01 Feb 1997

Shaping the Future of Business: Entrepreneurial Evolution at HBS

by Nancy O. Perry and Susan Young; profiles by Garry Emmons


Last issue, the Bulletin undertook a survey of fifty years of entrepreneurship at HBS, beginning with the School's first course on the subject introduced in 1947. In this edition, we pick up in the early 1980s, when renewed interest in entrepreneurship generated expanded research and teaching at the School, even as HBS alumni continued to distinguish themselves in the realm of entrepreneurial practice.

In 1982, acting on a marketing survey they had conducted as second-year students, David W. Thompson (MBA '81), Bruce W. Ferguson (MBA '81), and Scott L. Webster (MBA '81) left rewarding jobs to start up an unusually innovative venture. It was a "launch" truly deserving of that designation - a company that would rocket commercial payloads into space. Today, the firm they established, Orbital Sciences Corporation, having broadened its original mandate, is a world leader in what president and CEO Thompson terms "satellite infrastructure" (technology that enables people to conduct business activity anywhere on the planet). Before reaching its fifteenth birthday this spring, Virginia-based Orbital will have surpassed $450 million in sales for 1996 and will employ some 3,200 people in the United States and five other countries. "We definitely think of ourselves as an entrepreneurial company, even though we've been around for a while," says Thompson. "It's been a productive and exciting time."

Many observers believe that the analytical and creative skills associated with the case-method style of teaching explain much of the subsequent entrepreneurial success enjoyed by HBS alumni; certainly the real-world record of achievement compiled by HBS graduates would seem to bear that out. From the breakthrough inspiration for the first electronic spreadsheet (VisiCalc, conceived by Daniel Bricklin [MBA '79] in an HBS classroom), to the extraterrestrial commerce of Orbital Sciences, to the development commitment of African Communications Group, HBS entrepreneurs, be they low-profile or household names, have demonstrated a remarkable drive and talent for innovation in virtually every field of business endeavor. Their impact has been significant and broad-based: according to research by Associate Professor Amarnath V. Bhidé, more than one-third of HBS alumni currently manage their own firms twenty years after graduation.

Orbital's Thompson and other HBS-trained entrepreneurs understand that entrepreneurship means far more than merely getting a business started. It is, according to HBS professor Howard H. Stevenson, chair of the School's Entrepreneurial Management (EM) unit, "a never-ending process that includes identification of opportunity, marshaling of required resources, exploitation of opportunity, and harvesting." In other words, "entrepreneurship" is a way of managing that occurs in organizations large or small, youthful or experienced.

Underpinning today's Entrepreneurial Management unit at Harvard Business School are the decades of research and teaching that began immediately after World War II. By the late 1960s, however, institutional interest in the subject (reflective of broader educational trends) had waned, and the School's "curriculum" in entrepreneurship took the form of a single elective course, Starting New Ventures, developed and taught by Professor Frank L. Tucker and doctoral candidate Patrick R. Liles (MBA '64, DBA '70). At about the same time, then Associate Professor Howard Stevenson and then Lecturer William J. Poorvu were busy creating two new courses on real-estate management. As they developed more than sixty cases for the course, Stevenson and Poorvu also began articulation of a conceptual framework still in use today in entrepreneurial management courses.

Leaving the School in 1978, Stevenson went on to manage a rapidly growing manufacturing firm, Preco Corporation, while Liles embarked on a career as a successful venture capitalist. Then, in 1980, the role of entrepreneurship at HBS changed dramatically with the appointment of Dean John H. McArthur. In one of his first acts as Dean, McArthur elevated the status of entrepreneurship as a course of study by raising funds from two entrepreneurial visionaries and HBS roommates from the Class of 1951, Arthur Rock and Fayez Sarofim, to establish the Sarofim-Rock Professorship of Business Administration. Persuading Stevenson to return from his four-year stint at the front line of entrepreneurial management, McArthur made him the first Sarofim-Rock incumbent. (Later, the Classes of 1954, 1960, and 1961 would also fund chairs in entrepreneurship.)

Stevenson has completely reworked the Starting New Ventures course into today's elective course Entrepreneurial Management, writing well over one hundred new cases and notes that focus on entrepreneurship as an ongoing process, not just the launch of a new venture. Concurrently, he has developed a model of entrepreneurship that describes the process as "the pursuit of opportunity beyond resources currently controlled" - a flexible definition as useful to older and larger enterprises as it is to startups.

Gaining Speed

Following Stevenson's return to HBS, two events in the early 1980s helped shape the study and scope of entrepreneurship at the School. The first, a 1983 colloquium on entrepreneurship chaired by Stevenson, attracted successful alumni and faculty from within and outside the School, helping HBS to set an agenda for the future. While entrepreneurial scholars had traditionally focused on who entrepreneurs were and what they did, the colloquium helped expand the emphasis to how they did it. By bringing leaders of the field together at HBS, participants realized the importance of studying new issues such as entrepreneurial finance, creativity, and management. William A. Sahlman, William Poorvu, and former HBS faculty member John J. Kao all attended the event, and each subsequently played a critical role in the development of the courses and intellectual content of the field.

That same year, under the leadership of Paula Barker Duffy (MBA '77), then administrative director of External Relations, the School's Division of Research conducted a survey that provided a new understanding of alumni entrepreneurship. Many of the 14,000 respondents cited skills developed at HBS as critical to their entrepreneurial success. The survey also showed that alumni who were self-employed had often followed a traditional career path in the first decade after earning an MBA and only later had they ventured out on their own. "The results of this work surprised us, both by revealing the extent of entrepreneurial involvement among HBS alumni and by giving clear evidence of the path to entrepreneurship," observes Stevenson. "It debunked the common wisdom that some people are born to be entrepreneurs and others are not."

The survey was also a vote of confidence for entrepreneurs, a group that had sometimes been considered quirky or marginal. These individuals reported to be more satisfied, wealthy, and energized by their jobs than their classmates who worked for others - and no more likely to have been fired or divorced than their counterparts with the same educational background who were employed by others. Similar studies since have reiterated the lessons learned from the survey, including Professor John P. Kotter's recently published twenty-year study of the HBS Class of 1974.

A Group of Experts

Buoyed by the colloquium and the new data, Dean McArthur set about assembling a group of expert academics and practitioners at HBS. As he recruited faculty, MBA and Executive Education courses were developed, attracting students and stimulating further research.

One of these courses, Entrepreneurial Finance, a half-credit MBA elective developed and first taught by William Sahlman, helped to define the path of the unit's work. When it was introduced in 1985, more than half the class tried to enroll; to date, over four hundred students have taken Entrepreneurial Finance each year. During the past eleven years, nearly one hundred new field-based cases, notes, and software models have been created for Entrepreneurial Finance. "I started the course to shed light on how individuals and teams identify opportunities, how they marshall the required resources, including capital, and how they exploit those opportunities in very demanding environments," Sahlman says. "It is an integrative course in which managers can learn to use the financial perspective to inform resource acquisition and allocation decisions."

Today the Entrepreneurial Management unit includes five full professors, one adjunct professor, three associate professors, four assistant professors, and three senior lecturers. "Our faculty is unique in the field of entrepreneurship, in terms of the depth and breadth of both academic and entrepreneurial experience, as well as the strength of educational backgrounds," notes Stevenson.

True to the interdisciplinary nature of the field, six of the unit's faculty are also affiliated with other units, including finance, organizational behavior, technology and operations management, and ethics. MBA courses having entrepreneurial content include Entrepreneurial Management; Entrepreneurial Finance; Entrepreneurial Marketing; Entrepreneurship, Creativity, and Organization; Real Property Asset Management; Venture Capital and Private Equity; Entrepreneurship in the Social Sector; and Running and Growing the Small Company. Several related courses include Service Management, The Coming of Managerial Capitalism, New Businesses in Agribusiness, New Opportunities in the Health Care Industry, and Managing in the Marketspace. "This cooperation among various units has greatly enhanced EM's ability to deal with the cross-disciplinary research required to understand the phenomenon of entrepreneurship in-depth," says Stevenson. "Our entrepreneurially oriented executive programs, the Owner/President Management Program (OPM) and the Presidents' Seminar, which work with presidents of entrepreneurially oriented firms, rely on a broad mix of faculty drawn from all of the disciplines. You can't be a one-dimensional entrepreneur," Stevenson notes. "Success requires multifunctional skills."

The Entrepreneurial Management faculty has focused on three elements that are required for individual or organizational success: careful definition of opportunities, understanding required resources, and skill in negotiating for these resources. Believing that these elements are learnable, unit faculty stress the importance of mentoring. In addition, the group has highlighted six qualities that distinguish entrepreneurial organizations from administrative organizations, including strategy, structure, and resources. While the unit does not advocate one style of organization over another, Teresa M. Amabile, MBA Class of 1954 Professor of Business Administration, notes that "the current economic environment demands that all companies behave more entrepreneurially."

And what of the entrepreneurial "personality"? Is there such a thing? "Think of all the entrepreneurial people you know," suggests Stevenson, "and see if you can identify a single personality type. There are entrepreneurs who would be wallflowers at an accounting convention and others who would make Bill Clinton seem shy and retiring." A characteristic they have in common, however, is that they are all searching for market opportunities. In fact, Stevenson says, good entrepreneurs gravitate toward business opportunities for which their personalities are well-suited, such as "numbers crunchers" to industries where finance is critical and outgoing individuals to relationship-based businesses.

Learning Objectives

While each of the many courses in the Entrepreneurial Management unit addresses different functions within the field, all of them share four learning objectives: understanding of the conceptual framework of an entrepreneurial model of management; knowledge of the appropriate skills and tools, such as opportunity analysis, deal-structuring, organization design, and innovation supports; command of relevant specific knowledge, including tax law, corporate governance rules, securities regulation, and intellectual property; and understanding of the attitude needed to manage entrepreneurially - a commitment to continuous improvement, a belief in the importance of creativity and innovation, a belief in the possibility of many options for success, and a sense of personal responsibility grounded in ethical behavior.

"As we approach the 21st century," says Stevenson, "we realize that our field is not likely to build a unifying, comprehensive theory by the time we reach that milestone." The group, however, has developed three "conceptual cornerstones" on which to base its research: resources, skills, and motivation. "Our theoretical work is informed by and then, in turn, stimulates our empirical research in the case of each of these three components," he notes.

"Ultimately, we want to influence management practice," Stevenson concludes. "We'll do so first by giving our students insight into and experience in grappling with the problems and opportunities they will face as entrepreneurs and, second, by communicating our findings effectively to entrepreneurs, aspiring entrepreneurs, and policymakers."

Special Satisfaction

A pivotal phase in the success of any entrepreneurial venture is the transition from a modest startup to a thriving organization of significant scale. Gordon M. Binder (MBA '62) played a key role in just such a transition at Amgen, which now ranks as the largest biotechnology firm in the world.

A California-based firm that discovers, develops, manufactures, and markets human therapeutics based on advanced cellular and molecular biology, Amgen was in its second year in 1982 when Binder came on board as CFO after gaining top-level managerial experience in a variety of companies. Over the next several years, he helped raise hundreds of millions of dollars to finance research and development critical to the company.

In 1988, Binder was named CEO. That same year, Amgen's R&D efforts began to pay off as the company launched its first product, Epogen, which stimulates red blood cell production and thus fights the anemia common to kidney-dialysis patients. In 1991 came Neupogen, which helps boost the production of white blood cells lost during chemotherapy. Led by these two products, Amgen's annual revenues now approach $2 billion.

Noting recently that Amgen currently employs some 4,600 people (up from 200 in 1985), investment guru Peter Lynch recognized Binder's entrepreneurial efforts in a recent Wall Street Journal article and praised Amgen as one of ten companies "that have led the growth of the U.S. economy."

That recognition is icing on the cake for Binder, who says, "Beyond the satisfaction of building a highly successful international company, what really counts for me and all Amgen people is helping to cure patients and improving their quality of life."

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Information Plus Imagination

In this era of connectivity and universal access, Michael R. Bloomberg (MBA '66) has found a niche based on customization and exclusivity. His company, Bloomberg L.P., specializes in delivering reams of sophisticated real-time financial information and analysis to customers through a unique computer terminal called a "Bloomberg." Currently, more than 65,000 "Bloombergs" - the company builds the hardware and creates the software as well - are extant and are primarily used by subscribers in financial services and the media who pay more than $1,000 a month to lease them. Just sixteen years after leaving a partnership position at Salomon Brothers, Bloomberg is outpacing more established competitors to make his firm the world's fastest-growing information service.

To augment his core business of distributing financial information, Bloomberg has added print, broadcast, and other media, with 400 reporters in 70 bureaus writing 3,000 business and nonbusiness stories daily for outlets in 25 countries. This explosive work in progress has some experts predicting that it will become the next multimedia empire. As an ad on a Bloomberg radio station once declared, and as Bloomberg himself is demonstrating on a grand scale, "Success is simply information plus imagination."

The journey that has culminated with Bloomberg heading his own private company - whose worth analysts estimate at anywhere between $3 to $5 billion - has been quite a ride for the kid with blue-collar roots who was one of only a handful of students from his Medford, Massachusetts, high school class to make it to college. Given his background, it's not surprising that Bloomberg says, "My heroes are people who don't have a lot of money but who go out and start things."

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Entrepreneurial Intuition

When citing some of history's breakthrough inventions, Scott D. Cook (MBA '76), founder and CEO of the computer software firm Intuit, surprises some people with one item that's high on his list. "Paper," says the Silicon Valley entrepreneur with a smile. "What would we do without it?"

Cook's appreciation for this low-tech, everyday commodity, despite his company's positioning in a high-tech, "paperless" market, suggests a key to his entrepreneurial success: an understanding that any item of consumer technology - no matter how amazing or elegant - means nothing unless it is useful, convenient, and readily accepted by customers.

The fact that his wife's MBA degree didn't ease the drudgery of tracking the family's finances gave Cook, a veteran of Procter & Gamble and Bain & Co., the idea for creating a personal-finance software. Intuit was established in 1983 but a string of some twenty venture-capital firms didn't believe it had much of a future. Cook, who describes himself as "risk averse," ended up draining his savings, hitting up his parents and others for loans, maxing out his credit card, surviving several false starts, and narrowly escaping bankruptcy before his Quicken software finally took off in the mid-1980s. With Quicken as its flagship product, Intuit now offers several other best-selling financial management software tools. The company's 1995 revenues were close to $400 million.

Other factors behind Intuit's success are its thoroughness in determining consumers' needs and desires and incorporating them into its products, which are backed by an unsurpassed customer-support system. Cook feels that Intuit has only scratched the surface of what's possible. "Our ongoing mission," he says, "is to revolutionize how people manage their financial lives."

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On a Roll

Thomas A. James (MBA '66) had a startup to his credit well before he enrolled at HBS - as an undergraduate, he leveraged his talents as a guitarist and vocalist to put together the first campus band ("The Maniacs") ever to blast live rock-and-roll through Harvard College's hallowed halls. After graduating from the College and then from HBS, however, James settled down at his father's four-year-old St. Petersburg, Florida, brokerage firm, Raymond A. James Investments.

After earning a J.D. at Stetson College of Law, the younger James became CEO of Raymond James in 1970 and set out to build the company. But the bear market of the early 1970s sent the small firm reeling; James retrenched and rode out the bad times. When the market picked up, in addition to his full-service regional brokerage firm, he put in place a system of franchised brokerage offices that greatly reduced overhead costs and eased the impact of dramatic market downturns. Specializing in the stocks of small and medium-sized companies, the firm increased its net income at a rate of 30 percent for twenty years.

Today Raymond James Financial (RJF) is a diversified, publicly traded financial services holding company, including asset management and investment banking services, with some 800 offices nationwide and revenues close to $725 million for the September 1996 fiscal year. RJF has acquired a reputation as one of the nation's best-managed "smaller" companies, with James himself earning plaudits as an exceptional CEO.

The secret of his success? "Perseverance, hard work, and hiring good people," says James, "and keeping the job challenging, exciting, and fun. If it's not, it's no one's fault but my own - I've got control of my destiny."

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Hers for the Asking

As your sure-fire idea for a new business still on hold because you haven't got the nerve to ditch that pesky day job? Do you need some extra inspiration to get up and go for it? Consider the case of Sandra L. Kurtzig (4th OPM), who struck out on her own long before it was commonplace for a woman to do so and in a field so little known at the time that someone once asked her if her software company made lingerie.

In 1972, Kurtzig quit a good job and turned her two-bedroom apartment into a company featuring a desk, a telephone, a computer, and a shoebox containing $2,000, the firm's total finances. Less than twenty years later, her California-based producer of manufacturing systems software, ASK Computer Systems, had reached $450 million in revenues.

Kurtzig, who is now the chairman of E-Benefits, an online health-care service she cofounded with her son Andy, was an example of an established entrepreneur who came to HBS to acquire the management expertise to take a startup to an even higher level. "By the time I finished the Owner/President Management Program, which was then called the Smaller Company Management Program, I had really stopped thinking 'small,'" Kurtzig recalls. "I was thinking more about sustaining growth, issues of public accountability, and bringing a greater sense of professionalism into the prevailing atmosphere of growth."

By the end of her third and final OPM session at HBS, Kurtzig was confident enough to consider an IPO. Soon thereafter, she did just that, and ASK became the largest U.S. corporation to be founded, headed, and taken public by a woman.

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