What Harvard Business School is Teaching This Tech Entrepreneur
October 8, 2012 · Print This Article
Reflections on the Last Three Weeks at HBS:
Over the weekend, I took some time to reflect on my last three weeks at HBS and the key lessons I’ve learned. This post is a follow-up to “What I Learned: Week 3 at HBS.”
As an entrepreneur, I continue to be really glad I’m at HBS. From classmates and through the HBS case methodology and out-of-class simulations I’m learning a lot that I’ll be able to take with me into to the next company–particularly about leadership and organizational behavior.
Here’s more color on what I’ve been up to the last three weeks and what HBS is teaching this tech entrepreneur so far…
A Journey Back in Time to iContact in Q4 2010
This time, I’ll begin with a story.
It was October 2010 in Raleigh, North Carolina. I had been the CEO of iContact since 2003. I had recently turned 26. I was definitely learning as I went along. The firm at the time had around 250 employees and 60,000 customers. We had just closed on a $40 million round of financing that August from PE firm JMI Equity. We faced, perhaps, our greatest strategic choice yet and the stakes were higher than ever before.
To continue our growth–should we:
- Launch a free version of our product to reach a lot more users (and eventually more paying customers) as a competitor had shown to be possible;
- Develop a social media marketing product to enable us to serve our core small business customers more fully;
- Move upmarket into serving larger customers;
- Some combination of all three.
All the information needed to make the right call was at my fingertips. But what was the right strategic choice?
I spent weeks agonizing over the decision and looking at the internal, customer, and market data from every angle to make up my mind. Then, I kicked off a month long process to bring my executive team in on the planning process. Then, we went through a five month operational process to implement the decision.
Wait a second–did you catch that? I spent a month making up my mind and then I brought my executive team into the process? What was I thinking?
Strategic Mistakes I Wouldn’t Have Made Had I Attended HBS Before iContact
I made (at least) three critical mistakes in the above strategic planning process.
- I brought in my executive team after I had spent a month making up my mind on the decision. I didn’t bring them in on the process early enough and I didn’t properly incorporate the information they had into the process. By the time I brought them in–the bias-toward-action get things done entrepreneur in my blood was ready to act and implement. But from their vantage we hadn’t even discussed the key strategic decision yet.
- I didn’t create a process under which needed information could be freely brought to the table.
- I still thought my job as CEO was to fix the problem rather than develop my team to fix the problem.
One of the key “HBS takeaways” from the last few weeks for me has been that to continue to grow beyond initial success, an entrepreneurial founder CEO must change their very nature and slow down to:
- Create effective processes for disciplined information sharing.
- Give up as many operational roles in the company as possible.
- Bring the senior team in early on during strategy formation.
The Key Difference Between a Start-up CEO and a Later Stage CEO
As I’ve reflected this weekend on the last three weeks of classes, I’ve crystallized some thoughts I’ve been having recently regarding the key difference between the CEO of a start-up and the CEO of a larger company.
As CEO of a large profitable company, if you do nothing, a lot continues to happen just fine–for quite some time anyway. Larger profitable companies have an infinite number of months of operating funds on hand (as long as they stay profitable).
As CEO of a start-up, if you do nothing initially, you never go anywhere. And once you’re burning through cash, if you do nothing, you go out of business. In general, start-ups are burning through cash every month and struggling to survive.
Start-ups may only have 2-9 months of cash on hand (sometimes less!). Start-ups often have a short timeframe until they will be either forced to generate more revenue than expenses, raise another dilutive round of capital, or go out of business. And so, if you’re leading a start-up, generally you have to act. Not next week. Not tomorrow. Right now.
The big mountain in front of you will only be moved through the will of a determined, focused, and fast moving leader. You think as you go. You develop a great deal of self-reliance. You intimately understand the customer problem you’re solving because you live it daily. You have a clear vision. And you just make it happen through sheer determination and persistence.
The Chief Everything Officer vs. the Chief Empowerment Officer
In the first year of a start-up, the title “CEO” stands for Chief Everything Officer. You’re often the chief janitor, chief recruiter, chief marketer, chief spreadsheet maker, chief evangelist, and sometimes even the chief engineer. If there’s a problem–solve it. If there’s an issue–fix it. The mantra is: Do. It. Now.
The very reason why so few start-up founders can successfully scale as a leader beyond 50 employees is simply this–start-up founders too often don’t get the training or mentoring they need to go from the perspective of “I’ll fix it” to “I’ll develop my team to fix it.”
After your firm reaches 100 employees, “CEO” stops standing for Chief Everything Officer.
After 100 employees, “CEO” begins to stand for Chief Empowerment Officer. Your job is not to do everything. Your job is not to solve most problems yourself. Your job is to develop your team and empower your team to solve problems.
While fixing the problem yourself and micromanaging the solution is often quicker in the short term, micromanaging actually makes the company slower to solve problems in the mid-term and long-term.
Why? Because micromanaging inserts a bottleneck (you) in the process and fails to develop critical team problem solving skills. This reality seems obvious. But, too often the start-up entrepreneur who actually makes it to 100 employees feels like they’ve succeeded against all odds and so they should just continue doing what got them there.
What is the Job of the Later Stage Venture-Backed CEO?
So, what is the job of the later stage CEO (post-100 employees)? Here’s my take:
- Recruiting and leading the senior team and holding them accountable to pre-defined quantitative goals.
- Guiding the team in developing a cohesive and focused business and product strategy with clear market positioning.
- Intimately understanding the needs of customers and market trends.
- Raising capital and managing resource allocation.
- Guiding and building the culture of the organization.
- Managing investor, board, and analyst relationships.
None of these six job requirements say, “fix operational problems yourself” or “set strategy yourself.” Yet too often–this is what Founder CEOs continue to do way too long into their tenure.
Start-up Genes and Cruise Ship Captains
So why is it that the successful “start-up CEO gene” negatively correlates with the successful “large company CEO gene?” Why must this lesson on micromanagement and process be learned eventually by nearly every start-up CEO as they mature?
This phenomenon occurs, I believe, because the key trait that leads to success as a start-up CEO (which is a relentless bias toward action and focus on rapid implementation and incremental improvement) is often the exact trait that causes that same person to become impatient with the processes necessary to prudently make the right decisions and run the company when it grows larger–at least without the right mentorship and training.
Sometimes the swiftest speed boat racers (entrepreneurs) end up sinking the cruise ship (the large company) by trying to turn it too fast and too frequently. Larger ships require coordinated plans and defined processes to properly turn their direction. Speed boat racers rarely enjoy “process” and “planning” and often have this “success bias” that makes them think what’s worked so far will continue to work.
However, if the entrepreneur is going to build something that long outlives them and makes the impact on the world they hope for, it’s either time to learn to manage a large organization or bring in someone who can.
As HBS Professor Noam Wasserman has noted in his research on Founder-CEO succession, “While the Founder-CEO’s skills were a good ‘ﬁt’ for the contingencies faced by the company before, enabling the company to reach its critical milestones, those skills are usually much less important now that the company faces radically different contingencies (Organization Science, March-April 2003).”
While an outside professional CEO often doesn’t have the same passion for the business as the original founder(s), disaster can occur if the unprepared entrepreneurial CEO keeps the helm too long without the right guidance and mentoring.
I Learned The Micromanagement Lesson – Yet I Clung On to Strategy
As CEO at iContact for nine years, over time I “half learned” this lesson regarding not being a micromanager.
We had built a wonderful and experienced seven person Senior Leadership Team including an CFO, CTO, CMO, Chief Architect, SVP Sales, SVP Support, and VP HR. In every case, I was fortunate to have hired people much more experienced than myself. I let Tim run finance, Ralph run tech, Kevin run sales, etc.
I had learned the key lesson around 2005 that my job as CEO was to hire people more experienced than me and hold them accountable to clearly pre-defined results, not to process. Thus I could step back and the company grew–from $3M in sales in 2006 to $48M in sales in 2011.
While I gave up the individual departmental operational responsibilities (and benefited greatly from having done so), what I never truly gave up at iContact was strategy. This ultimately, was one of the practices that prevented us from succeeding further and reaching a greater potential.
We would have these quarterly and annual strategy retreat sessions–but too often they turned into me guiding the team toward what I thought the right path was instead of the other way around.
Strategy is Really About Choice and Focus
By the end of 2011 at iContact I finally came to understand the value of process and integrated thinking in the setting of corporate strategy. I brought a bit of a more structured process into how we thought through 2012 strategy, asking each team member to prepare position papers on what they would do if they were CEO.
By then, however, the market had become more competitive, the path we had embarked on for 2011 hadn’t worked as well as we hoped, and we had fewer good options to choose from. Ultimately, we chose to sell the company to Vocus in February 2012 to gain liquidity and access greater distribution channels.
So which of the four choices did we choose in 2011 at iContact?
Strangely, #4. We did all three of the above listed options! We launched a free version, launched a social media product, and positioned upmarket.
If had taken HBS Professor Michael Porter’s strategy class back then I would have known that strategy is about choice. A “do everything in one year” strategy rarely works. While things turned out okay–in hindsight I believe if we would have focused on executing one of those key moves in 2011 extremely well instead of attempting all three we may have been better off.
How HBS Has Taught the Key “Micromanagement Lesson” Three Times In The Last Three Weeks
It really wasn’t until the past three weeks as HBS has consciously taught this “micromanagement lesson” three times that these learnings above have truly cemented in my brain. I have to say, learning through experiential cases and team simulations at HBS is a lot less costly than learning on the job!
Over the past three weeks, HBS has attempted to teach us this oh so important lesson of how to bring the best out of a team at least three times…
1. During the Everest Simulation – We were put on a team of five and given the task of reaching the top of Mt. Everest in a computer simulation. We were given the roles of leader, marathoner, doctor, photographer, and environmentalist. I was the environmentalist. While I’ll leave out the details in order to not spoil any surprise for future classes, suffice it to say the simulation was very effective at teaching the importance of the leader creating a process to share information.
2. During the Shad Simulation on Building Circuit Boards -
HBS split the entire first year class into around 75 teams of 12 students. Each team had a leader designated and was in charge of creating an assembly line process to build three different types of circuit boards – economy, deluxe, and imperial. We learned not only how to organize our labor for maximum efficiency of output in a timed contest, but more importantly how to create a process to share information effectively within a team of twelve very smart people.
Here is an example of one of the boards we built. We built 28 of them in 20 minutes with a production team of 7.
Here’s my team (Team 47!)
3. During the Wolfgang Keller Konigsbrau Case in LEAD class -
This case chronicles the path of Wolfgang Keller, General Manager of a Ukrainian Premium Beer Brewery, as he figures out what to do with his head of sales and marketing, Dmitri Brodsky. While I won’t describe the case in much more detail, suffice it to say that Wolfgang was the classic micromanager and hadn’t yet learned the lesson to hold his team members responsible for results rather than process.
It was the class discussion however with our LEAD Professor Lakshmi Ramarajan that left me with the best takeaway of my time so far at HBS. She told us, paraphrasing, “There are two types of leaders. Those who solve the problem and those who develop people who solve the problem.”
I was so glad to hear HBS reinforce these two key business lessons time and again:
- Build and develop a team to scale yourself.
- Teams which have a good process of information sharing (combined with smart people in the room) generally get much better results than those in which the leader does not create such a process and whose team members keep key information in silos.
What I’d Do Differently Now
Summarizing my key leadership lessons at HBS so far, here’s a comparison of what I thought prior to coming here and what would I have done instead had I already been through the first six weeks of HBS…
What I Thought Pre-HBS
What I Probably Should Have Done — Incorporating HBS Lessons
I thought my job was to analyze the internal, customer, and market data and come up with a viewpoint relating to company strategy, then to lead my team to seeing it the way I did and have them build the operating plan to implement the strategy. I would often spend weeks analyzing data and only once I had come to a pretty firm perspective, hold a quarterly strategy retreat. Unfortunately the retreat was generally held after I had already made up my mind and thus I missed incorporating critical pieces of information that may have helped us make better decisions.
Instead of brining the full executive team together for 1-2 days per quarter, I should have brought together a small committee of the key members of the senior team to discuss strategy at least monthly in shorter meetings as part of the input and analysis phase. Instead of analyzing quickly at the last minute and then rushing to implement an all-of-the above strategy, I should have forced us to clearly choose and communicate our target audience and differentiation factor and built up a year long program focused just on moving toward that well-defined and well thought-through market position. My bias toward action got the best of me.
I didn’t create a process under which needed information could be freely brought to the table.
I should have created a process under which needed information related to strategic decisions could be freely brought to the table and one through the painful work to create an agreed upon accounting costing system to better calculate the profitability of our two major customer segments (like in the case of Kanthal the Swedish manufacturer).
Developing Your Team
I still thought my job as CEO was to fix the strategic problem rather than develop my team to fix the strategic problem.
While I did give up almost all operational control to the six departmental heads, I still retained strategic control. I spent too much time cerebrally “in my own head” reviewing data and figures and not enough time pushing the team (who had a lot more experience than I did) on what they would do strategically.
Why Does Learning How to Lead Larger Organizations Matter to a Tech Entrepreneur?
What HBS is effectively teaching me are the key leadership lessons and analytical frameworks necessary to be the CEO of a 10,000 person company. There are so many differences between leading a 100 person company and a 10,000 person company.
HBS seems to be pretty good at preparing leaders to run large organizations. As of May 2012, 40 of the Fortune 500 CEOs were HBS graduates, three times the next school, Wharton, with 13.
But tech entrepreneurs rarely build organizations that get beyond 1000 employees, right? Look at Instagram, who sold to Facebook for around $750M (after pre-close stock price fluctuations) with only 13 employees. One can probably list out most of the tech companies that grew beyond 1000 employees in the last 10 years (Google, Yahoo, Facebook, LinkedIn, Twitter, Salesforce, Tesla).
So why does learning the experiential lessons behind leading a larger organization matter to me as a tech entrepreneur? Three main reasons.
- Next time I build a company I want to be able to scale with the firm as a leader fully as it grows–hopefully well beyond 300 employees.
- Someday I hope to be a great investor–investing in companies that are building renewable technologies, synthetic biology technologies, and information technologies that are making a huge positive impact in the world. To be a great investor a number of your firms will ultimately need to scale well beyond a few hundred employees–and I want to have the background to be able to guide them every step of the way from start-up to well beyond their IPO.
- Third, someday I’d love to work in public service and hopefully be able to make a positive difference leading parts of government with lots of team members.
How HBS Evolves The Thinking Process
Through the case method and the new analytical frameworks provided, HBS changes the process behind how you think through problems and their solutions. HBS rewires the neurological structure of your thought. At times I can “feel” two concepts being connected in a new way inside my brain during class.
HBS has no doubt helped me already in becoming more analytical and giving me better frameworks to think through tough decisions. Ultimately as a CEO of a big company–while you may be making minor decisions daily you’re really in charge of making just 1-2 big decisions each year. Getting these two annual big decisions right (and then creating the right plan to execute on them fully) is what HBS is helping me prepare for.
While having a bias toward taking action remains one of the most important traits for the start-up entrepreneur–once you have the company operating sustainably and have an executive team in place (say beyond the first 3 years and ~100 employees) the priorities must shift toward analyzing problems fully and with defined processes.
At the later stage it is critically important to take the time to really analyze the internal, customer, and market data with your team, listen to what they are seeing in their departments and in the market, and taking the time to implement one key focus that brings together the strategic, operational, and financial plans. HBS is really good at teaching these type of analytical and team thinking processes.
Will I forget my proclivity toward having a relentless focus and intense bias toward action in the early stages of new start-ups in the future? Absolutely not. But now, if I can get a company beyond a couple hundred employees again, I’ll have much better tools and frameworks to build upon for long-term growth.
But Can HBS Teach Consultants and Bankers to Be Entrepreneurs?
All this exposition regarding how HBS is teaching an entrepreneur to be more analytical begs the question–if HBS is so good at teaching entrepreneurs to become more seasoned CEOs, can they teach management consultants and bankers to be good early-stage entrepreneurs?
Running with the from earlier metaphor, if HBS can teach speed boat racers to slow down and become deft cruise ship captains, can they teach cruise ship captains to speed up and become adept speed boat racers?
Well, in store for first-years like me in the Spring is a required class called “The Entrepreneurial Manager” as well as a requirement to start a small business in a module called FIELD 3. I am looking forward to seeing how HBS chooses to teach the key principles of entrepreneurship to those from larger firm backgrounds.
What is the key lesson that I hope HBS gets across to MBA students wanting to found their own businesses?
In my experience, the key lesson for the aspiring entrepreneur to learn is to not get stuck in analysis paralysis and to take action every single day toward building something that customers desire while rapidly experimenting and incrementally improving as you get feedback. I’ve found that action, constant refinement, persistence, and a deep-rooted passion for creating a change in the world that doesn’t yet exist are the keys to the early stage of entrepreneurship.
Is a Shorter Program Available?
So what can you do if you’re an entrepreneur who wants to learn how to scale yourself as a leader but don’t have two years to invest in an MBA? You may wish to check out the HBS Owner/President Management Program (OMP), General Management Program (GMP), or Advanced Management Program (AMP).
You get the same professors and get to develop a lot of the same intuition and analytical frameworks in a shorter timeframe (though you’ll miss a lot of the lifelong relationships built on campus).
Key Learnings For Me Over The Last 3 Weeks
Here were my major take-a-ways over the last three weeks:
- Leadership – A key part of the leader’s role is to define a process to get information out onto the table.
- Leadership - The leader shapes how the team works by managing its work process and thought process to come to better decisions.
- Leadership – The transparency of information and individual incentive structures is key.
- Marketing – How to use the Six M’s framework to establish clear objectives in advance of a messaging campaign.
- Finance – How to calculate the present value of a set of cashflows via the formula Present Value = Cashflows / (1+Discount Rate)^Time Periods) and choose an appropriate discount rate. Calculating net present value is helpful when comparing the values of various projects in today’s money based on the key concept that money today is worth more than money tomorrow.
- Finance - How to convert GAAP net income into free cash flow via the formula Free Cash Flow = EBIAT – CAPEX + Depreciation – Change in Net Working Capital. This process is helpful in converting GAAP net incomes into the actual amount of cash that is available per period (month, quarter, year) to those considering purchasing a stake in the business.
- Technology & Operations Management - How to optimize the output of a complex production process.
Here are the cases we’ve read the last three weeks with a one-liner on each as well as the non-case classes. I write just a sentence on each so as to not reveal any significant analysis. If you’d like to read some of the cases yourself check out HBR Publishing.
- Healthymagination at GE Healthcare – Which new products in the R&D pipeline should the GE Healthcare CEO choose to commercialize based on GE’s desire to increase access, increase quality, or decrease cost by at least 15%?
- Electric Vehicles - Plugging in the Consumer Class - How can makers of hybrid electric vehicles (HEVS), plug-in electric vehicles (PEVs), and electric-vehicles (EVs) best position and advertise their products?
- Population Services International - Will Balbir Pasha Help Fight AIDS? – How can a non-profit working with sex workers in India launch an effective ad campaign to make a major impact in the use of condoms?
- Pepsi: Lipton-Brisk – How can Pepsi utilize a Superbowl ad for Brisk to re-position Brisk for male millennials?
- Sephora Direct: Investing in Social Media, Video, and Mobile – How should the head of Sephora’s marketing allocate her budget across in-store kiosks, social media, produced video, user generated video, an IOS app, and an iPad app?
- Nike Football: World Cup 2010 – How can Nike beat Adidas using social media leading up to the 2010 World Cup?
Technology & Operations Management (TOM)
- Process Simulator – An exercise using a factory simulation program to develop intuition around what occurs when you introduce variability of machine output into a production process.
- Toyota Motor Manufacturing – How does a Toyota plant in Kentucky handle an issue with seat quality within their assembly line process?
- Building Circuit Board Chips Simulation – In teams of 12 we built an assembly line process to manufacture electrical circuit boards and then competed against other teams to produce the most chips with the least inventory left over and maximize cashflow from “operations.”
Leadership & Organizational Behavior (LEAD)
- Everest Leadership Simulation – Create a process for effective information sharing and lead your team successfully to the top of Mt. Everest without being rescued.
- Rob Parson at Morgan Stanley – How can a rebellious yet high-performing employee be groomed after tiring of a manager who doesn’t give him the immediate feedback he needs to improve?
- Karen Leary at Merrill Lynch – How can a branch leader create optimal performance conditions for a Taiwanese wealth manager who does things a bit differently than usual?
- Heidi Rozen at Softbank Venture Capital – The story of a highly effective networker in Silicon Valley.
- Wolfgang Keller at Konigsbrau Beer Brewery – The story of a micromanager who tries to solves problems himself rather than building his team to solve problems.
Financial Reporting & Control (FRC)
- Boston Chicken – Discusses the mid-1990s accounting practices of Boston Chicken (now Boston Market), particularly those related to accounting for the risk of default on self-provided loans to unprofitable franchises.
- Kanthal – Swedish manufacturer of electrical resistance tools for heating. Discusses how to create a corporate information system for calculating profitability on a per customer, per product, and per order basis and how to get move customers from being unprofitable to profitable.
- Subprime Crisis and Fair Value Accounting – What happened in the 2008 financial crisis, specifically related to the fair value accounting of Collateralized Debt Obligations (CDOs) and Mortgage Backed Securities (MBSs)
- CEMEX – Patrimonio Hoy Microfinance Scheme – Comparing the net present value to CEMEX and their customer of a way of financing cement purchasing to alternative options
- Ocean Carriers (Discounted Cash Flow) – Calculating discounted cash flow (DCF) of investing in building a ship that the firm would lease.
- Ecosecurities – International Carbon Finance – Understanding carbon trading markets and calculating net present value on a Chinese ventilation air methane project.
- State of South Carolina (Capital Markets) – Learning about capital markets and how to calculate mean return, standard deviation, covariance, and correlation.
Field Immersion Experiences for Leadership Development (FIELD)
- Negotiations Day – A team exercise in which we negotiated the terms of the sale of our firm with another team representing the other party. This was an absolutely wonderful exercise and brought back lots of memories of January 2012 for me doing this at iContact. I led the sale negotiations for our team and ultimately failed due to coming across as too aggressive, which caused the other team to run the clock down and give us an ultimatum offer we couldn’t accept. I learned to be firm and clear but to also be cordial .
- Global Immersion Dinner – Ghana – We had dinner together with our group of ~55 who will be going to Ghana in January for 8 days for a company consulting project. As part of FIELD 2, HBS is sending all 919 first-year students to one of ten global countries in small consulting teams.
Outside of Class
The last three weeks have also included a number of out-of-class activities.
- Nexus Summit on Global Youth Philanthropy – Two weekends ago I gave a talk at the Nexus Summit on Global Youth Philanthropy on “The Big Picture – How Our Generation Will Create a Better World.”
- UN Foundation/Mashable Social Good Summit – Attended day two of the conference during the same weekend in New York. Spent time with friends Elizabeth Gore, Aaron Sherinian, and Diana Walker from the UN Foundation, Sergio Fernandez de Cordova and Angela Mwanza from the UN Foundation Global Entrepreneur Council, Brian Forde from the White House, and Kathryn Minshew of The Daily Muse.
- Ray Dalio Presentation – The head of the hedge fund Bridgewater gave a talk on his macroeconomic theories, investment philosophy, and the right amount of quantitative easing and money supply.
- Harvard Start-up Scramble – Stephen Douglass from Babson asked me to judge at the Harvard Start-up Scramble. 14 teams presented after working for 40 hours over the weekend to refine their ideas and pitches.
- Section F Retreat - Last weekend we ventured to West Dover, Vermont to bond as a section of 90 and get to know each other. Led by sectionmate Mike Liu, a team of four of us recreated “Gangham Style” for the section talent show with the help of a chicken, a gorilla, a shark, and a handful of horse stick carriers.
- Renewables Dinner – I hosted 18 HBS first years who have been working in clean tech for dinner along with an MIT graduate engineering student Tiitian Palazzi and the COO of SolidEnergy Systems Jim McQuade (HBS ‘11). I’m becoming more and more interested in nanotech, solar, synthentic biofuels, and battery storage start-ups and the general question of “How do we innovate our way toward a carbon neutral world within 30 years?”
- Start-up Work in the Harvard iLab – 3x per week Skypes with the team in San Francisco working on the new start-up. I am working on the new company from the Harvard iLab on the HBS campus each Monday, Wednesday, and Friday afternoon and am loving the environment. At Harvard you used to get kicked out for using university resources to start a business. At the iLab, you get kicked out if you’re working on school work. I love it!
As you may be able to tell by now, I love keeping busy.
That’s all for now. I hope you’re enjoying the reflections and writing.
Feel free to leave comments below.
All the best,