Why Startups Fail with Tom Eisenmann (HBS Professor) || Harvard Alumni Entrepreneurs

Well there's still some folks joining in and we'll let them continue to coming in uh but i know folks want to get started and they're here for the session on why startups fail uh before we turn it over to tom um as as is typical i'll spend a minute or two just talking about the events that are coming up right after this one um on tomorrow um at 12 15 there's an ai machine learning networking salon on thursday um from 2 30 to 3 30 there's a workshop on becoming a thought leader um on friday

it's a meditation friday from 12 to 1. um there's a founder's networking salon next tuesday from 12 to 12 12 25 um and then bill warner who founded avid as an angel investor is joining us on tuesday from 4 30 to 5 30 pm um for an investor series um we have a whole bunch of different events that are coming up after that you can find it in the newsletters that have been sent to you And also on our website but i know that the reason that everyone's kind of here today is to learn from

tom uh and tom um who recently just published uh why startups fail which i'll link in the chat below um is a faculty member at harvard uh at hbs and um when you think about the contributions that have come out from entrepreneurship at least in the academic setting at harvard they're really four individuals that have Mattered a lot um howard stevenson who created the entrepreneurial faculty and department at the university and defined entrepreneurship bill solman who created entrepreneurial finance um helped us set up the california research center um and worked with joe lasseter um to

set up the ilab and bring some programming to harvard undergraduates and then everything else after that effectively has been tom Tom has created um at this point probably a dozen classes at hbs for entrepreneurship i can't even remember all of them i'm sure he'll be able to run through them um he is the chair of the rock center he is the chair of the ilab um he is the chair of the ms mba program where a lot of students are ultimately leaving and graduating and starting their own companies um he's also the chair of the

undergraduate tech fellows program so um in insofar as Anybody at harvard wants to do entrepreneurship it is very difficult if you're looking for the courses for it not to run into tom at some moment in time um students who have founded stitch fix copang and other multi-billion dollar companies have been trained or coached or taught um through tom so he is literally the foremost thinker the foremost academic thinker on entrepreneurship in the country and i am So excited that we're able to welcome here uh him here today wow thank you matt um it's uh it's

special to get that introduction from um somebody from harvard and in front of a bunch of harvard people so uh thank you for that and thanks everybody for listening um i see some some friends some familiar names jason klein justin um and um a lot of names i don't know including the museum of distilled Spirits um i'm very very happy to see that um we've uh we've attracted museums to this talk um yep um matt let's let's let it rip sure thing we're just gonna spend 24 minutes going through questions some of them have been

pre-submitted they're mostly in the context of the book and then we'll turn it over to you guys for questions as well um so tom uh obviously The book is about um why startups fail there's a lot of things in there that need to be unpacked and defined so for the purposes of the conversation can you help to find some of that stuff what's entrepreneurship what's failure what's the so so we have a few hbsers on the um on the zoom and they'll know that um that we define entrepreneurship at hbs howard stevenson's definition as pursuing

novel opportunity before you have all the resources Needed to exploit that opportunity so pursuit of opportunity beyond resources control and um and that's important because it's it's a way of managing not necessarily a role some people think of any owner manager as an entrepreneur or any small business as an entrepreneurial venture that's not quite right yeah and this also allows for the possibility of entrepreneurship inside big companies um You know when google launches google drive that's not entrepreneurship because they have all the resources they need to get started the the data centers the engineers when

amazon launches the kindle that's a different story you know they've never done hardware at that point completely different than the retailing businesses they've been doing so they didn't have all the resources that were required and it certainly was A novel i mean google drive was dropbox and mosey and others had been at it for 10 years at the point google launched its file management service but kindle was really early in the e-book thing so that's uh yeah that's entrepreneurship then what's failure how do you know if you've failed um how do you know um your

startup has failed Yeah i need to find failure failure um something that falls short of expectations um is the uh is the dictionary definition which isn't terribly helpful because it begs the question which expectations and whose expectations yeah so um so i mean there's a little professors are allowed to to um worry about definitions so this this one i worried a lot about for the book um and um Define failure in the book as early investors did not and never will make money and you know that begs the question why from investors perspective and the

answer to that is why not founders i mean surely founders goals um and dreams are important and um if you're out of business but you met all your goals as a founder to change the world to build a great team etc etc are you a failure and i think the answer is we do need to Keep founders goals and visions on radar but the reality is by series d sort of five-year seven-year point something like um 60 percent of founders have been replaced as ceo so you know once you raise a lot of outside cap

not every founder can make the transition to late stage and um and a lot of them will be replaced so So we can't focus only on the founders priorities and then you know the last constituency stakeholder we should consider is society at large so there are startups that are in ventures that are financially successful by my definition that we would all just wish would go away they they exacerbate income inequality they pollute they have addictive products And that's important again to and and likewise there are businesses that fail and leave behind um value to society

they've trained managers and employees who can go on to do other things they've shown the path for other entrepreneurs what not to do one of the failed businesses in my book is gebo social robot which burned through 75 million dollars so a failure by that definition But show the path for a next generation of social robots that are actually being used in elder care markets and to engage autistic children and so forth so um it's hard to measure these societal spillovers but they're real and they're important so so for the purposes of this conversation entrepreneurship

is the pursuit of opportunity with limited resources and failure is failure to deliver returns to early stage investors While acknowledging that there are other metrics for success those startups could have had positive impacts kind of on the planet bingo okay um we've got a lot of first-time founders here and i hear all the time that first-time founders make a lot of mistakes and your book is all about mistakes so i'm curious if in in your research in your work about looking um to see why a Company fails what is the single most common reason that

a startup fails um you know um we can simplify it greatly and say um they have run out of money and they can't raise more um that's why startups fail most of them uh it's not terribly helpful right it's like the coroner saying the victim died of loss of blood you know gunshot wound You know and and where did that come from jealous spouse um so you have to keep asking why and and i would say the most con so um early stage startup failures uh the book book looks at early stage startup failures late

stage startup failures sort of um the the ventures that have made it through the teething period if you will sort of their three five seven years old And they've they've found a market they've hired employees they've raised some capital um and and shockingly um late stage startups still fail something like one by the definition of don't make money for investors something like one in three do not make money for their investors but the early stage patterns i would say the most common one is a pattern in the book i call a false start And uh

this is just like track and field or swimming where the athlete um jumps the gun and you know in an effort to sort of get out of the blocks quickly um and the entrepreneurial equivalent of a false start is the entrepreneur so eager to get started um wants to build and and sell the product as fast as possible and skips a bunch of upfront research that really could have informed them about whether they've Found a problem worth solving and whether um given a problem or solving whether of the many different ways to solve the problem

they found the right one you know entrepreneurs have a bias for action and and they want to get going particularly entrepreneurs who are engineers right they love to build things but even non-technical a lot of mbas that i teach are not technical and they hear over and over again you must Have great product to succeed how do you get great product you need a great engineering team how do you get a great engineering team you use the amazing networking skills you've got as an mba to sort of go find either a technical co-founder of the

equivalent of a vp of engineering and once you bring that person on board especially if you're paying them uh because they're expensive uh you're going to feel obliged to to Design build and launch a thing as fast as possible skipping a bunch of upfront research that should be done before you ever start the engineering interesting false start kind of number one and i know i think you use sunil as a good case study example in the in the book um uh with with his uh matchmaking um company um how do you avoid it um if

it's the most common cause of failure what can the founders in this room today do to make sure that yeah they're not Building the wrong thing effectively as they start their companies yeah it's it's probably the easiest um to avoid it just takes the discipline and and the the research that i'm talking about it doesn't take years um at most it takes months maybe two months um can often be done in in a few weeks and and the the tool kit is Um well known out there um we teach it at harvard business school um

you can you can find online courses that walk you through it's basically the the set of of techniques that a user experience designer would go through often starting with a you know a huge number of very well conducted interviews with with folks that are in the customer segments you've identified and here the entrepreneurs you know the Impulse for an entrepreneur is always to sell right i got an idea i'm going to tell you all about it i'll sort of grab you by the callers and shake you and ask you don't you love my idea and

you're going to tell me yeah yeah sure go away crazy person please and and so you know there is a time for pitching it's not when you're studying um unmet customer needs so you have the discipline to listen to not hear what You want to hear to avoid leading questions and so forth so and designers are trained to do this so customer interviews you can depending on the business do ethnography you know you're designing an online grocery service go follow people around a brick and mortar grocery store see how they shop there's there's certain there's

a place for survey work because it's easy to do people tend to do it too early And rely too much on it and tend to use it in the pitching process rather than really in the research process and then um all of that feeds into personas prototypical customers and who would that become very important both in product development and marketing and with those personas then um so we teach a process at hbs called double diamond design it comes out of the British design console so it's basically the diamonds if you'll imagine the sort of arrows

going out um is a period of divergent thinking where you're expanding first the first diamond is problem definition second diamond is solution development and you're expanding the problem space but then you have to converge and narrow down to a single customer segment and a single set of unmet needs and and you do that with the personas then on solution Development you generate a lot of solutions you try not to become emotionally attached to any of them um prototype them in a quick and dirty way get real feedback from from potential customers on those and then

again narrow down to essentially the um the one you really want to start building that's where lean startup kicks in and that's when you um it's only after the The end of the second diamond that you should really be doing what the lean startup folks would call um um a minimum viable product and so what i'd say what's a lean startup uh lean startup is um sort of this movement that's swept out of silicon valley starting about 10 years ago all over the world now um that basically the notion that you should approach your startup

like a science experiment develop hypotheses about the business Model about the customer about how you're going to make money and test them rigorously in ways that can be falsified it's not a real test unless you could fail and and but do those tests with the minimum amount of expenditure of research no as little waste as possible in terms of time and money um and and it's important to do those tests but They're actually late in the process all this other stuff precedes it and and so i think a lot of entrepreneurs think they are running

lean that they're following lead startup logic and um but but true practitioners of lean startup do this upfront customer discovery steps got it um this is interesting um you know i did read i did read the book and i know that in the early stage failures there's two others there's something you Call bad bedfellows and false promises can you speak about how in that context those mistakes or those um issues crop up and how they end up killing a company as well as some tactics for avoiding false positives it's actually false promises is a mistake

my publisher made on the jacket of the book but it's close enough so um not worth calling back um all the books um bad bedfellows is actually the photo Negative of of of the false star pattern i just described so if you think about a false start this is um it could be a team sunil nagaraj's triangulate the the dating site you mentioned is a good example fantastic team really nimble really able to execute supportive investors you know so the resources were there and if we go back to our definition of entrepreneurship but they never

found the right opportunity so pursuing opportunity Without resources they had the resources and they did three pivots three big pivots and they did them fast and they did them the right way based on customer feedback but you can only pivot so many times before you run out of capital that's a problem with a false start right if you waste the first four months if you've raised 12 months or 18 months of capital and you waste the first four on a flawed product that could have been avoided just by spending four weeks Um doing more research

uh it does boost your failure odds so bad bedfellows um it's preceded by good idea so good idea and bad bad fellows so this is just the opposite it's actually the right idea but the wrong resources um broadly defined so um and and some folks on the on the zoom will be familiar with quincy apparel which was launched out of a year after Hbs was graduated in in 2010 a dress company and the co-founders who didn't have enough domain experience it turns out manu designing and manufacturing apparel is incredibly complicated and if you're going to

create a startup that does that you better understand the complexities they hired people out of the industry to to do those technical roles pattern maker Fabric sourcer quality control you know step by step by step but these people had never done it in a startup they came from ann taylor you know where they were used to doing their thing and in an early stage startup everybody does a little bit everything they pitch in to fight whatever fire is burning over there um and so these people sort of sat on their hands and said i don't

know how to do that that's not my job so problems with The co-founders they also in addition to not having domain expertise um couldn't agree on like a lot of mbas who was going to be the boss so they they essentially shared the leadership role and that slows things down when you can't agree on strategy that the team was imbalanced in terms of skill and attitude you need both in an early stage startup and They didn't raise as much money as they wanted and needed and they didn't raise it from investors who could bridge when

they got into trouble who could could provide a lifeline of funding and um and apparel tends to at this stage uh manufactured in a third-party factory and so the folks that were manufacturing their stuff these founders had no industry reputation no relationships to speak of so guess whose orders got Pushed to the back of the production line if ann taylor needed something expedited so all the way around every um major category of resource provider there were some dysfunctions they had a good idea and they actually the the idea was better fitting affordable and stylish work

apparel for young professional women and the women loved it and the sales were strong and the repeat purchases were good but um They couldn't manufacture the stuff so so their returns were higher than expected not terrible but higher than expected burned through the capital they only raised 12 months worth of capital and you know they had it hadn't shown enough progress to to raise more so company failed bad bad bad fellows um interesting so investors often speak about you know having good founder market fit but it sounds like the issue here is not just good

founder market fit It's also a good founder founder fit good founder investor fit good founder partner fit yeah i call it a fundraiser call it funderfit yeah and uh and it clearly was missing with um the um you know and the quincy founders positioned the firm which was a rational thing to do as a direct to consumer you know there's a lot of direct to consumer businesses out there at the time bonobos had had some success with that model a Direct to consumer means skipping the two-stage wholesale to brick-and-mortar retail and and marketing directly to

consumer typically through a website but sometimes company owned stores thank you in my class in my class we don't use jargon thank you for explaining it and uh uh warby parker had had success so it made sense and vcs were investing vc's Don't normally invest in apparel companies but if you they do invest in direct to consumer so uh so that's how they sold it but you know and and i i think a lot of folks on the zoom will know that the vc business model is basically you you make all your money if you

have a portfolio of 60 companies two or three of them will yield a 10 or 20 or even 100 100 fold return on your Original investment 30 of them will earn a modest two or three times if you've tied your money up for 10 years getting double your money isn't necessarily a great return but it's it's not bad it's better than losing everything and then 60 70 50 of the portfolio investments will just basically be everything all the money is lost or um you make less than you put in And and with that kind of

payout structure the vc needs every single company in the portfolio to have the potential to be a 10 times return of course they know not all of them will but they all have to have the potential and they're going to do everything they can to push all of those founders to swing if we can use baseball analogy swing for the fences and um that makes a ton of sense for the vc um when you swing for the fences um you Strike out a lot um it may or may not make sense for the founder if

they know what they're getting into and they want to take that risk you know because obviously if it works um the founder is rich and famous um but there are a lot of businesses out there that if they'd taken different kinds of capital and grown more slowly they might have survived and and and and reached some kind of steady state Got it so those are those are the scenarios in which in most cases a company that's early stage fails um but let's say we grow up um we're series b we're onwards um what are some

of the most causes of death um for for companies in that case at those stages and then how do we prevent those um the big one here by the way um all through this there's a cause of death which um Mortality if you will uh that we haven't talked about which is um misfortune um completely out of control i mean tens of thousands maybe hundreds of thousands of businesses new businesses have failed because of the pandemic travel businesses restaurants and so forth nothing no fault at all of the founder same thing was true in the

great recession of 2009. so i mean it's tragic we should feel for those um those entrepreneurs But the book is not about that right this is not just not you know you were unlucky in your timing um and um but but no one can predict pandemic so with late stage the big one is a pattern that i call speed trap and it's just what it sounds like these are ventures that grow too fast you know and and often they have some early momentum early adopters love the product they Spread the word and the business will

grow very quickly organically and then a bunch of things happen this attracts the interest of investors who put capital in typically at a high share price with the expectation of and they're only gonna get their money back if the thing continues to grow founder doesn't typically need to have her arm twist right every entrepreneur Most entrepreneurs love to grow so uh but but usually the next wave of growth sometimes maybe you're harnessing a network effect and it gets even easier to grow you know the big get bigger but very often the case you start to

saturate your target market and as you reach out beyond the target market the product you have by definition isn't as compelling for the next wave of customers so you have to cut your price You have to instead of relying on word of mouth you have to rely on paid advertising so you get a squeeze between revenue price and cost um and uh and the customers are now less profitable in the meantime competitors have taken notice you get clones um in a lot of instances sometimes the big incumbent corporations in your space have woken up to

a startup in their midst and and they finally come in and so that puts further pressure on price And it also will drive up costs you know when uber and lyft have to compete for drivers the drivers get more expensive and so and then other bad things can happen if you do have any kind of business some businesses are just pure software and they scale smoothly usually other businesses need humans to do things answer telephones pack boxes in a warehouse and hiring those humans and training them and Having the management systems to coordinate their work

and the middle managers who can supervise them and train them and so forth is this coming out of nothing right an early stage company has none of that so all of that has to be put in place and that can lead to i mean think of robinhood a month ago when when gamestop was booming and they couldn't answer their emails that kind of problem is a speed trap Problem and then the culture can really unwind in these companies right you get conflict between the old guard the people who are present at the creation and know

the founder and love the mission and the new guard for whom it's often just a job or the new guard who are specialists as as the company the jacks of all trades who are present in the beginning um now find themselves reporting to somebody who's an expert on performance marketing Who's an expert on how to run a warehouse who's who's who um who can really sort of worry about the community management and so forth and so there can be a lot of cultural conflict inside these companies and they'll typically keep growing and hope that they

can correct these problems investors may put in another round another round but eventually things catch up with them and people realize that this growth is unprofitable And then um the wind can come out of the sales very quickly the the entrepreneurs find that they can't raise new money the existing investors are skittish about putting money in and um once the um once you get a down round share price um that's below a previous share price um then so yeah game over people desert the company and can really unravel very very quickly that's the that's the

most Common path a couple other late stage patterns but that's the one i think we see over and over and over again there's it doesn't have to be fatal right you can survive this you can refocus on um profitable customers you can put on the brakes in terms of marketing and some companies do survive but for many it's fatal interesting there's a lot more questions i want to ask you but i also know that There's a lot more questions that the audience wants to ask as well so i will just limit myself to one more

before we open up the questions and this actually came from a pre-submitted question from someone which is uh when do you give up and how do you give up yeah when do you throw in the towel if you're um if you're the founder or the ceo of a struggling startup it turns out to be Really difficult um decision and and there's a lot of good reasons for that um i i would say you know i interviewed a lot of failed founders uh for the book and many of them would say um probably a large fraction

would say i waited too long to shut the thing down and you sure to think about the pressures on the founder first there's just a bunch of things you Need to try before you shut the thing down you need to try a pivot and you know there's almost always some other way to run the business and it takes time to see if the pivot's working um and so that's you know you also need to try to raise more money from new investors that usually doesn't work then you try to get what's called a bridge Financing

from your existing something to take you over the bridge and that can be um really contentious because it has to be approved by the entire board and some investors may be willing to put in money others will be worried about throwing good money after bad you know so there's that takes time and sort of a whole bunch of drama um you um Many companies will go through layoffs almost everybody tries to sell the company and this is um where you can get a lot of false positive signals encouraging signals because everybody wants to see what

your company's about every competitor you're going to approach is going to want to take a look at like what are you paying your people sort of how do your operating figures really look and part of the diligence process is is sort of opening all that Up to inspection um so people who look like they are kind of interested eventually turn out to not be interested you can get strung along and it's in the interest of anybody wants to buy you to sort of weaken you to some extent so they get a good price without killing

you and and sort of wasting the asset they might be acquiring there's a bunch of moves to play out but then there's other pressures like the identity of an Entrepreneur is somebody who's persistent and so if you throw in the towel are you really a great entrepreneur um people are depending on you like people in your company are paid by you they may get their medical benefits by you um investors had faith in you gave you their money um and and they're you know you feel that that they are counting on you so Um and

then you know another thing that delays the inevitable is often founders just have no one to talk to about this right when you ask a founder how their company is doing the response is always we're doing great we're doing great um and you you kind of have to be that way right because if you actually told people the truth it'd be hard to raise money it'd be hard to keep and attract employees so so there's some pressure on you to just sort of hang back that's why So valuable for for founders to have the equivalent

of ypo or some trusted group of peers that they can actually talk to that they don't have to worry about the word's going to get back to the finance community and and bias our effort to raise money but if you have no one to talk to you you you sort of are in an echo chamber and you don't really have a good way to get a fix on what's going right and what's going wrong and then the other Thing is it's rarely you know there are a lot of ups and downs and sometimes they're more

downs than ups but every time you get a win sort of gives you the faith to keep going so all of these forces converge and then finally there's just the pain right it hurts it's terribly painful in a lot of parts of the world there's a big stigma associated with with failure And some people would just rather push that out into the future than sort of stare it in the face right now so all of those pressures um converge to to tend to push it out longer than it should you know and and um you

know people wait for a miracle and when they do that they miss the opportunity for what one might call a graceful shutdown you know one where everybody Who's owed money is actually paid the money that's my definition of a graceful shutdown and graceful shutdown's a really good way to as a failed entrepreneur preserve your reputation you know if you can shut down gracefully and if you could show after the fact that you're thoughtful about what went wrong your role in it and what you've learned you know my experience in many parts of the world You'll

be viewed you'll be viewed as a good entrepreneur um and and worth backing again you know it's the folks who sort of burn a lot of bridges in the process of shutting down um you know leave a lot of people holding an empty bag you know when they were expecting to get paid um or um in the worst case founders who boy please everybody on the call don't do this like the worst thing the entrepreneur Can do in the shutdown phase is toss the keys on the table and basically say to the investors look you

know it's pretty clear this isn't working um and uh it's also clear that even if it does you know we're going to bring in a lot more capital and i'm going to be deluded to the point where there's no equity upside for me so um it's your problem now i'm out of here i'm going to go find my next gig And boy if you want to know something that makes vc's investors furious it's sort of inheriting the mess that a founder who who leaves prematurely um creates great um first question is from lisa dare i

hope i'm pronouncing the last name correctly lisa do you want to ask your question sure yeah um i was wondering whether or Not you just had a kind of rule of thumb for how much money to raise in an initial round with a we're we're basically a university spinout in a blue ocean but the industry's starting to grow from somewhere between 50 to 200 percent and um we're trying to balance going fast um and hiring engineers to get to market to get the market share which we We're the only current player in one of our

verticals um but at the same time ensuring space uh success at each point um at least is it a science-based business it isn't it is not it's it's a little experience platform so so set science-based businesses aside because because the capital requirements um and the timeline to sort of figure out if it's working or can be completely different um In those kinds of businesses i would say in most businesses what you want is is you know so the theory of fundraising is you want enough capital to get to the point where you've reached an important

milestone um and that milestone if you've reached it successfully will boost the value of your company and only then would you want to go out and raise the next round Because you want to raise the next round at a higher price having shown success and um it always always takes longer for the entrepreneur to get to the milestone than you think so i would say figure out what that timing is that you think if everything goes right and then add 50 and so i would say you know for a lot of for a lot of

startups um the milestone is going to be To launch the product um or to have launched the product and seen enough customer engagement that you can see that people actually like it and they're repurchasing it or re-upping on a subscription if it's sort of a sas style business and you know for a lot of early stage companies that's going to be 18 months you know if i had to sort of give you a rule of thumb on time um you know it's it's it's real and and Here's the problem with quincy apparel they targeted 18

months they knew they needed a million and a half dollars to do that that would have been for them three seasonal collections of clothing spring fall spring um and they only raised a million so they only had two and they were still working through their um production and operations problems they probably would have got there they managed to raise a Million and a half um i bet they would still be going concerns today sorry about that shamir you had your next question let me know uh if you'd like to uh read it out loud i

can also do it i'll see you on video uh yeah thank you i just started reading the book and it is really amazing i have been reading uh startup uh uh founding books And uh yesterday i received my first check it's a small check for developing a healthcare tech product back in india what would be my next focus like in terms of solving problem right now you know i got confused like solving a problem or talking to customers or creating a milestone so what should be my priorities where are you um are you so low

at this point it's just you Yeah yeah i'm solo that's good um because basically you should stay solo or if you have a co-founder just you and the co-founder for as long as you can before you bring a team on board bringing the team on board is the cause of the false start in a lot of instances so if you've got my book uh go to chapter four and um read the back half of that chapter it's it's all is the stuff i was Talking about um before on double diamond and customer interviews and using

personas you should be doing all of that and and follow the the there are citations sort of footnotes if you will um that will lead you to other sources i mean i give you an overview in the chapter but there's a lot of great stuff published and available actually for free online that will help you with the the basics of customer discovery and prototyping and testing a prototype and So forth please do all of that um it's um it'll it'll um save you some heartache later um save save you from a false start thank you

sir andrea um g um has a question um that i think is a good one um andrea uh do you wanna ask it yeah so there's a lot of advice to entrepreneurs to fail quickly and fail early so and that that would probably be a Different definition of failure than what we're talking about in terms of killing the business so are there types of like small failures that you think can be good lessons and help entrepreneurs pivot or learn very early about the product or the customer yeah andre i mean entrepreneurship anything in life is

going to be full of of small and big failures and the key is basically making sure You learn from them um there is a concept that i think is important one as you talk about startup failure of a good failure um and i mean this is still a failure by the definition i threw out before the investors if there are any lost money but we can feel pretty good about the failure if the entrepreneur Stated some assumptions did a reasonable job of of of learning everything they need to know to figure out whether those assumptions

were correct you know in some cases you just may be making an assumption about the state of the world that is inherently not predictable right a whole bunch of clean tech businesses in the 2010 time frame were predicated on the price of fossil fuels coming down price of fossil fuels excuse me going up um Cleantech would be more interesting if fossil fuels got more and more expensive which we expect them to do because they're scarce but fracking came along and and gasoline natural gas and and oil and so forth oil related products got cheaper so

you make an assumption you sort of read everything you can about what smart people think is going to happen to the state of the world and whenever you can You you actually test demand for your solution and you test it with um in lean startup fashion with a minimum viable product sometimes that can be um before the product even exists right a landing page test where you describe the thing that's coming it looks like the real thing and you see if people respond if they leave their email being you don't leave your email with strangers

on the internet so i would say All of those um are good failures and and an entrepreneur who does that you know even if you spend a year at it but you feel you've sort of tested your assumptions thoroughly and and you haven't wasted time you haven't wasted money that's going to happen a lot with entrepreneurship i mean by definition you are doing something new and that by its nature is risky so you're going to fail um A lot and some will be little failures that you can rebound and learn from some will be big

ones that are truly fatal thanks so much andrea uh canal the answer to your question is yes yes that is true uh macd uh you're up next uh if you'd like to ask your question or directly or i could i could do so all right thanks yeah sure thanks i really appreciate it i just had a question of is being a solo Founder a cause for failure um of course a team is important but i wanted to see whether it's a causal failure thank you um you'll find a lot of of observers in silicon valley

who think that you should have co-founders and and there's a good reason for that logic it's basically entrepreneurship is so hard and there's so much to do Um that you can sort of assuming you've got complementary skills your skills don't completely overlap you can divide you know you'll work on engineering and operations i'll work on marketing and finance and we'll we'll get there faster and and emotionally when you're down i'll pick you up and vice versa so so there's some good Reasons to have a co-founder there's also the potential for conflict and it happens in

a lot of startups right the founders can't agree on the way forward they can't agree on like the quincy founders who's the boss um and uh that can get very um that can get very nasty and really debilitating so those balance each other you know for the book one of the things i did was i Surveyed um 470 early stage founders and these are founders both of successful and less successful sometimes failed companies and asked them a bunch dozens of questions about who they were what their startup was about how they managed the thing et

cetera et cetera and one of the questions i i asked and then and then i use those questions to try to see is there anything that predicts who will Succeed and who will who's more likely to fail and one of the attributes i looked at was solo founder and um it isn't a strong predictor if anything it looked from my data like solo founder actually gave you a small edge you know improved your survival and success odds so um you know and there's some other academic research i would say it's not It hasn't been thoroughly

studied but the other research i know of was actually done in the context of crowdfunding campaigns so if you think of indiegogo and so forth you know whether whether a sole campaign sponsor is going to be different than more successful than a pair or a triplet so don't i wouldn't worry too much about it i mean i would only bring on board a Founder unless you really really really understand what that person is going to bring to the table and you feel you need that help and that you can work with that person for the

next 10 years because that's what it might take if the business is successful thanks so much rob you've got a good one do you want to ask it directly or should i Sure i can i can read it um so by testing the product i i learned uh thank you for first i want to thank you mr eisenmann for uh dedicating your time today it's really been instructive um uh to avoid a false start uh by testing the product before an mvp is is created uh does doesn't that um potentially risk damaging the product's uh

reputation before it's perfect for the market um that's Been something that's been holding us back we're at the final stages of a pivot we've already pivoted once and uh we're ready to launch we have this philosophical sort of barrier where we don't want to test the product rob b2b yeah b2b search engine yeah yeah so um i think the answer to this question depends a lot on whether the venture is business to business or Business to consumer when you're dealing with thousands and even millions of potential customers you can afford to take some risk with

a few hundred of them to sort of get feedback on your product and by the way um you know people people after they're exposed to sort of the shoestring and bubble gum version of your product if they're you if they're told you're that they were part of a Test and you value their feedback and help and so forth that they will often be very forgiving um it's a world of difference in b2b especially and there are some b2b sectors like if you look at healthcare or some some areas of financial services where you can count

on your hand on one hand the number of important customers and there you really can't afford to put to put out A a wobbly version of the product unless it's unless that wobble is done with the full support and knowledge of a pilot partner so so typically in b2b you'll you'll go and try to find the early adopter who can envision why your thing which is still built from shoestring and bubblegum might actually give them a competitive edge And will work with you through the bumps and so forth and and um and so you're still

essentially testing an mvp but you're doing it in partnership um in pilot mode with with with an understanding of somebody who knows that look they're gonna be um they're they're going to have to um put up with some rough edges um but yeah there's just to put um In a b2b context where there's a limited number of customers especially if the customers are networked with each other and word will spread fast to um to put out a sloppy version by the way just because it's a minimum viable product doesn't mean it's rough around the edges

minimum means whatever the whatever the least amount of effort is to give you um a reliable customer feedback so if The customer demands uh quality precision um then that's what the mvp has got to be so so yeah it's important we tend to think minimum means sloppy um or quick or dirty but it doesn't always okay thank you thank you so much thanks so much rob uh emily you've got a good question would you like me to read her are you ready to read it out yourself cool uh i i'll take that to me not

that I'll read it out for her um what advice would you give to someone designing the early experiment and doing customer discovery in a potentially highly fragmented industry for example a hardware company that's embedding a piece of tech into iot devices thousands of skew models instead of smartphone uh dozens of ski models thanks sorry i just got off you appreciate it um Wow um um yeah that that's um such a tricky case i i want to be careful about not giving bad advice there um emily can you come on to the call are you still

there yeah sure i'm here so iot It's their physical iot devices and you need to put a component into them or you need to put software into them uh yeah hardware component so imagine you know either power management function or something in communication where you'd have to customize it in a smartphone case for maybe a dozen products but there's some degree of customization the question is scalability and margin yep yeah so i mean i mean This this is sort of um not in my wheelhouse so so i'll i'll um i'll speculate that one of the

tricky things you'd have to figure out is whether they're probably it's fragmented i'm sure but i'm sure there's some bigger opinion leaders there then um some reference customers would be more valuable than others and um some would probably be more willing to try your thing and take the kinds of risks i was talking about To rob a minute ago um and uh and that's going to be the trade-off right it may take longer for you to sign up one of the reference customers who's slower but once you get them um the the fact that you

can reference them um they may be the de facto standard setter um for the category um versus just sort of getting some early wins and and learning As you go and sort of using those as stepping stones to the to the bigger customers but but yeah it's a hard one thanks i appreciate it one thing we've sort of explored and i wonder what you think about it is as opposed to focusing on the end customer in the way you've just described focusing on a channel partner a lot of these things are sold through a single

supplier channel partner like an oem component supplier to a bunch of End customers that's something we can work with um i i can see that and then uh what i'd be careful of there if you're still in product development mode is making sure that you have access to the end customer to get feedback from them on what's working even a well-intentioned channel partner can sometimes get in the way of of of letting that feedback get back to you and you really need it Thank you so much uh fear us i hope i'm saying your name

correctly uh you've got a good question about accelerators incubators um would you would you like to ask yourself yeah sure thank you uh just from my own experience because i've done a little bit of the venture program at the harvard innovation lab then most recently with an sig there was a harvard climate circuit uh that was uh Opening applications for ventures so i participated and i've noticed that like they didn't even ask me for the prototype and it's basically an app a software with a prototype and i've been optimizing that but i'm noticing that there

is a loss of a track for incubators accelerators uh for in the investment part like they're always putting the pressure on the founder and they're not um Giving you enough connections or connecting you with investors so i'm wondering if traditional uh ways of financing are better like green loans or something of that nature and uh want to see uh what you think about that thank you yeah um for us without asking you to name the accelerator i would say any accelerator that's not providing good Mentorship and not providing introduction to investors is not a good

accelerator so you probably shouldn't you should not be um you shouldn't be working with them i i'd say you know i get this question a lot from from our mbas trying to figure out what they would get out of an accelerator and and by the way i have tremendous respect for y combinator and tech stars And some of the some of the best accelerators i think they have fantastic programs and it's tricky right so those programs for a founder who doesn't have a lot of business training um they can be a pretty quick immersion in

business basics and and every founder at some stage is going to have to learn a lot about business right whether whether you learn it by going to a business school Or you learn it from mentors you've got to know some marketing you've got to know some finance you've got to know um accounting and and and accelerators have some ways to fill those gaps but an mba doesn't need that right they've got the they've got the business training the other things you get are excellent usually excellent mentorship and sometimes too much of it and tech Stars

very deliberately fire hoses founders within the first few weeks um you know it's it's not uncommon to meet 20 mentors in a week um and you get 20 different opinions on what's working with your product and which direction you should head in it's actually good for the founder to have to sort through that cacophony of of advice it's called mental whiplash is the way you end up feeling at the end of this Um but then tech stars will figure out um with whom you've connected most strongly in both directions the mentor and and the entrepreneur

and that person will then stay with you um through the program and beyond that's a fantastic setup and then in the background our domain experts are people who can help you with performance marketing can help you with intellectual property management so on and so forth So you get terrific mentorship the other thing they do i mean we don't do this at business school unfortunately is teach entrepreneurs how to pitch and like it or not um storytelling is super important for an entrepreneur right how you get your idea across how compelling you are because you're gonna

cut you're constantly selling you're selling to investors you're selling to employees you're selling to potential Partners and the best accelerators do they spend essentially the last one third of the program just coaching you over and over and over again how to give this six or eight minute pitch and then they'll fill up a room with four or five hundred potential angels and and and vcs uh who are exposed to your thing so you know for all that you you um um if it's y combinator i don't it's like a hundred thousand dollars you get these

days or 150 or something like that And you give away eight percent of your equity you know so my students want to know is that a good trade and uh i tend to tell them yeah um you know you already know the business stuff they would teach you but you're going to get great mentorship and you're going to get great exposure to investors and you're going to learn how to pitch in ways we haven't taught you okay well thank you i do have the pitch And i it was a project followed from my program but

it's just i think there's something lacking in connection with investors i'm finding that in it yeah for us you need to find coaches who can help you with them if that means there's something wrong with the pitch and and um um good good mentors can can isolate that and and help you help you fix that Thank you thank you thanks so much for us we're we're running up pretty close to time and we've still got about half a dozen questions left we'll actually just finish up with one and i know zach's probably somewhere in the

chat is going to take over closer to about two o'clock um a person asking personally tom is there any way that they can contact you um directly to say thanks for the dialogue generally how can someone get In touch with thomas yeah um if you just take my last name uh and then put the initial t in front of it at hbs.edu that's my email cool i added it to the chat i also added the voicethread sale to the chat so that everyone can get access to it zach i hope you're coming on um because

i know you want to transition folks to the networking hour afterwards um tom if you've got any closing words at all now is definitely the time to say them Yeah um i'll i'll leave you if you have a chance to look at the book you'll see it ends with a letter to a first-time founder um if you um aren't inclined to buy the book you can find if you just search for um my last name and a a um site called startupnation has republished the letter um it's it's advice that i would give you and

it basically um says That um entrepreneurs get all sorts of advice and you have to be careful with the advice there's a lot of conventional wisdom about what makes a great entrepreneur and and that wisdom is by and large sound um but you have to be careful about following this divi advice blindly um you know grow every entrepreneur Y combinator paul graham who built it says you know entrepreneurship is all about growth focus be frugal of course you have to be frugal because you've got limited resources but some of these if you follow blindly some

of this advice can actually get you into trouble right if you're too eager to grow you can fall victim to a false start if you're too Frugal you may not hire the specialist skills you need to actually sort of compensate for your lack of domain expertise so my advice to an entrepreneur is to you know just stop and think too too often we we think of entrepreneurs who should and do trust their gut instinct and you know and again that's an asset sort of being fast scrambling is a real advantage especially in competition with big

slower companies But if you move too fast your gut basically is not always a reliable guide when there's a lot of pressure on you so on the important decisions think about it um think twice sleep on it sleep for two nights you know ask people who know you and know your company and try and you trust um and and just my advice would be slow down a little bit and and and uh and think think it through over to you zach thank you so much tom Thanks so much thanks thanks everybody for joining