HBR’s 10 Must Reads on Entrepreneurship and Startups
Authors: William A. Sahlman, Steve Blank, Norman Winarsky, Marc Andreessen, Diane Mulcahy, Hamdi Ulukaya, Andrei Hagiu, Simon Rothman, Reid Hoffman, Richard S. Ruback, Royce Yudkoff, Noam Wasserman
Overview
This book, a compilation of articles from Harvard Business Review, serves as a guide for anyone interested in understanding the nuances of entrepreneurship and the journey of building successful companies. We address both traditional and emerging paths, dispelling common myths, and offering practical insights based on decades of experience working with entrepreneurs and investors. I explore the crucial traits of successful entrepreneurial leaders, emphasizing the importance of thriving in uncertainty, passion for ownership, and persuasion skills. We delve into the art of crafting a compelling business plan, focusing on the four key factors that investors look for: people, opportunity, context, and risk and reward. I also introduce the lean start-up methodology as a more effective approach to launching ventures, highlighting its core principles of experimentation, customer feedback, and iterative design. We examine real-world examples, like the development of Siri and the success of Chobani yogurt, to illustrate the challenges and rewards of the entrepreneurial journey. We also address the unique dynamics of online marketplaces and the challenges of blitzscaling – rapidly growing a company to achieve market dominance. Finally, we delve into the founder’s dilemma – the trade-off between wealth and control – and explore alternative paths like acquisition entrepreneurship, offering guidance for each stage of the process. This book aims to equip entrepreneurs and aspiring business leaders with a more realistic and nuanced understanding of the entrepreneurial journey, providing them with the knowledge and tools to navigate the challenges and capitalize on the opportunities that lie ahead.
Book Outline
1. Hiring an Entrepreneurial Leader
This chapter debunks common stereotypes about entrepreneurs and reveals the true qualities that drive their success. It argues that thriving in uncertainty, fueled by a restless need to explore and learn, is a key differentiator. Entrepreneurs are not risk-seekers but are comfortable with risk and find uncertainty motivating. They are driven by a need for ownership and control over their ventures, similar to artists or authors, rather than a desire for dominance over others. And finally, persuasiveness is crucial for entrepreneurs as they must sell their vision to team members, investors, and customers alike.
Key concept: Successful entrepreneurs possess three key characteristics: the ability to thrive in uncertainty, a passion for owning projects, and persuasion skills. Many commonly associated traits like exceptional creativity or risk-seeking behavior are less important.
2. How to Write a Great Business Plan
Contrary to popular belief, a successful business plan doesn’t rely on elaborate financial projections but on a deep understanding of the four key elements: the people involved, the opportunity itself, the market context, and the associated risks and rewards. For each element, the plan should address a series of critical questions that reveal the strengths and vulnerabilities of the venture. The focus should be on demonstrating a deep understanding of the target market, the competitive landscape, and the potential for future growth and expansion, while honestly acknowledging the risks involved.
Key concept: A great business plan focuses less on detailed financial projections, which are inherently uncertain for new ventures, and more on answering key questions about the four critical factors: people, opportunity, context, and risk and reward.
3. Why the Lean Start-Up Changes Everything
This chapter introduces the lean start-up methodology as a new and more effective approach to launching companies, challenging the traditional emphasis on detailed business plans and lengthy development cycles. It outlines the three core principles of the lean start-up approach: (1) starting with a series of untested hypotheses, summarized in a ‘business model canvas’; (2) using customer development to rapidly test those hypotheses through minimum viable products and continuous feedback; and (3) embracing agile development, which allows for rapid iteration and adaptation based on customer insights. The chapter argues that this approach, along with other trends like the rise of open-source software and cloud computing, is creating a new, more entrepreneurial economy.
Key concept: The lean start-up methodology prioritizes experimentation over planning, customer feedback over intuition, and iterative design over traditional ‘big design up front’ development.
4. The President of SRI Ventures on Bringing Siri to Life
This chapter focuses on the human element in launching successful ventures, emphasizing the crucial role of the founding team. A compelling team, with relevant industry experience and a proven ability to execute, is far more important to investors than the initial product or idea itself. The author highlights the journey of building Siri, showcasing how a talented team navigated various challenges, secured funding, and ultimately delivered a groundbreaking product. He underscores the importance of persistence, adaptability, and a clear vision for attracting investors and overcoming obstacles.
Key concept: Investors focus on people, not just ideas. A strong team with relevant experience and a track record of success is crucial for attracting investment.
5. In Search of the Next Big Thing
In this chapter, seasoned venture capitalist Marc Andreessen discusses the traits of successful entrepreneurs, the importance of building a strong company foundation before going public, and the evolving landscape of the start-up ecosystem. He emphasizes the need for entrepreneurs to focus on building products that address real customer needs and creating robust business models capable of withstanding market pressures. He also cautions against chasing hype or seeking quick exits, advocating for the creation of sustainable, long-term value.
Key concept: Look for start-ups with solid fundamentals—a product that solves a real problem, a large and growing market, a great team, and a sustainable business model—rather than those based solely on hype or potential for a quick exit.
6. Six Myths About Venture Capitalists
This chapter debunks common myths surrounding venture capital, revealing that it is not the primary source of start-up funding. While often glamorized, VCs invest in a very small percentage of companies, and their returns are often overstated. Alternative sources like angel investors, crowdfunding, and self-financing play a much larger role in funding the vast majority of new ventures. The author argues that focusing solely on VC funding can lead entrepreneurs to make decisions that are not in their best interests and that a more realistic view of the industry is crucial for success.
Key concept: Venture capital financing is the exception, not the norm, for start-ups. The vast majority of businesses, particularly Main Street companies, are funded through other means.
7. Chobani’s Founder on Growing a Start-Up Without Outside Investors
This chapter offers an alternative perspective on funding and scaling a start-up, demonstrating that success is possible without relying on external investors. The author recounts the story of Chobani yogurt, highlighting how they achieved rapid growth by focusing on profitability from day one, carefully managing cash flow, and making strategic decisions about pricing, distribution, and production capacity. By controlling their destiny and remaining the sole owner, Chobani’s founder preserved the company’s values and long-term vision.
Key concept: It’s possible to build a successful, billion-dollar company without relying on venture capital. By focusing on profitability early on, carefully managing cash flow, and making strategic decisions about pricing and distribution, Chobani achieved remarkable growth without external investors.
8. Network Effects Aren’t Enough
This chapter delves into the specific challenges faced by entrepreneurs building online marketplaces, emphasizing that achieving sustainable growth requires more than just relying on network effects. Rapid scaling can expose flaws in the business model, and maintaining trust and safety among users is crucial for success. The authors discuss strategies for mitigating disintermediation risk and proactively addressing regulatory challenges, highlighting the importance of careful planning, adaptability, and a strong focus on customer needs.
Key concept: While network effects are a crucial driver of success for online marketplaces, achieving sustainable growth requires addressing additional challenges like managing rapid scaling, building trust and safety among users, preventing disintermediation, and navigating regulatory hurdles.
9. Blitzscaling
This chapter explores the concept of ‘blitzscaling,’ a strategy for rapidly scaling companies in today’s fast-paced, networked world. The author argues that achieving significant growth requires a different approach than traditional scaling methods, often involving calculated chaos, rapid iteration, and making critical decisions with limited information. He highlights the challenges and risks associated with blitzscaling, including potential for organizational dysfunction and employee unhappiness. However, he emphasizes that the rewards, in terms of market dominance and long-term value creation, can be substantial for companies that successfully navigate this process.
Key concept: Blitzscaling is the art and science of rapidly scaling a company to serve a large market, often requiring unconventional strategies and a high tolerance for risk. It’s not about following a set playbook but about adapting quickly, making decisions with limited information, and embracing calculated chaos.
10. The Founder’s Dilemma
This chapter examines the fundamental dilemma faced by entrepreneurs as their businesses grow: the choice between maximizing their personal wealth or retaining control over their company. The author introduces the ‘rich vs. king’ framework, highlighting the trade-offs involved in each path. ‘Rich’ entrepreneurs prioritize financial gains, often by giving up equity and control to investors and experienced executives. ‘King’ entrepreneurs prioritize control, often bootstrapping their ventures and resisting external influence, even if it limits their company’s growth potential. The author argues that there is no right or wrong answer, but self-awareness about one’s motivations is crucial for navigating this dilemma and making choices that align with one’s personal definition of success.
Key concept: Entrepreneurs face a fundamental dilemma: Do they prioritize ‘being rich’—maximizing their financial gains by giving up control—or ‘being king’—retaining control over their company even if it limits its growth potential.
11. Buying Your Way into Entrepreneurship
This chapter explores the increasingly popular path of ‘acquisition entrepreneurship,’ where individuals purchase and run existing businesses rather than starting new ones. The authors outline a step-by-step process for aspiring acquisition entrepreneurs, covering key stages like self-reflection, the search process, deal negotiation, and leadership transition. They emphasize the importance of thorough due diligence, effective relationship building, and managing cash flow for success in this path. While this approach offers the potential for immediate impact and ownership, it requires a unique set of skills and a high tolerance for risk.
Key concept: Acquisition entrepreneurship offers aspiring leaders a path to immediate impact and ownership, but it requires a combination of managerial skills, confidence, persuasiveness, persistence, a thirst for learning, and a high tolerance for risk.
Essential Questions
1. What are the essential characteristics of successful entrepreneurial leaders, and how can companies identify and attract such individuals?
Identifying and attracting individuals with these qualities is paramount. Look for candidates who demonstrate comfort with ambiguity, a hunger for ownership and creative control, and a natural ability to persuade and inspire others. Traditional hiring processes may not be effective in identifying these individuals, so consider using behavioral interview questions and assessments that focus on their past experiences and decision-making styles.
2. How can entrepreneurs craft a compelling business plan that resonates with investors and sets the stage for long-term success?
Focus on articulating a compelling narrative that answers key questions about the team’s capabilities, the market opportunity, the competitive landscape, and the potential risks and rewards. Instead of fixating on detailed financial projections, which are inherently uncertain for new ventures, concentrate on demonstrating a deep understanding of the target market and a clear path to sustainable growth. Emphasize the team’s ability to execute and adapt to changing circumstances.
3. How does the lean start-up methodology differ from traditional approaches to launching companies, and what are its key advantages?
This iterative and customer-centric approach, grounded in continuous experimentation and learning, offers a more effective alternative to the traditional, plan-driven approach. It encourages entrepreneurs to test their hypotheses early and often, gather continuous customer feedback, and adapt their products and business models based on real-world insights. This methodology reduces the risk of building products that nobody wants and fosters a culture of innovation and agility.
4. What are the unique challenges associated with building and scaling online marketplaces, and how can entrepreneurs overcome them?
Beyond relying on network effects, successful marketplace entrepreneurs must navigate challenges such as rapid scaling, establishing trust and safety, preventing disintermediation, and navigating complex regulatory landscapes. Carefully managing growth, building robust systems for trust and safety, and offering compelling incentives for users to stay on the platform are crucial for long-term success.
5. What is the ‘founder’s dilemma,’ and how can entrepreneurs navigate the trade-off between wealth and control as their companies grow?
The choice between maximizing personal wealth (‘being rich’) or retaining control over the company (‘being king’) is a fundamental dilemma faced by many entrepreneurs. The right decision depends on the founder’s personal motivations and goals. Understanding this trade-off early on can help founders make informed decisions about funding, hiring, and leadership transitions that align with their vision for the company and their definition of success.
Key Takeaways
1. Thriving in uncertainty, passion for ownership, and persuasion skills are more crucial for entrepreneurial success than commonly perceived traits like exceptional creativity or risk appetite.
While creativity and risk-taking are often associated with entrepreneurs, research suggests that the ability to thrive in uncertainty, a passion for ownership, and strong persuasion skills are more crucial. These qualities enable entrepreneurs to navigate the unpredictable nature of start-ups, maintain focus on their vision, and rally others around their ideas. Recognizing these as key indicators of entrepreneurial potential can lead to more effective hiring and team building.
Practical Application:
A hiring manager at a tech company looking for a product manager to lead a new initiative could use behavioral interview questions like ‘Tell me about a time you had to navigate a highly uncertain situation’ or ‘Describe a project you initiated and owned from start to finish’ to assess the candidate’s ability to thrive in uncertainty and their passion for ownership.
2. The lean start-up methodology, emphasizing experimentation and customer feedback, offers a more effective approach to launching companies than traditional, plan-driven methods.
Instead of spending months creating a traditional business plan, lean start-ups prioritize rapid experimentation and learning. They use tools like the business model canvas to outline their key hypotheses and then test them through customer development, gathering continuous feedback from early adopters to validate or pivot their assumptions. This approach minimizes wasted effort and increases the likelihood of finding a product-market fit.
Practical Application:
A start-up team developing a new mobile app could create a business model canvas to outline their key hypotheses about the target customer, value proposition, distribution channels, and revenue streams. They could then rapidly build a minimum viable product (MVP) with core functionalities and test it with early adopters, using the feedback to iterate and improve the product and the business model.
3. Blitzscaling, the disciplined pursuit of rapid growth, is crucial for achieving market dominance in the fast-paced, networked world but comes with its own set of challenges and risks.
In today’s networked age, rapid scaling is often crucial for achieving market dominance. Blitzscaling, the disciplined pursuit of hypergrowth, requires companies to make bold decisions, embrace calculated risks, and adapt quickly to changing circumstances. This approach can be chaotic and require unconventional strategies, but the rewards in terms of market leadership and long-term value creation can be substantial.
Practical Application:
A founder of a growing e-commerce company could observe the trajectory of other players in their industry, particularly those employing blitzscaling strategies. By analyzing their competitors’ growth patterns, hiring practices, and market expansion strategies, the founder can gain insights into the potential challenges and opportunities associated with rapid scaling and adjust their own approach accordingly.
4. Entrepreneurs face a fundamental dilemma between maximizing personal wealth (‘being rich’) and retaining control (‘being king’), and their decisions should reflect their personal motivations and goals.
The ‘founder’s dilemma’ highlights the inherent tension between personal wealth and control in the entrepreneurial journey. Founders who prioritize ‘being rich’ are more likely to give up equity and control to attract investors and experienced executives. Founders who prioritize ‘being king’ will focus on retaining control, even if it means limiting their company’s growth potential. There is no right or wrong answer, and the best path depends on the founder’s personal motivations and definition of success.
Practical Application:
An entrepreneur who values control over their company could choose to bootstrap their venture, focusing on businesses that don’t require significant outside investment and allow them to leverage their existing skills and contacts. They could prioritize building a sustainable and profitable business over pursuing rapid growth that might require relinquishing control.
5. Acquisition entrepreneurship offers aspiring leaders a path to immediate impact and ownership but requires specific skills and a systematic approach to searching, negotiating, and transitioning into leadership.
While starting a new venture from scratch is the most common image of entrepreneurship, buying and running an existing business offers an alternative path with the potential for immediate impact and ownership. This approach requires a different set of skills, including the ability to quickly assess and manage an existing operation, build relationships with employees and customers, and ensure a steady cash flow. This path can be particularly appealing to individuals who value control and flexibility and are comfortable taking on established challenges.
Practical Application:
An aspiring entrepreneur with limited experience in a specific industry could join a company within that industry as an employee or advisor for a few years to gain valuable insights and build a network before venturing out on their own. They could also focus on acquiring a business within an industry they already understand, leveraging their existing knowledge to add value and accelerate growth.
Suggested Deep Dive
Chapter: The President of SRI Ventures on Bringing Siri to Life
This chapter provides a real-world case study of the development of a groundbreaking AI product, highlighting the importance of building a strong team, navigating market challenges, and securing funding. It offers valuable insights for AI product engineers looking to understand the entrepreneurial journey of bringing an AI innovation to market.
Memorable Quotes
Hiring an Entrepreneurial Leader. 1
Companies of all shapes and sizes aspire to be seen as highly innovative, nimble, and agile—all qualities traditionally ascribed to entrepreneurs.
How to Write a Great Business Plan. 13
In my experience with hundreds of entrepreneurial startups, business plans rank no higher than 2—on a scale from 1 to 10—as a predictor of a new venture’s success.
Why the Lean Start-Up Changes Everything. 36
Over the past few years, a new methodology for launching companies, called the ‘lean start-up,’ has begun to replace the old regimen.
The President of SRI Ventures on Bringing Siri to Life. 44
A typical professional venture-capital firm receives approximately 2,000 business plans per year. These plans are filled with tantalizing ideas for new products and services that will change the world and reap billions in the process—or so they say. But the fact is, most venture capitalists believe that ideas are a dime a dozen: only execution skills count.
Chobani’s Founder on Growing a Start-Up Without Outside Investors. 80
Too many entrepreneurs believe it’s impossible to scale a business without relying on VCs or other equity investors. That view is wrong. If I could grow a company from zero to $1 billion in less than a decade in a capital-intensive industry, many other businesses can too.
Comparative Analysis
This book distinguishes itself from other entrepreneurial guides by focusing on a broader spectrum of entrepreneurial paths, including acquisition entrepreneurship and the nuances of scaling online marketplaces. While many books celebrate the ‘start-up from scratch’ narrative, “HBR’s 10 Must Reads” acknowledges the realities of various entrepreneurial journeys. Its inclusion of diverse voices, from seasoned venture capitalists like Marc Andreessen to bootstrapping entrepreneurs like Hamdi Ulukaya, offers a balanced perspective. The book echoes the emphasis on customer centricity found in works like “The Lean Startup” by Eric Ries but goes further by exploring the organizational and leadership challenges of hypergrowth and the unique dilemmas faced by founders.
Reflection
This book provides a valuable and multifaceted perspective on entrepreneurship, emphasizing the importance of adapting to the changing business landscape. However, it’s important to note that the book’s focus on Silicon Valley-style entrepreneurship may not fully capture the nuances of building businesses in other contexts. The emphasis on rapid growth and market dominance, while valid for certain industries, may not be suitable or desirable for all types of ventures. It’s crucial for entrepreneurs to critically assess their own goals and motivations, carefully consider the trade-offs involved in different paths, and make strategic decisions that align with their vision for the company and their personal definition of success. While the book offers insightful advice and practical guidance, it’s essential to remember that entrepreneurship is a journey filled with uncertainty and that there is no single formula for success. The real value lies in embracing the principles of adaptability, customer centricity, and continuous learning, tailoring them to fit the specific needs and context of each venture.
Flashcards
What are the three key characteristics of successful entrepreneurs, according to Timothy Butler?
The ability to thrive in uncertainty, passion for ownership, and persuasion skills.
What are the four key factors that a great business plan should address, according to William A. Sahlman?
People, opportunity, context, and risk & reward.
What are the three core principles of the lean start-up methodology?
Experimentation over planning, customer feedback over intuition, and iterative design over traditional ‘big design up front’ development.
What is the lean definition of a start-up?
A temporary organization designed to search for a repeatable and scalable business model.
How do venture capital firms typically generate revenue, insulating them from poor returns?
By charging annual fees on committed capital and a percentage of profits upon successful exits.
How can businesses achieve significant growth without relying on venture capital, as illustrated by Chobani yogurt?
Focus on profitability early, manage cash flow carefully, make strategic decisions about pricing and distribution, and leverage the flexibility of being a sole owner.
Beyond the initial chicken-and-egg problem, what other challenges can derail online marketplaces?
Growing too fast too early, fostering insufficient trust and safety, resorting to sticks rather than carrots to deter disintermediation, and regulatory risk.
What are the two advantages that a start-up has as a first mover going through blitzscaling?
Focus and Speed.
What is blitzscaling?
The science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale.
What is the ‘founder’s dilemma’?
Entrepreneurs face a choice between maximizing personal wealth (‘being rich’) or retaining control over their company (‘being king’).