, which provided incentive programs for sales reps. After Joel sold SalesDriver in 2001 to a larger marketing services firm, he served as President of Indigo Books & Music, a leading Canadian retail chain founded by other entrepreneurs in 1996. Joel offered this advice to current students:
Entrepreneurship is life changing. It is exhausting. Every decision is yours. There is no "down" time. It takes smarts and tenacity. It will test every relationship you have.
Be conservative and raise more money than you think you need. 
Know your customer cold. Customer insight — not being first with technology — will carry you to success. 
You will meet a lot of smart people who will give you advice. Take it. But don't assume anybody, despite their pedigree, knows your business better than you do. 
You will attract people who want to be part of a great team and work really hard. That is the best currency you have.
Dispense money from an eye dropper. Find the ugliest, cheapest space. Go to Goodwill for furniture. Use chipped coffee cups. You will gain investors’ respect. 
Just ship! Your first product needs to do one thing well, but it can suck in other ways. Version 2 will be good. Version 3 needs to be great

In 1999, Nikitas Koutoupes, co-founded, an online B2B marketplace for construction supplies which was absorbed through a series of mergers into Sword CTSpace. Nikitas, now a Managing Director at Insight Venture Partners, shared this advice: "Ambition and humility are not mutually exclusive. You don’t know what you don’t know, so hire well."

In 1999, Sasha Novakovich co-founded, which provided advice for consumers shopping for voice, internet access, and video services. GetConnected successfully morphed its business model from a destination site into a private label service for brick-and-mortar giants like BestBuy, then sold its technology to a rival after eight years in operation. Sasha, now planning her next move, said, "Make sure that you have the best possible founding team: people with relevant, non-overlapping skills and experiences, who you trust and respect. Make sure there is a clear reporting structure and division of responsibility. A great team can take an okay idea and turn it into something phenomenal. A weak team can kill a phenomenal opportunity."

Returning to Argentina after graduation in 1999, Alex Abad co-founded Certant, which provided website development services. The firm failed in the recession that followed, and Alex is now the founder of Advanced Organic Materials. He said, "Entrepreneurship is a long and sometimes painful process. To succeed you need to have a passion. This has been the difference between my two startups. The second company I started is a chemical manufacturing company. I am a Chemical Engineer. Now, I enjoy everything I do."

In 2000, Richard de Silva co-founded Siteburst, which hosted and distributed online video for content companies. The service failed after online video emerged more slowly than expected, and Richard is now a partner at Highland Capital. He offered the following advice to aspiring MBA entrepreneurs:  "It’s important to be honest with yourself. If you feel compelled to start a business because it seems fashionable or you have seen others having fun, you should join a young company or a fast-growing bigger company and develop functional expertise — until you feel compelled by a market need."

One former student, who asked to remain anonymous, launched a failed consumer Internet venture that was truly ten years ahead of its time: a successful variant of his idea exists today. He offered this advice to current MBAs debating whether to launch a firm upon graduation:
Recruiters like to see big names on your resume: Google, Facebook, Amazon, eBay. Getting a job at these companies is a lot easier while you are at HBS than it will be after you graduate. Today these companies are courting you. A year from now you may be explaining what you ‘learned’ from your failed startup experience. 
Back in the web 1.0 era, the goal was to raise a huge first round and spend it quickly, acquiring users via large portal deals and banner ads. In the web 2.0 era, product is marketing. Now, with low technology costs, the goal is to do a lean start-up and get breakout user traction before raising serious VC money. After all, great products sell themselves, right? Just look at foursquare and Twitter. It’s easy!
In fact, one could argue that it is harder today than it was back in 1999. Back then, you had a fighting chance to get to scale using your VC war chest. Today, you’re expected to have product pixie dust that magically spawns a million users through spontaneous virality based on your insanely great product. 
So what would I do if I were graduating this year? Taking these two points together, I would take a job at Facebook, and do my start-up on the side. At Facebook — or Twitter or Zynga or a similar company — you will learn about product management, and you will meet the developers and UX people you’ll need to know if your start-up takes off. You can build your business at night and on the weekends, and see if it gets traction. And if it doesn’t take off, so what? You work at Facebook. You’re a stud. When you are ready to move on, recruiters will be calling you, and magically you’re on the HR buy side again!
To be clear, I’m not saying don’t start your business. Life is short. I’m just saying you should think about doing it in this less risky way.
Finally, Craig Carroll co-founded eGrad, which provided on online channel for established brands to market goods and services to college graduates. After morphing eGrad's model and selling the company to a larger student marketing firm, Craig is now founder and CEO of Rezolve Group, which provides services that help families secure financial aid for college. Craig shared this advice:
As a founder, you don’t have much control over exit timing. You take on responsibilities to investors, employees, and clients. If things aren’t going well or you aren’t enjoying it, you just can’t just extricate yourself. Understand the ramifications for your personal and family life. 
There are real benefits to being entrepreneurial when you are young. It is easier to deal with the stresses while you still have energy and no children. Sure, you may be less experienced, but energy, optimism and a touch of naivety can more than make up for that.
There is no formal career path. You truly make your own destiny, but I have seen many friends struggle with the transition from a failed venture and the uncertainty of “What do I do next?” 
The best entrepreneurs have an indomitable spirit and are resilient in the face of adversity. Every new venture really is a rollercoaster of successes and setbacks that test your emotional fortitude. Aspiring entrepreneurs need to ask themselves if their personality and mental strength is really suited to this.
The HBS definition of entrepreneurship as “the pursuit of opportunities beyond resources currently controlled” is more than just a platitude. For me, it sums up perfectly what I do day-to-day. You need to be inventive, creative, opportunistic, persuasive because you rarely have enough resources. Embracing this definition helps me in my role.