01 Feb 1997
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Doing It Your Way

The what, where, & how of entrepreneurship in the '90s
by Marguerite Rigoglioso (profiles by Linda Goodspeed, Elaine Gottlieb, Nancy O. Perry, and Judith A. Ross)

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In the beginning there was the microprocessor. The mass market availability in the early 1980s of this revolutionary piece of technology — which shrank the computer from an unwieldy Goliath of a machine to a compact unit that could fit on your desk (or even in your pocket) — triggered a seismic wave of new business ventures in areas such as microcomputers, software programs, and hardware-related peripheral equipment that has changed the world forever.

"During the early '80s, I'd get a lot of business plans from alumni starting software companies," recalls HBS professor William Sahlman, sitting in his Baker Library office amidst drifting piles of correspondence - much of it from bright, young HBS grads describing their hopeful new business ideas. As he considers what the hottest fields for entrepreneurs have been these past fifteen years, microcomputers heads the list. After some reflection, he adds genetic engineering, specialty retail outlets, catalogue companies, restaurants, and superstores. But when Sahlman's attention turns to the present day, his answer is immediate and unqualified: the Internet. "In many ways, everything that has gone on before in terms of entrepreneurial activity pales in comparison to what's happening today on the Internet," says Sahlman. "Whereas in the early days of the microprocessor, for example, it was expensive and complicated to buy computers, develop software, and break into the distribution channel, today with a PC and $300 you can set up your own 'storefront' on the Internet."

Indeed, from "paperless" magazines to services that search for hard-to-find foreign news stories, from business-to-business selling to home shopping, hundreds of companies are springing to life up and down the virtual lanes of the Information Superhighway. As the use of color and moving pictures becomes routine, says Sahlman, Internet "stores" may well be able to give customers an experience that is, in some ways, more appealing and more convenient than actually going to a physical locale. "A lot of our MBAs are taking a good shot at the entry barriers set up by establishments that have spent twenty years and a lot of money building brand equity in retail locations," he notes.

As sizzling as the Internet may be, however, Sahlman acknowledges that it is certainly not the only game in town for startup hopefuls. The medical-device and biotechnology industries also lure people eager to create their own businesses, as do many of the areas that attracted entrepreneurs a decade ago. Of the former two categories, he notes, "In the current marketplace, it's possible to build a very attractive company that might ultimately be acquired or go public."

The reason for the good news, Sahlman observes, is "there is more startup capital available today than there ever has been in recorded history - more than $5 billion in 1996 alone." High venture capital returns over the last four years have caused this surge, which means, he says, that "people have lots of opportunities to finance projects, either through venture capitalists, angels, or corporations."

But, as the saying goes, what goes up must come down. "When many new ventures get financed, many will fail," Sahlman warns, "which causes people to withdraw funding from the sector. So, we can expect to see a downturn in available capital over the next five years."

Hot - Or Not?

It is just such cyclical realities that cause HBS associate professor Amar Bhide to caution entrepreneurs against getting swept up in trends. "I think an entrepreneur should beware of so-called hot fields," says Bhide, who coteaches the MBA elective Entrepreneurial Management. "The Internet feeding frenzy, for example, resembles the California gold rush. If an opportunity is so apparently attractive that everybody's rushing toward it, that's a warning sign. People think they'll make a lot of money on the zillions of Web sites they're putting out there by selling advertising. Many will. But I think many more are in for a rude awakening."

Bhide advises MBAs seeking new business opportunities instead to focus on areas of the economy where there has been "quiet, unheralded change." "The advent of the microprocessor in the early 1980s was more the kind of quiet change that an entrepreneur should keep his or her eye out for," he says. "I'd argue that the risk for someone getting into microcomputers was much better than the risk for getting into the Internet."

Startup Smarts

Previous work experience is often the critical factor in helping an aspiring entrepreneur make the judgment calls necessary to spot and develop a good business opportunity. "I'm adamantly opposed to most students starting companies right out of business school," Sahlman says. "They don't yet know enough about hiring and firing or managing. They don't know enough about selling and marketing or production and operations." He advises freshly minted MBAs with entrepreneurial leanings first to "get into a promising industry, hone your skills, and get to know other people in that industry."

Sahlman also debunks the myth that the biggest challenge facing the new entrepreneur is coming up with a business concept. "That's actually about 95th on the list of challenges," he says. "The real question is, how do you come up with the right people to help your venture fly? If you get your team right, the idea will come. And the money will follow."

Bhide, who for the past eight years has been studying five hundred mid-level entrepreneurial businesses around the country, says fledgling entrepreneurs should also consider a number of other factors when seeking startup opportunities. "Businesses where there are high margins available with low economies of scale are more likely to survive," he says, citing institutional money management as an example of an area that might support a new venture well - as opposed, say, to mutual fund management for individuals.

Startups that reward the entrepreneur's ability to "hustle," such as those involving business-to-business selling, are also better bets. "If you want to sell a mass-market product, you won't be able to personally have sales contact with enough customers to break even on your fixed costs," Bhide says. "But if, for example, you want to create a business that solves other companies' design or engineering problems, then you have an interesting opportunity. Just by working harder and faster than your competitor you'll be likely to generate enough orders for the business to survive."

Bhide also points to "certain attitudes and skills" that spell entrepreneurial success. One is "the ability to make decisions in real time, with very limited information," a skill that may ring a bell with HBS grads. "Yes, the case method is very good training for that kind of analysis," Bhide smiles. Another is what he calls "smart arrogance" - "the confidence to believe in your ideas combined with the sense to bail out quickly if new information points in that direction." Yet a third characteristic of a successful entrepreneur, he says, is "the ability to sell face to face - to potential employees and investors as well as to customers."

Your Inner Entrepreneur

But if entrepreneurship is, as Professor Howard Stevenson defines it, truly "a way of managing" rather than a specific set of activities or personality characteristics, can one be entrepreneurial even within a larger corporate setting?

Yes, say a number of HBS professors, including Rosabeth Moss Kanter, MBA Class of 1960 Professor of Business Administration, who is currently researching "intrapreneurship." The term, she says, refers both to entrepreneurial activities within a company and to "innovation in any company operation or process." "I think of intrapreneurship as an attitude or spirit that involves creating something new," she says. The General Motors Saturn and the Hewlett-Packard DeskWriter computer printer, for example, were both products developed by "intrapreneurial" ventures in large U.S. corporations.

After coming into vogue in the early 1980s when American businesses were threatened by Japanese competition, intrapreneurship was eclipsed by the reengineering and downsizing phenomena of the early '90s. Now, however, it is again being embraced as a critical business strategy. "Right now there's a tremendous interest in intrapreneurship, because companies have made their cutbacks and realize that they can't 'shrink' to greatness," says Kanter. "If businesses don't innovate they will fall behind in a world of change."

Another factor that has pushed intrapreneurship to the forefront of many companies' agendas has been the much-heralded successes of feisty entrepreneurial companies such as Microsoft, which have become the all-consuming thorn in the side of many corporate behemoths. "Big companies would like to adopt some of the style of smaller, faster-moving companies that can quickly bring new ideas to market," Kanter says.

Steven C. Wheelwright, MBA Class of 1949 Professor of Business Administration and chairman of the MBA Program, who works with a variety of firms in areas such as innovation, renewal, corporate strategy, and research and development utilization, observes, however, that while large companies often find it easy to identify opportunities and needs for new product ideas, "they find it difficult to shift into an entrepreneurial mindset that creates new products and turns them into viable businesses." Hewlett-Packard has been successful at developing diverse product lines in health care, computers, printers, and scientific instruments, he notes, because it has established autonomous divisions around the globe with clear performance targets and incentives to grow.

Other innovative companies, Wheelwright says, foster an intrapreneurial spirit by instituting processes that encourage creativity and new ideas. At 3M, for example, the "15 percent rule" allows professionals to spend up to 15 percent of their time on independent projects of their own choosing.

As intrapreneurship catches on in corporate America, it should provide a wealth of opportunities for MBAs with the entrepreneurial itch. "Intrapreneurship not only benefits the firm's performance but can offer business professionals the excitement and challenge of leading the effort to create a new venture without many of the risks and constraints associated with being an entrepreneur," Wheelwright says.

But until then, notes Bhide, "you're going to see more and more HBS graduates creating companies around them, rather than going into companies that already exist. For many," he says, "it will be perceived as the only way they can make use of the full spectrum of their talents."

Women's Worth

New U.S. Census data reveal that women entrepreneurs are changing the face of the economy. The performance of the women's business sector in recent years has surpassed that of U.S. business overall in several major areas, including rates of new-business startup and revenue and employment growth.

From 1987 to 1992, the number of women-owned businesses grew by 43 percent, almost double the rate of growth for all firms during that same period.* During that time, employment by women-owned firms rose by 100 percent, compared with 38 percent for all firms. In 1994, the 7.7 million American firms known to be owned by women employed 35 percent more workers across the country than did Fortune 500 companies worldwide.

"These changes are a reflection of the fact that everything has changed for women in the past 25 years - from access to business schools, to access to corporate management, to access to capital," comments HBS assistant professor Myra Maloney Hart, who coteaches the MBA elective Entrepreneurial Management. "Women become entrepreneurs for many of the same reasons men do. Some are pushed into it because their current circumstances are not satisfying; others are pulled by a vision of creating something in particular."

Although self-employed women accounted for most of the new women-owned firms from 1987 to 1992, during that same period the number of women-owned firms with employees increased by 32 percent - and their revenues grew by a remarkable 146 percent. By 1992, these women employers made up almost one-fifth of all women-owned firms and accounted for 93 percent of the revenue of the women's business sector.

"We're seeing an increasing number of women starting up high-potential ventures and also joining the venture-capital industry," observes HBS professor William Sahlman, who created the MBA elective Entrepreneurial Finance.

* All comparisons exclude large corporations.


Creating a Lifeline

When Cynthia A. Fisher (MBA '90) had her first child last year, she added one more keepsake to the photos and mementos she collected: blood from her daughter's umbilical cord.

Once discarded at birth, those few ounces of blood left in the umbilical cord and placenta are now known to be a rich source of stem cells, which make new blood and immune-system cells. In 1993, Fisher, who holds a bachelor's degree in biophysics, founded Viacord, Inc., a Boston-based company that collects cord blood anywhere in the country and transports it to the University of Cincinnati Medical School, where it is frozen and stored. The cord-blood cells can then be used later by the donor or possibly another family member, if needed, as an alternative to bone marrow in transplants to restore marrow function after high-dose chemotherapy or radiation.

The idea for Viacord, which employs seventeen people, came to Fisher while she was a marketing manager at the Haemonetics Corporation in Boston, shortly after this country's first cord-blood transplant was performed in 1990. The science of harvesting, processing, and freezing stem cells was already known from bone-marrow transplants. "I remember thinking, 'Wouldn't it be great if every child born could have a small sample of cord-blood stem cells frozen away in case it was ever needed?'" Fisher recalls.

So far, only about 350 cord-blood transplants have been performed worldwide, and the possibility of storing cord blood beyond ten years is still uncertain. But Fisher is encouraged by the current research, including the National Institutes of Health's $30-million cord-blood transplantation study. "As cord blood use becomes more mainstream," she says, "hospitals will be seeing this as a service they'll routinely want to offer their patients."
—L.G.

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Virtual Commerce

Like the phone or fax, the Internet is now another major tool for transacting business. But unresolved security questions may be holding back this new technology as some customers and companies voice concern about the privacy surrounding electronically transmitted information.

Shikhar Ghosh (MBA '80) and his company, Cambridge, MassachusettsÐbased Open Market, Inc., have developed software that handles a company's Internet commerce with airtight security. "No one else has software that can do that," says Ghosh, a soft-spoken, publicity-shy man who, with MIT professor David Gifford, founded the company in 1994 - making it a veritable old-time establishment in Internet terms.

Open Market's software allows thousands of customers a day to purchase goods and services (such as magazine subscriptions) advertised on Time Warner Inc.'s World Wide Web site, for example. The software leads customers through a series of screens and procedures that ends with them providing a credit-card number to make their payment.

"The security element comes in," explains Ghosh, "with the software validating the person's credit information through electronic links with banks around the country, while at the same time protecting that card number from being accessed by anyone else." The same software, he says, allows companies doing business with each other over the Internet to buy and sell products and services from one another securely.

Ghosh founded Open Market after selling his first company, Appex, which developed a payment system for the cellular telephone industry. Now publicly traded on Wall Street, Open Market is valued at $480 million and employs more than 300 people. Ghosh is optimistic about opportunities in the burgeoning world of electronic commerce. "The Internet is completely changing the way we do business," he says.
—J.A.R.

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Healthy Competition

If you've ever had to shop for a special medical item such as a walker, a wheelchair, or a body brace, chances are you've encountered overpriced, forbidding stores. Joyce I. Greenberg (MBA '78) is helping to change all that. Her new superstore in Springfield, New Jersey, Take Good Care, which opened in April 1996, offers a full range of medical devices and health-care supplies in an atmosphere that is accessible, friendly, and even fun.

"We like to see ourselves as the Home Depot of health care; like Home Depot, we pride ourselves on service," explains Greenberg, a former investment banker with sixteen years of experience on Wall Street who came up with the idea for her store four years ago while accompanying her father-in-law on shopping trips for medical equipment. "We're one of four superstores in the country that allows people to 'road test' items such as wheelchairs and walkers before buying them," she says.

Private consulting rooms, lively displays, and insurance form services also contribute to an enhanced customer experience. Greenberg notes, "We're simply bringing in modern merchandising techniques to meet the needs of an underserved population."

Take Good Care also caters to those without strictly medical needs (such as new mothers wanting to rent breast pumps) and offers a wide array of products to promote a healthy lifestyle, such as vitamins, aromatherapy tinctures, herbal remedies, and natural skin creams. "Today, people are looking less to doctors to enhance their health and more to things such as diet, exercise, and preventive treatments," says Greenberg, who plans to open thirty more stores by the year 2000. "Our aim is to help people take control of their health care."
—J.A.R.

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African Adventure

As a second-year student at HBS, Monique Maddy (MBA '93) raised $100,000 to fund a feasibility study of telecommunications opportunities in Africa. On May 31, 1993, Maddy and her partner, Come Lague (MBA '93), launched African Communications Group (ACG), a company this dynamic pair hopes will "eventually be all over the continent of Africa." Last November, ACG introduced its first service - card-operated public pay phones in Tanzania - and recently won a bid to become Ghana's Second National Operator.

A Liberian national who spent much of her childhood in English boarding schools, Maddy holds foreign service and economics degrees from Georgetown and Johns Hopkins Universities and has five years of service with the United Nations Development Programme. "Given my background, my numerous contacts in Africa, and the pervasive shortage of media/communications there," she notes in an interview at ACG's Cambridge, Massachusetts, headquarters, "I envisioned starting a communications company that would span the continent and deliver an enhanced set of services designed for the mass market."

While Maddy acknowledges that the most difficult aspect of starting ACG has been raising $7 million in seed capital and debt financing, the rewards, she says, are enormous. "When you come from a place like Africa where poverty and human suffering are so widespread, you realize it is in part luck that you are not one of those emaciated faces staring out from the television screen. Such good fortune makes it incumbent upon me to assume a responsible role." At ACG, says Maddy proudly, "we are creating jobs for Americans and Africans, as well as introducing state-of-the-art technology and skills we hope will have a positive impact on the continent's economy."
—N.O.P.

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Unparalleled Parametric

Combine the unabashedly aggressive management style of an ambitious Harvard MBA with the genius of a distinguished Russian mathematician, and what do you get? Parametric Technology Corporation (PTC), a leading mechanical-design automation software firm based in Waltham, Massachusetts - and one of the top 100 fastest-growing companies in the nation. In 1995, Business Week described PTC's Pro/ENGINEER computer-aided design (CAD) software product as "something of a national standard."

PTC was founded in 1985 by Russian immigrant Samuel P. Geisberg, who had developed an engineering software product that addressed the missing front end of the product design process by enabling the user to change one parameter of a design and see all of its ramifications in the total design; hence the name "parametric." "It is essentially the Lotus 1-2-3 of computer-aided design," explains Steven C. Walske (MBA '78), PTC's chairman and CEO, who joined forces with Geisberg in 1986. At that time, designers of everything from bicycle sprockets to airplane engines relied on software produced mainly by IBM or ComputerVision, industry giants whose product capabilities addressed only part of the several-stage product development process.

The union of the talents of Walske and Geisberg has created a seemingly unstoppable force: "Of our $600 million in total sales, about 90 percent are direct sales," says Walske, "and yet our operating margins are 40 percent. No one in our industry has ever come close to that." Wall Street has shown its approval by valuing the company at $7.5 billion. A driven achiever who sets the bar high, Walske is an entrepreneur to watch.
—N.O.P.

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