Category Archives: Entrepreneurship

Winner of the Heizer Award

This summer has been very productive for me, involving a lot of  research and travel work. Particularly, I have been pleasantly surprised to win the Heizer award from the Entrepreneurship division of the Academy of Management. It is a great honor and promise for the future (not to say responsibility) as this award makes one part of a select researchers’ club, joining other prominent scholars such as William Gartner, Patricia McDougall, Harry Sapienza, Ron Mitchell, Gary Dushnitsky, Denis Gregoire, or Nathan Furr, who, among several others, won the award for the dissertation in their time. I have also learnt a lot more about the Academy this year, due to the doctoral consortium for the junior faculty, kindly (and well) organized by Kim Eddleston and Franz Kellermanns, and especially while reading the book edited by Ron Mitchell about “Research Excellence”.

Below is the picture immortalizing myself with Skip Heizer and his wife Lynn, receiving the award at the AOM conference in Philadelphia.

Heizer-2

I also learnt more about the history of venture capital as Ned Heizer (1929-2009) was actually one of the founders of the industry in Chicago, funding several startups in the 1960ies and 1970ies, including Federal Express and Intel, while unfortunately saying “no” to Steve Jobs’ fledgling Apple. Interestingly, Ned Heizer’s background was very diverse. He majored in chemical engineering as an undergraduate, then got a law degree from Yale, worked for Arthur Andersen to become a certified public accountant, then for Kidder Peabody & co in investment banking, and then at Booz Allen and Hamilton to finish off with management consulting. This experience apparently equipped him very well for his ambitions as a venture capitalist thereafter. The importance of broad experience in Ned Heizer’s case relates very nicely to the findings of my dissertation, where I explain how the diversity of founders’ experience, in combination with power to execute, enables them to innovate business models. Based on a single observation in this case, for Ned Heizer diversity of experience also helped to succeed in venture capital.

Although the prescription might be clear – get a lot of diverse experience before trying to innovate when starting a business (or funding one), things are not as straightforward unfortunately. To be successful in our society, there are strong pressures not to venture outside one’s field of expertise during one’s career, which might proceed in different firms, but often constrained to one or two industries. Thus, entrepreneurs with diverse experiences from various distinct fields such as finance, chemistry, healthcare, technology, accounting, or cultural industries combined are rather an exception than the rule. Despite finishing my dissertation, I continue to find this topic fascinating and would love to learn more about it in the future.

Entrepreneurs in Different Countries

Entrepreneurship is one subject, regrouping insights and many strands of wisdom under one big umbrella. However, the fate of entrepreneurs as well as their ventures are both very different across countries. I was recently reading about the story of Durov, the Russian founder of Facebook clone VKontakte. The article highlighted the parallels, but also made clear the differences between Durov and other well-known entrepreneurs, such as Mark Zuckerberg or Steve Jobs. While the latter are usually celebrated in their countries, told stories (or movies) about, and generally admired (while publicly discussing character details in the proper American style), the former are asked to leave their creations half-grown and apply for a different passport.

Other countries, such as France or Spain, are different again, characterized by a generalized silence, often replaced by pure ignorance about own entrepreneur role models. Despite startups being founded in these countries, few know the names of the founders for such companies as Vente Privée (Jacques-Antoine Granjon), Free (Xavier Niel), eDreams (Javier Pérez-Tenessa de Block), or JazzTel and Fon (Martín Varsavsky). Different contrasting models across the countries reflect the realities on the ground – maverick (and probably fleeting) entrepreneurs in Russia getting ousted by the government, whereas European Union decries the absence of ‘engouement’ for entrepreneurship on its own soil. While Richard Branson, Anita Roddick, Ray Kroc, Sam Walton, and others are celebrated, others fall into oblivion. Good luck to you, Durov…

For more information on French entrepreneurs in particular, check out this video:

http://www.bbc.com/news/business-28194256

 

Learning from Failure – Alberto Santos-Dumont and Nespresso

This is a short English version of my original post at HBR France about how to innovate after failure (in French). The post has been inspired by my research into business model innovation as well as the adventures of Alberto Santos-Dumont. Alberto was a French-Brazilian aviation pioneer from the early 20th century. Passionate about aviation, Alberto spent several years of his life, using up much of his father’s fortune, amassed at the coffee plantations in Brazil, to build a perfect flying machine.

After numerous experiments with the smallest balloon in the world in 1898, Alberto embarked on the development of airships or dirigibles (balloon with an engine). Alberto built eleven airships, which he financed and flew himself until 1905. He was especially motivated to win the competition launched by the French industrialist Henry Deutsch de la Meurthe, offering 100,000 francs to the constructor of an airship that could travel in less than 30 minutes the distance between Saint-Cloud and the Eiffel Tower in Paris. It was only after several failures and near-disasters with different models that Alberto managed to win the prize in 1901. With each new model, Santos-Dumont changed and experimented with several parameters of his airship, and it was only after several years that he managed to build a perfect airship, and then an airplane.

I argue in my HBR post that systematic experimentation is important not only to build airships but also to introduce new products and to innovate business models. In a more contemporary example, Nestlé has experimented with many markets and business models before finding success for the Nespresso system. In the early 1980s Nestlé first tried to sell automatic machines to make high-quality espresso to restaurants. After failing with this market, the company decided to change in 1982, trying to sell Nespresso to offices instead. After another failure, and before the final closure of the project by management, Nestlé decided to give the last chance to selling Nespresso machine and capsules to the households in 1987. Despite these inauspicious beginnings, the rest of the story is history.

Experimentation and systematic learning from failure are very important components of the innovation process. In addition, the role of time is significant. Innovation is a process, a state of mind rather than an outcome . After launching the first balloon in 1898, Alberto spent several years building and destroying his airships before starting the first industrial manufacturing plant for airplanes with Adolphe Clément in 1908. It was his plane Demoiselle No. 19 , which became the world’s first aircraft produced in series , with a production time of 15 days per aircraft.

Similarly, Nestlé bought the first patents for Nespresso, originally developed at the Battelle Institute in Geneva in 1974, launched the product to the household market during the late 1980ies, and reached break-even on the project in 1995, more than twenty years later.

Innovation can require several years to bear fruit. It might be wise to follow Jacques Prévert’s advice for executing innovative tasks (about how to make the portrait of a bird in this case):

“do not become discouraged
wait
wait for years if you have to
the speed or the sluggishness of the bird’s arrival
has no effect
on the outcome of your painting”.

For more information about Alberto Santos-Dumont, check this movie:

WebVan and Learning from Failure

I have begun discussing learning from failure in a previous post this spring – and now I have successfully taught a class during my Introduction to Entrepreneurship course on WebVan, a case of as an impressive failure as they get from the Internet bubble times of the early 2000s.

Similar to Prodigy I discussed in the past, WebVan also erred on the side of too much too early, although its game was over much quicker. Offering users the possibility to do all their grocery shopping online in 1999 was a precursor new business model in the retail industry then, as it still remains so to this day. But WebVan founders did not stop there – they wanted not only to be an online Wal-Mart, but also to combine the capabilities of a Fed-Ex and an Amazon all in one as well. The company managed to convince several investors about its idea feasibility and assembled over $800M in investment from both venture capital and an early IPO in 1999. However, the good fortunes and investor credibility did not last long – by July 2001 the company was bankrupt and had to fire all of its 2 000 employees.

As discussed when teaching this case, several lessons can be learnt from both WebVan’s ambition and the execution thereof. The below video of their distribution center in California gives a more tangible idea about both:

Today, 15 years later, it is still difficult to encounter perfect grocery shopping solutions online, although several companies are experimenting with new business models in this space. One successful model has been pioneered in Sweden, where customers are not only offered their grocery shopping, they receive a full bag of ingredients with cooking instructions for their working week. This model has been penetrating Europe through different shapes and forms, with HelloFresh in the UK or QueRico experimenting in Spain.  On much lower scale and with much fewer fixed costs, maybe these models will be more successful where WebVan’s Napoleonian vision failed before?

How to attract resources?

One of the pressing questions for any burgeoning entrepreneur is how to attract the oh-so-needed resources for her venture?  Family and friends are the usual suspects, but often it is far from enough.   In the entrepreneurship research, two answers focus around symbolic management and bricolage before turning to the “real” investors such as business angels or venture capitalists.

Symbolic management is basically about using symbols to persuade your audiences about your credibility and legitimacy.  Why should your future customers, partners, or employees trust a newly minted start-up with a lot of ambitions and a laptop?  An office in a good neighborhood, a suit for the occasion, an award or a good recommendation can all do the trick.  Being skillful in symbolic management might be very helpful if other resources are missing, argue Chris Zott and Quy Huy in their research on the topic.

Taking a different road, Nelson and Baker picked up the old Levi-Strauss concept of bricolage and wrote a compelling story about how entrepreneurs can use various scrap resources to fulfill their needs at much lower costs than you would expect.  These are people that refuse to accept limitations their environment puts on them.

Finally, when talking about resource mobilization in the classroom, I use the following video by Amanda Palmer, who has her own very personal view on the topic – and some advice to share as well, especially given her recent successes raising money (a lot of money!) on Kickstarter for her own entrepreneurial projects.

Learning from Failure

I am thinking about developing a course or at least integrating cases into my current teaching to explore failure, in contrast to the more often touted successes.  Failure is one of the understudied areas in academic research in general, and entrepreneurship in particular, despite its recognized prevalence throughout business history.  Although it is well-known that many entrepreneurs fail, as usual understanding why this happens is the interesting challenge.

When presenting my research on business models, I discuss several examples of less successful companies – Prodigy is one of them.  Result of a joint venture between IBM, CBS, and Sears founded in 1984, the company was a predecessor to what became known as the Internet portals fifteen years later.  Beginning in the 1980s it offered its customers such services as weather, news, banking, electronic commerce, email, and message boards, similar to the concurrent Minitel proliferation in France.  My first contact with Internet actually occurred through a Prodigy account when I was a high-school exchange student in Florida.  I was very far from realizing then the impact this new technology would be having on the world as we knew it for the years to come.

Prodigy erred on the side of “too much too early” though – customers were not ready to buy on the Internet in the 1980s, they thought they might actually be paying a premium for buying online, transactions over the Internet were not secure, “shopping cart” was not yet introduced to the online world (Amazon came up with that 10 years later), and overall legitimacy of the Internet was very low during those days.  Unfortunately for Prodigy and their pioneering technology, the innovation failed to adjust to customer needs and understand how exactly various services such as email might be used.  Despite investment and managerieal effort, the company lost its first-mover advantage.  Hargadon and Douglas (2001) discuss this example in more depth.

Other cases of failure that might be interesting for entrepreneurship students to examine are the cases of Internet start-ups such as WebVan, ChemDex, or Boo.com.  HBS cases are available about the first two, and can be discussed profitably in the classroom.  More interesting thoughts about entrepreneurial failure in the recent post by Andrew Hargadon here.