Here is a question for you: Every year thousands and thousands of emerging business leaders attend Business School. Some do it for the network, some do it for the degree, and a few even attend school to learn a couple of new tricks. At the end of the day, is an MBA worth it?
Some say that business is more art than science requiring just as many soft skills (social interaction, leadership), that are near impossible to teach, as hard skills (finance, accounting). These detractors say that any hard skills needed are learned on the job and that a network can be built the old fashion way, and so an MBA is just plain useless. They go on to say that anyone who will make it in business will do so regardless of any three letter degree, and that formalized business training might even inhibit the creative juices.
At the other end of the spectrum, there are those who swear by the MBA. They point to the benefits of a strong network of contacts, a deeper understanding of core business skills, and the benefits of a prestigious degree. They understand that an MBA is not a pre-requisite for business success, but they argue that it is quiet helpful and increases ones odds significantly of “making it”.
I hear both sides of the equation and I wonder what you think…does an MBA increase the likelihood of success and is it a good investment?
I tend to ramble and spew my thoughts on business, entrepreneurship and technology, but I never really discuss my own business. Now is as good a time as any to talk about what we do and how we do it.
The low-wage or non-professional job segment (think restaurant, construction, retail, hospitality workers…) in the United States represents about 25% of the total job market. It is growing at a faster rate and suffers from extremely high turnover rate. The jobseekers filling these positions tend to have lower levels of internet penetration and in many cases lack the English fluency required to use the mainstream job boards. Because of these reasons they tend to look for jobs the old fashioned way; classifieds, word of mouth and employment agencies (which charge jobseekers up to a full weeks wage up front to find them a job).
This is a serious problem for employers because it means that they are also stuck using 20th century tools to recruit for these positions and missing out on the efficiencies of internet recruitment. At HireWorkers.com we have developed a multi-lingual and multi-platform approach to this issue. Jobseekers can access our system in either English or Spanish (more languages coming soon) and interact with the service via the telephone or the internet.
In the past few months we have registered well over 25,000 jobseekers. Most of them have never used the internet to find work before. By making our system accessible to the job seeking demographic, we are able to empower employers with a system that finally harnesses all of the efficiencies of the internet and provides a recruitment platform that is fast, simple and inexpensive. That is in a nutshell what we do.
It has been an incredible ride so far and I look forward to many more late nights and long weekends of doing what I love to do – building companies and turning industries on their heads with technological innovations.
No one is infallible when it comes to business. I learned this lesson pretty early on when I started my first business. With the naivety of a college student, I approached DVA (my first company) thinking that business was like a mid-term or a final exam, and that success was clearly quantifiable and directly correlated to intelligence and hard work.
Business is impossible to predict, mistakes are expected, and success is a combination of hundreds of variables – some within our power and some not.
With that in mind, it is easy to understand why the masters of business over at Wall Street place so much emphasis on diversification. It is definitely not for a lack of confidence in their abilities. They understand that mistakes are expected and success is impossible to predict; the more they spread out their risk the better the chances of riding the winners.
If risk is difficult to quantify for Wall Street which is dealing with established companies with recurring revenues, proven concepts, large customer bases, and experienced management teams, then it is beyond impossible to project at the start-up level.
Because start-up risk is so volatile and difficult to predict that Venture Capital firms have become masters of diversification. They understand that a portfolio of one or two companies, even if they are the “next big thing” is crazy. Every single day incredible ideas are born and die and professional investors mitigate the heavy risk inherent in the game by diversifying into multiple positions.
So what about the entrepreneurs, us poor souls who invest our live savings, multiple years of sweat equity, 18 hour days, and shattered social life’s all for a single lottery ticket with such bad odds that even the very best of the best of investors aren’t willing to commit even 20% of their resources to?
There is no conclusion to this post, only an open ended question that I am sure my fellow start-up founders can appreciate and relate to. We are so caught up in our own confidence that we are blinded by the realities of the space we operate in.
My only advice is that when starting a business, be careful not to commit yourself to a single aspect of your business. You will need to iterate and evolve, so don’t even start unless you can afford to fail a few times within your business. At the end of the day, this might be our form of diversification.
Josh Kopelman at First Round Capital wrote a very interesting post about monetizing consumer internet services with a subscription model. He maintains that going from free to even one cent is such a large step, that most services should remain free and look for advertisers to subsidize their costs and generate revenue.
This is an interesting idea, and I wholeheartedly subscribe to the notion that charging even one cent is extremely difficult when you have a two tier model. At the same time though, I think the advertising game is a dangerous one for most emerging companies. Most web services currently sell standard advertising opportunities for between $1-3 for every 1,000 impressions. This means that a site with an average of 10 page views per customer is generating about 1 – 3 cents per user. So a company needs to scale their service by 200 times to generate the same revenue as a single customer paying just 2 dollars. That’s like going from 100,000 to 2,000,000 users.
The point I am trying to make is, not that advertising is a bad model, but that there are few web businesses that can attract such large volume of users to have it make sense. Depending on the business it might be easier to maintain a smaller user base and monetize them at 200 times or better than what advertising would bring – even if it means sacrificing 150 times more users.
Josh Kopelman cites Free 411 as an example of a service that grew to 5% of the total market by not charging. That’s great from a growth perspective, but the question remains: are they able to monetize that huge volume even remotely as well as the pay-for-use directories?
I get a lot of business plans sent by friends and acquaintances asking for my opinion and it almost seems like it is an unwritten rule of the business plan to list “first to market” as a competitive advantage. What a myth! Being first to market usually means that everyone else can copy your idea and improve on it, while you undertake all of the risk.
Alta Vista came before Google
Broadcast.com existed way before YouTube
Rio preceded the Ipod
Amazon wasn’t the first bookstore selling online
Friendster was first to MySpace’s second
These are just the examples that I can think of at the top of my head for the technology/internet space. There are hundreds of others. I would probably say that copy-cats have a better success rate than market innovators.
So where does that leave you and your brilliant innovative idea? Isn’t the internet supposed to erect natural monopolies because of a “network effect” and the centralization of information? How do you protect your business if being “first to market” is not enough?
Execution!!! Build out your idea in the best way possible, because even though being the first to market your idea isn’t enough, being the first to own your market is the real key.
The internet absolutely allows for very serious natural monopolies, but to enact them you need to own the market first. Meaning you need to be the top dog in your space, be the Google, YouTube and Ipod of your space. Because only by being number 1 can you enjoy the competitive advantages that come with the network effect.
Throughout the building of Emerging Demographics, my advisory board has played an instrumental role in helping me mitigate my inexperience. An advisory board, if constructed properly, can be the main difference between a successful company and a “learning experience.” This is especially true for young entrepreneurs who need to rely on others for a knowledgebase of experience.
The 5 steps to building a strong advisory board:
- Asses your strengths and weaknesses:
A board of advisor’s primary responsibility will be to advice you, the CEO, on key decisions. Therefore, understanding your strengths and weakness is paramount to constructing an advisory group that will help guide you in areas that you need help with. Knowing that you are not a great marketer is not enough, you need to dig deeper and think about all issues relating to managing a business. Do you have the financial acumen, do you have the operational experience, can you manage diverse personalities, do you have the technological prowess, do you know enough people (i.e. connections), and just about all other aspects of business.
2. Understand your business
Not all businesses are the same, and therefore the experiences needed vary widely. While a financial guru is always a big help in establishing a business, a manufacturing guru probably won’t help an emerging blog network. The point is, try to find advisors in similar industries to your business or with an understanding of the market you operate in.
3. Identify advisors
At this point you already have a clear guideline of the needs that must be met by your board of advisors. So the next step is to find people who can help fill those needs. There are a couple of things to consider for each candidate, firstly do you work well with them. Second, do you respect their opinions? Will they be able to provide you with enough time? And finally, are they just a big name or will they add insights, advice or direction? Being a big name might be something you need, but again, at this point you understand what you are looking for and are just trying to fill the needs in the best possible way.
4. Balance the group
Hopefully at this point you have a few candidates who are willing to join the board, and now your job is to create a good mix. No point in having two great marketing advisors when you don’t have someone who can help you with accounting. Try to maintain a good balance and don’t be afraid to leave a hole or two, as you will undoubtedly encounter potential advisors over the next few months that can join the board then. Filling a position for the sake of filling it, is much worse than not filling it at all.
5. Bring ’em on
All that is left now is to officially invite the chosen advisors to formally join the advisory board. Before you do so, make sure you have a very clear understanding of exactly the roles they will play and communicate very clearly what the responsibilities and parameters are. I am no expert on what kind of stock and warrant grants are appropriate to give, but you can read more about it on Brad Feld’s excellent blog.
Every start-up idea that I have listened to, at some point touts patenting the technology as a defensible measure against competition. At the same time, every investor who has any experience in the world of web technologies says that patents are basically useless and businesses should have other competitive advantages.
From my experiences in this arena, and from fighting from deep within the trenches, I can tell you that most business method patents won’t help you fight off competitors. As it is, companies competing for the same space usually take very different approaches. Secondly, as I have written about before, ideas are really just 5% of the difference between success and failure. It mostly comes down to execution, distribution and market trends, not patents on an idea.
So then why patent your revolutionary new technology? It comes down to scalability, fund raising, and ego.
If you do come up with the next big idea, and you are able to execute and build a huge business, then you will look back at the 20k you saved by not patenting your technologies and most likely cry. Patents might not help you get to superstar status, but they can help you stay there by threatening potential competitors with the threat of a lawsuit (something you can’t do as a start-up with a limited budget).
Even though VC’s say they don’t care about patents, they most certainly do. Approach any of them with a pitch and if you don’t have at least a provisional patent they will want to know why. It seems like a lot of times, investors feel more secure in their investments if there are tangible assets that they can turn to for protection.
Who doesn’t like to think of themselves as a creative genius who has a patent under his or her name? Though I am pretty sure it feels a lot better to have built a viable and successful company than it does to have your name on a useless patent.
A patent doesn’t make a lot of sense in the near term when resources are tight for a startup and it won’t get you to the big-time. But not filing for a patent can turn out to be a huge short sighted mistake that investors will hate.
So go ahead and file for a patent, but understand that it is a long term move that won’t help you fight off those competitors until after Google buys you out…