The Harvard Business Review Entrepreneur's Handbook

Everything You Need to Launch and Grow Your New Business

Harvard Business Review

• Publisher: Harvard Business Review Press
• Year: 2018
• ISBN:
  9781633693692
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

The one primer you need to develop your entrepreneurial skills.

Whether you're imagining your new business to be the next big thing in Silicon Valley, a pivotal B2B provider, or an anchor in your local community, the HBR Entrepreneur's Handbook is your essential resource for getting your company off the ground.

Starting an independent new business is rife with both opportunity and risk. And as an entrepreneur, you're the one in charge: your actions can make or break your business. You need to know the tried-and-true fundamentals--from writing a business plan to getting your first loan. You also need to know the latest thinking on how to create an irresistible pitch deck, mitigate risk through experimentation, and develop unique opportunities through business model innovation.

The HBR Entrepreneur's Handbook addresses these challenges and more with practical advice and wisdom from Harvard Business Review 's archive. Keep this comprehensive guide with you throughout your startup's life--and increase your business's odds for success.

In the HBR Entrepreneur's Handbook you'll find:

• Step-by-step guidance through the entrepreneurial process
• Concise explanations of the latest research and thinking on entrepreneurship from Harvard Business Review contributors such as Marc Andreessen and Reid Hoffman
• Time-honed best practices
• Stories of real companies, from Airbnb to eBay

You'll learn:

• Which skills and characteristics make for the best entrepreneurs
• How to gauge potential opportunities
• The basics of business models and competitive strategy
• How to test your assumptions-- before you build a whole business
• How to select the right legal structure for your company
• How to navigate funding options, from venture capital and angel investors to accelerators and crowdfunding
• How to develop sales and marketing programs for your venture
• What entrepreneurial leaders must do to build culture and set direction as the business keeps growing

PART ONE

Preparing for the Journey

1.

Is Starting a Business Right for You?

What makes entrepreneurs tick? More specifically, what are the personal traits and backgrounds of people who become successful entrepreneurs? This chapter considers those questions and helps you decide whether you have the right stuff to be a business entrepreneur.

Many books and websites include self-scoring tests that you can use to assess your fitness for entrepreneurial life. (The US Small Business Administration [SBA] provides one such test on its site at https://www.sba.gov/starting-business/how-start-business/entrepreneurship-you.) These assessments can be a good place to start as you think through what entrepreneurial work would mean for you and whether it’s a good fit for your personality and goals. This self-evaluation is especially useful if you’re starting with an idea for a business. Having ideas is important, but it’s only one step in a process that also requires other skills and personality traits.

This and other tests typically integrate some combination or subset of the traits shown in table 1-1. Let’s look at these traits in more detail.

Ideas and drive

Christopher Gergen and Gregg Vanourek, founding partners of New Mountain Ventures, an entrepreneurial leadership development company, describe the basic process of entrepreneurship as follows: “Understand a problem, grasp its full context, connect previously unconnected dots, and have the vision, courage, resourcefulness, and persistence to see the solution through to fruition.”

Without those first elements—a full understanding of a problem, new connections, and a vision or direction for a solution—there is no entrepreneurial venture. Whether the problem you’ve identified is global or local, broad or niche, your ability to spot it and conceive new solutions is a core element of entrepreneurship. And passion about the problem you are solving might not be as important as you think—see the box “A passion for the work.”

People skills

Having identified a problem or even a potential solution is one thing. But to launch a successful venture, you must also make other people see the merits of your idea and invest in it—whether they are employees, customers, or funders. Your ability to lead, persuade, take feedback, and build a network will determine whether you’ll actually be able to bring your idea to fruition.

In the HBR Guide to Buying a Small Business, Harvard Business School professors Richard S. Ruback and Royce Yudkoff describe the people skills that entrepreneurs need first: “You need to feel comfortable reaching out to people you don’t know—sellers, . . . investors, your employees—and when you do reach out, you need to project an air of confident optimism.”

TABLE 1-1

A passion for the work

Passion, long considered an important part of entrepreneurial work, keeps entrepreneurs going when the going gets tough. It’s the spark that inspires an investor to sign on; it’s the vision for the change you’re going to usher into the world through your new product or service. Indeed, “Follow your passion” is increasingly becoming a catchphrase as the generation that was raised with it comes of age in the professional world.

But experts caution against thinking of passion as a primary requirement for your success as an entrepreneur. Here’s why:

• Research shows that passion simply doesn’t correlate with success years out from the founding of a new business.
• Research also shows that passion in entrepreneurs tends to fade over time, even during the first few months of the enterprise’s founding.
• While expressing passion for your business or idea can help if you are trying to secure funding from a less experienced source—relatives or semiprofessional angel investors, for example—professional funders prefer strong preparation and a calm demeanor, which they associate with good leadership, over passion.
• As former venture capitalist and entrepreneur Dan Isenberg writes, “Passion is an emotion that blinds you.” If you are too emotionally attached to your venture, you won’t see its problems objectively or be able to correct course when you need to.

Sources: Cal Newport, “Solving Gen Y’s Passion Problem,” HBR.org, September 18, 2012; Harvard Business Review, “For Founders, Preparation Trumps Passion,” Harvard Business Review, July–August 2015; Harvard Business Review, “How Venture Capitalists Really Assess a Pitch,” Harvard Business Review, June 2017; Daniel Isenberg, “The Danger of Entrepreneurial Passion,” HBR.org, January 6, 2010.

When it comes to funders particularly, serial entrepreneurs Evan Baehr and Evan Loomis write that “potential investors will ask themselves three simple questions during a meeting: 1) Do I like you?, 2) Do I trust you?, and 3) Do I want to do business with you?” To earn an investor’s trust, you must first be appealing and interesting enough for them to get to know you well enough to trust you. To succeed in the high-pressure, fast-paced world of venture funding, you must know how to connect with people—and know when your tactics for connecting with them aren’t working, and switch to a tactic that will.

But successful entrepreneurship isn’t just about convincing others about the brilliance of your idea, just as networking isn’t only about getting funding, and just as selling to customers isn’t only about selling. These activities will also yield feedback about your business idea or how your company is operating. That information is worthless if you don’t know how to listen or accept feedback. In their research of entrepreneurs around the globe, marketing professors Vincent Onyemah, Martha Rivera Pesquera, and Abdul Ali found that one of the most common mistakes in selling a new offering was entrepreneurs’ failure to listen to their customers’ complaints about the product: “Some realized that their passion and ego made them respond negatively to criticism and discount ideas for changes that they later saw would have increased the marketability of their offerings.” Successful entrepreneurs know when to stick to their guns—and when to take the advice of others and shift course.

They also know how to recognize when they’ve reached the end of the road. When a project isn’t working, they accept that they have to shift to something else—failing fast is better than failing long and slow. On the subject, Isenberg quotes Joseph Conrad: “Any fool can carry on, but only the wise man knows how to shorten sail.”

Work style

Being your own boss may sound appealing—no one to tell you what to do!—but it also means that to succeed, you need to challenge and motivate yourself. There won’t be anyone else to do it for you. Successful entrepreneurs are intrinsically motivated by the problems they see around them and the solutions that they envision; they can’t sit still while there’s work to be done (and there’s always more work to be done).

They are also often goal oriented: they fix their eyes on a prize and impatiently and relentlessly try different ways to get there, shifting strategies quickly when necessary (see the box “Stretching the rules”).

Stretching the rules

In a comprehensive study of entrepreneurial characteristics conducted between 1987 and 2002, Walter Kuemmerle, an associate professor at Harvard Business School, identified comfort with stretching the rules as a common characteristic of successful entrepreneurs. Certainly, entrepreneurs need to be creative, seeing opportunities where others don’t and challenging assumptions about every part of the business. For example, LinkedIn founder Reid Hoffman maintains that “freedom from normal rules is what gives you competitive advantage,” describing, for example, how Uber’s use of employee referrals for hiring decisions—rather than formal screenings—helped the company scale up more quickly.

But when this outside-the-box thinking turns into disregard for legal regulations or an excuse for personal misbehavior, the consequences are more troubling. For example, Uber and Airbnb are frequently faced with scrutiny about their skirting of regulations for taxis and hotels. Harvard Business School professor Benjamin Edelman reflects on this issue: “Uber counters that [the] rules primarily benefit taxi drivers and keep prices needlessly high. That may be. But the law’s unambiguous requirements were duly enacted by the responsible authority. In Uber’s world, a general contractor might decide building codes are too strict, then skimp on foundation or bracing. Who’s to say which rules are to be followed and which to be broken?”

Meanwhile public scandals around employee mistreatment and sexual misconduct have suggested other ways that a disregard for the rules can go too far. Beyond the personal damage caused, research has shown that corporate punishment for CEO misbehavior (not necessarily outright illegal acts) can be inconsistent, but the effects on the company’s reputation if such misbehavior is made public can be significant and long-lasting, and negative effects reverberate within the company as well.

Entrepreneurs, then, have a harder charge than simply “breaking the rules”: they must find a way to deliver iconoclastic creativity without disregarding civil society.

Sources: Walter Kuemmerle, “A Test for the Fainthearted,” Harvard Business Review, May 2012, 122–127; Reid Hoffman and Tim Sullivan, “Blitzscaling,” Harvard Business Review, April 2016; Benjamin Edelman, “Digital Business Models Should Have to Follow the Law, Too,” HBR.org, January 6, 2015; David Larcker and Brian Tayan, “We Studied 38 Incidents of CEO Bad Behavior and Measured Their Consequences,” HBR.org, June 9, 2016.

Indeed, most new ventures, no matter how well planned, are experimental, and as an entrepreneur, you will benefit from an experimental mind-set. A willingness to start small gives company founders an opportunity to test and fine-tune a product or another offering before locking into a business model that will allow them to scale. They have the patience to see how customers respond to a product, its price, and the way it is served. In this way, they can course-correct before expending large amounts of capital.

The classic counterexample of this patient, experimental approach comes from Webvan, a dot-com-era company whose leaders were unwilling to take such an approach. The company’s founders—including Louis Borders, founder of the Borders bookstore chain—envisioned a nationwide home-delivery system for groceries. Webvan began by building a monster 330,000-square-foot automated warehouse in Oakland, California. It quickly raised more than $850 million in equity capital and began work on twenty-six similar facilities in metropolitan areas across the United States. But the company never came close to breaking even. Within two years, it had burned through its cash and was forced into bankruptcy. By most estimates, Webvan had tried to do too much too fast. Instead, successful entrepreneurs are willing to shift strategies quickly.

But a good experimentation process can’t eliminate all risk in an entrepreneurial venture. Unlike the more established corporate managers, you as an entrepreneur need to be comfortable with risk and must not be intimidated by a shortage of information. Compared with your corporate counterparts, you are much more likely to find yourself in a situation in which making a sale, landing a contract, or reaching an agreement with a lender means the difference between survival and bankruptcy. Entrepreneurs are so close to the edge of failure that every deal has major consequences. Whereas a corporate manager might say, “I’d like more information before I can make this decision,” an entrepreneur must make the best of uncertainty and move forward. Standing still and waiting for more information isn’t an option.

This kind of pressure builds particularly around deal making. Successful entrepreneurs, according to Kuemmerle, understand how to seal a deal. “Howeve...