01 Dec 1996
An Entrepreneurial JourneyTopics:
It has been said that because of the case method, entrepreneurship has always been at the core of a Harvard Business School education. The case method, after all, teaches students to analyze problems, think creatively, and be alert for opportunities and solutions. It is not surprising, therefore, that HBS alumni have gone into the world and done just that - today, and in decades past - and have seen their products and services become both pervasive and influential in the American economy.
On the eve of the 50th anniversary of the first course on entrepreneurship taught at HBS, an unsurpassed record of real-world achievement speaks for itself. Even a cursory summary of the accomplishments of entrepreneurial alumni since World War II suggests an extraordinary record of business enterprise.
Among the postwar classes, consider, for example, a random sampling of HBS entrepreneurs and the ventures they began, from the 1950s through the 1970s. Of those, take one area for closer inspection in search of the HBS imprint - broadcast and cable television. In the mid-1950s, Thomas S. Murphy (MBA '49) found himself managing an upstate New York radio station and a UHF TV station, seeds of the multibillion-dollar Capital Cities/ABC media empire of the 1990s. Not long after, laboring in similar obscurity in rural Ohio, Amos B. Hostetter, Jr. (MBA '61), and H. Irving Grousbeck (MBA '60), cofounders of Continental Cablevision, were pioneering what would become the cable television industry, along with Frank Batten's (MBA '52) Landmark Communications (owner today of the Weather and Travel Channels) and David R. Graham's (MBA '64) Cablecasting Ltd. in Canada. In later years, W. Don Cornwell's (MBA '71) Granite Broadcasting Corporation would grow into the largest minority-controlled broadcaster in the country. In 1972, L. Lowry Mays (MBA '62) bought a Texas radio station for $175,000; today his Clear Channel Communications owns 18 TV stations and 140 radio stations across the country.
HBS alumni would make their marks in many other areas as well. In western Massachusetts, Joseph H. Torras (MBA '50) established Preco Corp., a pulp and paper operation, creating more than one thousand jobs. In consumer services, David S. Paresky (MBA '65) opened Crimson Travel Service in Harvard Square a few months after graduation and eventually sold it to the American Express Company. Similarly, Steven B. Belkin (MBA '71) began his highly successful travel and financial services marketing enterprise, Trans National Group, a few years out of HBS. G. Peter Bidstrup (MBA '59) started to put together the Doubletree Hotel chain in the 1960s as Robert G. Gordon (MBA '62) was planning his chain of always-open Store 24 convenience stores. T.J. Dermot Dunphy (MBA '56) focused on perfecting the packaging elements that would make Sealed Air padded mailers as ubiquitous as the mail itself. Putting in place his environmentally friendly power plant company, Roger G. Sant (MBA '60) started Applied Energy Services, while Peter R. Formanek (MBA '68) and his AutoZone cared for car owners in need of quality parts and friendly service.
This kaleidoscope of achievement was being replicated by HBS alumni virtually everywhere across the American economic landscape. From consulting to consumer products, from venture capital to financial services firms, from manufacturing to services, HBS graduates were helping to create, revolutionize, and reinvent industries. Indeed, life without the host of products and services created by HBS alumni would be almost unimaginable.
As any veteran entrepreneur knows, an inspirational business concept is only the beginning of a long and complicated journey marked by unexpected obstacles at every turn. The successful entrepreneur must possess an unshakable belief in his or her goal and - as the trials of this fictional entrepreneur "wannabe" suggest -the ability to persevere when others might give up. Important, too, are a large measure of luck and some help from those who have already traveled the entrepreneurial road...
The Stories Behind the Startups
So I'm on the red-eye from LAX to Logan. I haven't had a cigarette in three days, and I'm more than ready for my Nicotrol somewhere over Mount Rushmore; unfortunately, it's tucked away in my briefcase, which is jammed in the overhead compartment behind some clown's trombone case. I try to explain to the flight attendant that I really need to have that trombone tossed out the emergency exit so I can get to my nicotine patch. When she suggests some other "items" that might be tossed off the plane unless they settle down, I decide it's probably prudent to go cold turkey for a few hours. So, after what feels like the longest flight in the history of aviation, I slap on my patch and pick up my rental. Things are looking up: the car's a hot red convertible, and it's gorgeous out.
I cruise through the Sumner Tunnel left hand on the wheel, right hand on my 166 MHz laptop, which I wouldn't have minded playing with on the plane, only the battery pack was stuck inside the briefcase behind that guy's trombone. My morning's planned down to the second: quick stop at Kinko's to print out my proposal, quick call to Maura to beg her forgiveness I sent her those Calyx & Corolla flowers, so hopefully we're all square and then off to meet those two HBS alums to get some backing for my new business. If only I could think of a way to really butter them up.
At the end of the tunnel I see that everyone's lights are on. It's 9:00 a.m.! Why are their lights on? And then I drive out into what was just a beautiful fall day, and it's pouring. Maybe the convertible wasn't the way to go. I see water splashing all over my laptop, and I think, that can't be good for a computer. So I'm swerving to avoid some jerk who doesn't realize that a yellow light means "speed up," and I'm trying to put the roof up on the car, and I look at the laptop screen and see the words "Fatal Disk Error." My Proposal!
Lucky for me, there's a Staples at the corner. I park, grab my laptop and my briefcase, and sprint down the street. The guy at Staples tells me I can recover my disk with Norton Utilities. I tell him I'm no tekkie, but he tells me it's real easy to use. I'm in a hurry, and what the heck, the price is right, so I take his word for it and buy a copy. By now, my rental's flooded I couldn't get the top up and, of course, the engine won't start. Not good. Fortunately, I'm parked across the street from a Jiffy Lube. The woman there says she'll take a look and helps me push the car into the garage. Turns out, my air filter's clogged. She'll replace it, change the oil, do the whole fourteen-point service, and have me out of there in a jiff. Good deal. Only I still have a lot to do this morning better make a list.
All the paper in my briefcase is soggy, so I fish around for something anything to write on. Out comes a newspaper and I'm scribbling all over an ad for Continental Cablevision and wow! Look at that! CNN and Nick-at-Nite. That goes at the top of my to-do list: Remember to order cable. Item two: Get a new briefcase at Staples the rain has destroyed this one.
Before I can write anything more, the Jiffy Lube woman comes out car's ready! The nearest Kinko's is only two blocks away. I load Norton Utilities onto my laptop, and it miraculously recovers all the data on my doomed floppy. I pop the disk into one of the PCs at Kinko's, hit print, and 83 pages and a bunch of copies later, I'm ready to go. Only, on my way out of the store, I catch my reflection in the window. My face is covered in grime from that air filter incident. Good thing I swiped a sample-size bar of Neutrogena from the hotel the other night; I was going to give it to Maura she loves the stuff but she'll understand. Quick trip to the restroom to clean up, and I'm back on schedule. So I'm walking down the street, wishing I had an umbrella, and just then, my briefcase bursts open: papers, receipts, proposals everywhere. Thinking fast, I toss everything into the Staples paper bag and chuck the briefcase into the garbage.
I arrive in Cambridge, soaking wet, and race to the HBS guys' office to deliver the proposal. They eye me skeptically as my sopping wet Staples bag finally gives way, dumping everything onto the floor. Casually as I can, I scoop everything up: the proposals, the Norton Utilities disks, the Continental Cablevision ad, the Calyx & Corolla brochure, the Nicotrol wrapper, and the slippery bar of Neutrogena. Great first impression!
That night I'm at my hotel, sipping a cold Samuel Adams from room service, and I call Maura. She loves the flowers, and all's forgiven good thing she doesn't know I'm making the call on her MCI Calling Card. What a day. As soon as I hang up, I get a call from my HBS angels. One look at me, they said, and they knew I was their kind of guy! Go figure. They're ready to back me. Only to get the ball rolling, I have to catch the red-eye to London tonight. Gee, I wonder if any famous Harvard entrepreneurs started out this way.
No Butts about it
If there is such a thing as an entrepreneurial addiction, David H. de Weese (MBA '65) is hooked. The founder of or key strategist in several startups during the 1970s and 1980s and now a leading player in three young media and medical enterprises, de Weese has helped bring to market some twenty computer, medical, and biotechnology products. Of these, perhaps the most well-known is Nicotrol, a patch worn on the skin that releases controlled amounts of nicotine into the bloodstream to help smokers kick the habit.
Introduced as a prescription drug in 1992 by de Weese's company, California-based Cygnus Research Corporation (now Cygnus, Inc.), Nicotrol represented a breakthrough in transdermal patch technology. Receiving FDA approval in a record nine months, Nicotrol and two other companies' patches were instant hits. Last summer, Nicotrol became the first of these products to receive over-the-counter approval.
De Weese left Cygnus in 1992 to head up M6 Pharmaceuticals, a New Yorkbased vaccine and antibiotics company. In 1995, he launched Hemox Therapeutics, a blood processing startup to treat pulmonary and cardiovascular diseases and diabetes. He also leads a new merchandising and media company serving the African-American community via the Internet. Of these ever-changing challenges, he quips, "I just enjoy learning new things."
In September 1970, Paul J. Orfalea (10th OPM), a hippie just out of college, borrowed $5,000 to open a photocopy shop near the University of California, Santa Barbara, campus. He called it "Kinko's" after the nickname given to him by his college buddies because of his curly, reddish hair.
The first store was situated in the corner of a building that also housed a hamburger stand. It was 100 square feet and featured a single copier, an offset press, film processing, and a small selection of stationery and school supplies. "I essentially had a concept that would work on any college campus in America," says Orfalea, now Kinko's chairman. As the store grew, the space became so crowded that at times the copier was rolled out onto the sidewalk and used for self-service customers.
Today, some analysts estimate annual revenues from the privately held chain's 850 business services and copy shops - which are located all over the United States, Canada, Japan, and the Netherlands - at more than $525 million. Open 24 hours a day, 7 days a week, stores offer a full range of copying, fax, and mailing services, as well as computing and printing self-service, videoconferencing, and digital camera rental. Aging hippie Orfalea's only complaint: "Now we're the Establishment!"
A Blooming Business
Perhaps you're looking for an arrangement of tropical Hawaiian flowers for your office lobby, a bonsai rosemary plant for your gourmet kitchen, or a bouquet of orchids for your significant other. Whatever your botanical fancy, you'll probably find it in Ruth M. Owades's (MBA '75) Calyx & Corolla catalogue.
Since 1989, Owades has been offering American consumers mail-order cut flowers and plants, FedExed directly from the grower. Eliminating wholesalers and distributors clips a week or more off the distribution cycle - giving her flora up to "double the vase life," she says, of regular florist fare.
The idea for the business (whose name refers to botanical flower terms) first sprouted, Owades recalls, "when I noticed that the wholesale flower market in San Francisco seemed busier than ever." Having already created the garden accessory mail- order business Gardener's Eden, she was convinced she could repeat her success with flowers, despite colleagues' misgivings about their perishability. Today, no one disputes Owades's knack for spotting a promising opportunity - this year alone Calyx & Corolla earned a lush $20 million in revenues. Busy managing several hundred employees and a network of 25 growers, Ruth Owades may not have time to smell the roses, but she's not complaining.
Supplies and Demand
Sometimes a small inconvenience can lead to a revolution. The day in 1985 when retailing veteran Thomas G. Stemberg (MBA '73) couldn't find a new printer ribbon for his home office was the day the idea for Staples, the office supply superstore, hit him like a ton of paper clips. With his expertise in low pricing and warehouse-style selling - as well as input from Todd Krasnow (MBA '83), Mitt Romney (MBA '74), and former partner and current HBS assistant professor Myra Maloney Hart (MBA '81, DBA '95) - Stemberg created a company whose sales of $3.1 billion in 1995 are expected to surpass $10 billion when a merger with Office Depot becomes official early next year.
Offering everything from pencils to modems to quality customer service, Staples has evolved from its original store in Brighton, Massachusetts, opened in 1986, to more than 506 retail outlets worldwide. Faced immediately with imitators, Stemberg soon realized he not only created a company, he invented an industry.
Ten years and some 51 million bottles of correction fluid later, Staples continues to expand. "You have to live the reality," explains Stemberg, "but dream the dream." Yet the plethora of products, services, and satisfied customers is more than even Staples' visionary founder fantasized a decade ago.
Last summer, when rumors of a "deadly" computer virus were circulating on the Internet, computer owners worldwide turned to the Symantec Antivirus Research Center (SARC) in Santa Monica, California. Springing into an emergency-response mode, SARC worked around the clock updating its arsenal of antivirus software to protect customers' computer files from the threatened disaster. Such "utilities software" is the brainchild of Peter Norton (13th OPM), the founder of Peter Norton Computing Inc., which merged in 1990 with Symantec Corp.
Originally a computer programmer, Norton bought his first IBM PC in 1981. It was then, after losing some important data, that he wrote the program - later dubbed "UnErase" - to retrieve lost files. "I wrote a program that would, metaphorically speaking, let you rummage through the wastebasket and get back the stuff you'd thrown away," he says.
Using his life savings of $30,000, Norton packaged UnErase with other programs he'd written for IBM PC users, selling them under the name Norton Utilities. Norton's stock rose with IBM's, and his original investment grew into multiple millions.
No longer active in the computer business, Norton currently devotes his time to philanthropy and art collecting. But his legacy continues, saving millions of computer users from their worst nightmare.
Driven to Serve
W. James Hindman (9th OPM) created Jiffy Lube - the nation's first quickie auto fluids change and maintenance service - on a dare. One day in 1978, while serving as a volunteer football coach at Western Maryland College, a student complained to him that there were "no opportunities left in America." A survivor of childhood poverty who became a millionaire by age 35 through nursing-home and commercial-property development, Hindman disagreed. "Bet you couldn't become a millionaire today," challenged the student. "Bet I could," the scrappy coach replied.
Within a few months, Hindman drove right into his opportunity. A local garage bungled routine maintenance on his Cadillac, reminding him of "the huge need out there" for reliable, fast, and low-cost car care. Acquiring eight auto shops in Utah in 1979, he launched Jiffy Lube International Inc. (JLI), which today operates more than 1,300 stores nationwide through franchised and company-owned service centers.
In 1990, Hindman sold JLI to the Houston-based Pennzoil Company and in 1991 started Youth Services International (YSI), an organization that provides residency and community-based programs to help at-risk youth become productive citizens. Currently comprising nearly twenty centers in eleven southern and midwestern states, YSI, says Hindman, "is my way of giving back."
While an analyst for a small-business investment company in Boston in 1962, Amos B. Hostetter, Jr. (MBA '61), was sent to New Hampshire to checkout a novel communications innovation - a nascent cable TV operation looking for venture capital. The new company got its money - and Hostetter realized he had found the opportunity of a lifetime.
Shortly thereafter, in rural Ohio, Hostetter and his friend, H. Irving Grousbeck (MBA '60), set up their own cable enterprise - Continental Cablevision - little more than an antenna service to boost local TV signals that lost strength outside cities. Expanding slowly, by the mid-1970s Continental was installing operations in metropolitan areas, including Boston, which became company headquarters.
Continental Cablevision is now the nation's third-largest cable system operator, serving 4.2 million subscribers in twenty states and earning some $2 billion in annual revenues. Continental merged with US WEST Media Group in November 1996. "Working with US WEST, within the next five to eight years we will be delivering to people's homes a whole package of services, including video, high-speed data transmission, telephony, and cellular phone and paging capability," predicts the genial Hostetter, who will remain Continental's chairman and CEO. "I look forward to the challenge."
In 1957, when Lloyd E. Cotsen (MBA '57) joined Los Angelesbased Natone, his father-in-law's specialty cosmetics company, the Neutrogena soap bar for which he became responsible accounted for $80,000 annually of the $500,000 business. With his personal style of leadership, that brand grew into the Neutrogena Corporation in 1961, went public in 1973, and by 1994 had achieved worldwide annual sales of skin and hair-care products surpassing $300 million.
Much of that success was due to the innovative strategy of the gentlemanly Cotsen to focus on a single brand name with an image for safe, mild, quality skin care endorsed by the medical profession, especially dermatologists. As the company's distinctive "dermatologist recommended" items flew off the shelves, the Neutrogena brand gained strong consumer loyalty. By 1994, its squeaky clean image, clever niche marketing, and high margins attracted the attention of health-products powerhouse Johnson & Johnson, which acquired Neutrogena that same year.
Cotsen retired as chairman and CEO of Neutrogena in 1995. He now spends his time strategizing for nonprofit organizations, managing his own foundation to support teachers and learning, and pursuing his lifelong twin passions for art and archaeology. He notes, however, that he savors most "hugging my wife, Margit, my children, and my grandchildren."
Like many other HBS-trained entrepreneurs, Charles J. ("Jim") Koch (MBA '74, JD '78), founder and CEO of the Boston Beer Company, became a management consultant immediately after leaving Soldiers Field. In time, however, his thoughts turned toward following in the footsteps of five generations of brewmaster forebears and starting a microbrewery that would make beer in small batches and with plenty of hops and malt for a distinctive body and taste.
In the mid-1980s, Koch revived his great-great-grandfather's recipe. Mixing up small amounts in his kitchen and packing unmarked bottles in his briefcase, he spent time during lunch trying to whet the interest of bar managers. "I had about thirty seconds to sell them on the product," he recalls.
When the orders started rolling in, Koch knew he had a chance to find his niche amidst giant corporations that, he says, "spill twice as much in a year" as he hoped to sell. With $100,000 of his own money and $140,000 from other supporters, Koch's company - not to mention the American craft-brewing industry - was born. The popular Samuel Adams product line now comprises several year-round and seasonal brands, and a recent IPO drew enthusiastic support from Wall Street, giving Jim Koch many reasons to say "cheers."
When the late William G. McGowan (MBA '54) agreed in 1968 to take on the financial problems of Microwave Communications, Inc. - better known as MCI - he was used to fixing things. "I specialized in failing companies," said the former management consultant in a 1985 HBS interview. "No matter what a firm's problem was, I always said it was my specialty to take care of it."
MCI, an upstart telecommunications firm that waged a legal tug-of-war with the FCC and AT&T, is now a $15-billion corporation. McGowan's vision transformed the monopolistic long-distance telecommunications business into today's highly competitive industry. "I recognized the risk," said McGowan, "but gambler that I was, I also calculated that the rewards would be much greater if everything fell into place."
During McGowan's tenure, MCI developed cutting-edge voice and data communications technologies, providing millions of customers with more choices at lower prices. Today MCI is the world's third-largest carrier of international calling and a leading provider of data communications over the Internet. McGowan underwent a heart transplant in 1987 but continued as CEO of MCI until December 1991. He died in June 1992 at the age of 64.