Description
With this detailed elucidation concerning entrepreneurs are important drivers of social and economic progress.
22 JANUARY-MARCH 2012 / No. 124 Alumni Magazine IESE
E
ntrepreneurs are
important drivers
of social and eco-
nomi c progress
and, increasingly,
successful early-
stage companies
are changing so-
ciety as they launch products and
ideas that transform the way people
live, work and play. Interestingly,
in our study Global Entrepreneur-
ship and the Successful Strategies of
Early-Stage Companies”we found
that the similarities in early-stage
companies around the globe are
far greater than their differences.
The people behind these new ven-
tures also have much in common.
Viewing the world through the per-
spective of proactive opportunity is
part of the DNA of many successful
entrepreneurs. Starting and build-
ing a new venture typically requires
an enormous amount of optimism,
stamina and ability to survive some
very rocky seas.
EIGHT GROWTH STRATEGIES
FOR NEW VENTURES
l
We succeeded in pinpointing
eight growth strategies for new
ventures, each of which has asso-
ciated opportunity / risk factors. We
also asked a range of executives to
highlight what they believed were the
key growth accelerators and growth
challenges. We also asked them about
their darkest hours of self-doubt,
some of which are highlighted here.
Wave
New product in a new category
Start-ups increasingly play a
key role in transforming the
way we live and in driving
the overall economy, but
starting a company from
scratch is not for the faint-
hearted or impatient.
ANTONIO DÁVILA
Professor of Entrepreneurship
and Accounting, IESE
I D E A S
THE DRIVERS
OF PROGRESS
EARLY-STAGE COMPANIES
early-stage companies • entrepreneurs
start-ups • growth strategies •
OPPORTUNITY AND RISK FACTORS
New product in an existing
category
Redesign of business value chain
Research or discovery of
knowledge
Rollup (aggregation) of existing
players
Governmental, regulatory or
political change
Idea transfer or transplant
RIDING THE WAVE
l
When it comes to waves, few
companies manage to pull off
the “triple play” in which they help
to create a new business wave, play
a major role in building the wave
and continue to ride it. One such
firm is Microsoft. Its founder Bill
Gates says that they had a “focus
on helping to build an entire indus-
try around personal computing. We
worked with a lot of software and
PC companies to help them get off
the ground. Building this ecosys-
tem was critical to our success.”
The distinction between a new
product in a new category and a
new product in an existing cat-
egory is one of degree. Almost all
products labeled as belonging in a
new category will have some fea-
tures that are in existing products.
New product companies can differ
greatly in their ongoing product
strategies. Some keep their first
successful new product as a core
and add ongoing features to it.
Others build an ongoing new prod-
uct pipeline where the aim is to de-
velop a sequence of new products.
New products can exploit short-
23 JANUARY-MARCH 2012 / No. 124 IESE Alumni Magazine
24 JANUARY-MARCH 2012 / No. 124 Alumni Magazine IESE
I D E A S
ever, a subset of new ventures (or
restarted ventures) explicitly make
acquisitions a core and major engine
of their growth strategy, involving
the rollup (aggregation) of existing
players. The key risks in rollup ven-
tures are overpaying for the company
and the assets acquired and a heavy
reliance on debt ?nancing.
GOVERNMENT INCENTIVES
l
The global telecommunica-
tions industry has seen many
start-ups that have benefited from
government incentives or changes
in regulatory systems. Suntech
Power, which makes photovoltaic
cells, took advantage of govern-
ment incentives in Spain and Ger-
many in order to grow the compa-
ny. However, a change in Spanish
government policy in 2008 dented
its profitability.
There are many ways that govern-
ments can promote new ventures in
green technologies and other envi-
ronmental causes. Tesla Motors, a
United States start-up, was founded
in 2003 by Silicon Valley entrepre-
neurs to explore the potential of
electric cars. The U.S. Department
of Energy has provided Tesla with
$45 million in advanced technology
loans to help the U.S. to be competi-
tive in battery technology.
Great ideas can arise anywhere
and often do so simultaneously, but
alert entrepreneurs who use an idea
transfer approach can be early mov-
ers in taking already proven ideas to
other parts of the world. For exam-
ple, Robin Li observed the early suc-
cess of Google and then replicated it
in China in the form of Baidu. “We
recognized that Internet search
in Chinese was an under-served
market,” says Li. “During my time
on Wall Street and in Silicon Val-
ley I had thought deeply about how
searches could be vastly improved
for the Chinese.”
Niklas Zennström, who co-
founded Skype in 2003 set out to
solve a market pain point – the
monthly phone bill, by creating a
free telecommunications network.
“Hundreds of millions of people
STARTING AND
BUILDING A
NEW VENTURE
REQUIRES AN
ENORMOUS
AMOUNT OF
OPTIMISM,
STAMINA AND
THE ABILITY
TO SURVIVE
SOME VERY
ROCKY SEAS.
comings in existing markets, as the
China Lodging Group did in regard
to economy hotels.
VALUE CHAIN
OPPORTUNITIES
l
Value chain restructuring can
take many forms and may be
based around outsourcing of pro-
cesses or research, IT expertise or
restructuring to reduce activities
that add no value. In the case of
Net-a-Porter, its founder Natalie
Massenet saw in the nascent Inter-
net an opportunity to sell high fash-
ion directly to customers. “I wasn’t
trying to transform the store, I was
trying to transform the magazine.
I thought it would be amazing if
you could tell readers what to buy
and also to give it to them with one
click,” Massenet says. In 10 years,
Net-a-Porter’ s revenues have
grown to over $100 million.
Discovery and research knowl-
edge ventures tend to be in the
field of life sciences or the extrac-
tive industries. Companies that
seek to discover major product
breakthroughs for medical condi-
tions such as cancer or diabetes
face daunting risks of success. New
ventures that start at the very early
stages of the discovery process
face a long period before revenues
come in. However, there can be a
very large payoff if a successful new
product is created.
In the extractive industries sector,
in the early exploration stage com-
panies face a very low probability of
finding significant reserves for any
one company but very high payo?s if
that discovery is made. Commodity
price ?uctuation is a signi?cant risk
factor in this sector. For example,
from 1990 to 2002 the price of ura-
nium was below $10 per pound, but
between 2007-2009 the price ranged
from $40 to $90 per pound.
ROLLUP OF
EXISTING VENTURES
l
Acquisitions, mergers and joint
ventures are an important ele-
ment in the growth strategies of both
existing and new companies. How-
25 JANUARY-MARCH 2012 / No. 124 IESE Alumni Magazine
would be interested in this idea,”
he said. “My belief was that if you
could successfully address this ba-
sic idea, you could probably create a
good business out of it.” Two years
later, eBay (a 1995 start-up) paid $3
billion for Skype.
VALLEY OF DESTRUCTION
l
Early-stage companies are
rightfully heralded as a vibrant
and important source of growth.
Statistics on the revenue or jobs
created are often quoted. What is
given much less publicity is the si-
multaneous and sizeable amount
of revenues and jobs destroyed in
the early-stage sector of the eco-
nomy. We characterize these as the
“mountain of creation” and the “va-
lley of destruction,” two concepts
that highlight how the net revenue
and net job creation that we report
for this early-stage sector mask the
larger gross creation by some com-
panies and simultaneous large des-
truction by other companies (who
were the creators in prior years).
Our research also shows that in
the first five years, an early-stage
business will almost certainly ex-
perience one year of losses. For
example, 42 percent of companies
have a pattern of two positive rev-
enue growth years and one negative
growth year in their Year 2 to Year
5. These are among the “dark mo-
ments” that put the ?rm’s strategy
to the test as well as testing the nerve
of those running the ?rm. Start-ups
are not for the faint-hearted. It takes
imagination and vision, but also
plenty of grit and a tough-minded
entrepreneurial spirit of the sort
embodied by Martin Sorrell, CEO
of the communications company
WPP, who said that when everyone
claimed the business was bankrupt
and over-leveraged, “even in those
dark moments I never ever thought
that we were going to go down. Not
even for one second.”
Global Entrepreneurship and the Successful Strategies of
Early-Stage Companies. Foster, George; Dávila, Antonio;
Haemmig, Martin; Xiaobin He; Ning Jia; von Bismarck,
Max; Wellman, Kerry. World Economic Forum. 2011
MORE INFORMATION:
HIERARCHY
OF VALUES
MARTIN SORRELL
WPP, MARKETING COMMUNICATIONS COMPANY
The period from 1990 to 1992 presented the biggest
challenge when people would say we nearly went
bankrupt, we were over-leveraged. The market always
goes one way and another and in dark moments, it always
goes too far one way or the other. But the darkest moment
was then. On the other hand, intellectually, whilst it was
a challenging time, it was a very interesting time. The
biggest test of companies, people, individuals, families and
countries is in their darkest moments, in their toughest
moments. It’s not the easy times that are the true test, it’s
the dif?cult times. In those dark moments in 1991 and
1992 I never ever thought that we were going to go down.
Not even for one second.”
HIERARCHY
OF VALUES
ROBIN LI
CHIEF EXECUTIVE OF BAIDU
CHINA’S LEADING SEARCH ENGINE
After the Internet bubble burst, mainstream websites
no longer wanted to invest in search technology.
In the summer of 2001, we decided that it was time for
Baidu to undergo a major transformation. I recall being in
a conference room in Shenzhen taking calls from members
of the board of directors. I knew right then that consensus
would not be achieved through logical reasoning but through
a demonstration of the founder’s ?erce determination. Later
on, one of the directors told me that the board was not
moved by my theories or reasoning, but by my attitude.”
HIERARCHY
OF VALUES
PIERRE OMIDYAR
FOUNDER OF EBAY
In the early days of eBay, my view was that as long
as it was legal, we could sell it on eBay. One of the
few times we made a decision to limit legal items was when
a member of our board became very upset about Nazi
paraphernalia being sold on the site. It was a tense time
and there were lots of discussions – you could argue that
some of these items hold signi?cant historical value despite
the fact that they offend many of us (myself included). The
community had key input in these discussions and helped
us to ?gure out how to proceed. In the end I think we made
the right decision to prohibit those items from being sold on
eBay. Since then, we’ve also limited other items that promote
hate and racism.”
Recreated PMShttp://www.ebay.com/
doc_877301999.pdf
With this detailed elucidation concerning entrepreneurs are important drivers of social and economic progress.
22 JANUARY-MARCH 2012 / No. 124 Alumni Magazine IESE
E
ntrepreneurs are
important drivers
of social and eco-
nomi c progress
and, increasingly,
successful early-
stage companies
are changing so-
ciety as they launch products and
ideas that transform the way people
live, work and play. Interestingly,
in our study Global Entrepreneur-
ship and the Successful Strategies of
Early-Stage Companies”we found
that the similarities in early-stage
companies around the globe are
far greater than their differences.
The people behind these new ven-
tures also have much in common.
Viewing the world through the per-
spective of proactive opportunity is
part of the DNA of many successful
entrepreneurs. Starting and build-
ing a new venture typically requires
an enormous amount of optimism,
stamina and ability to survive some
very rocky seas.
EIGHT GROWTH STRATEGIES
FOR NEW VENTURES
l
We succeeded in pinpointing
eight growth strategies for new
ventures, each of which has asso-
ciated opportunity / risk factors. We
also asked a range of executives to
highlight what they believed were the
key growth accelerators and growth
challenges. We also asked them about
their darkest hours of self-doubt,
some of which are highlighted here.
Wave
New product in a new category
Start-ups increasingly play a
key role in transforming the
way we live and in driving
the overall economy, but
starting a company from
scratch is not for the faint-
hearted or impatient.
ANTONIO DÁVILA
Professor of Entrepreneurship
and Accounting, IESE
I D E A S
THE DRIVERS
OF PROGRESS
EARLY-STAGE COMPANIES
early-stage companies • entrepreneurs
start-ups • growth strategies •
OPPORTUNITY AND RISK FACTORS
New product in an existing
category
Redesign of business value chain
Research or discovery of
knowledge
Rollup (aggregation) of existing
players
Governmental, regulatory or
political change
Idea transfer or transplant
RIDING THE WAVE
l
When it comes to waves, few
companies manage to pull off
the “triple play” in which they help
to create a new business wave, play
a major role in building the wave
and continue to ride it. One such
firm is Microsoft. Its founder Bill
Gates says that they had a “focus
on helping to build an entire indus-
try around personal computing. We
worked with a lot of software and
PC companies to help them get off
the ground. Building this ecosys-
tem was critical to our success.”
The distinction between a new
product in a new category and a
new product in an existing cat-
egory is one of degree. Almost all
products labeled as belonging in a
new category will have some fea-
tures that are in existing products.
New product companies can differ
greatly in their ongoing product
strategies. Some keep their first
successful new product as a core
and add ongoing features to it.
Others build an ongoing new prod-
uct pipeline where the aim is to de-
velop a sequence of new products.
New products can exploit short-
23 JANUARY-MARCH 2012 / No. 124 IESE Alumni Magazine
24 JANUARY-MARCH 2012 / No. 124 Alumni Magazine IESE
I D E A S
ever, a subset of new ventures (or
restarted ventures) explicitly make
acquisitions a core and major engine
of their growth strategy, involving
the rollup (aggregation) of existing
players. The key risks in rollup ven-
tures are overpaying for the company
and the assets acquired and a heavy
reliance on debt ?nancing.
GOVERNMENT INCENTIVES
l
The global telecommunica-
tions industry has seen many
start-ups that have benefited from
government incentives or changes
in regulatory systems. Suntech
Power, which makes photovoltaic
cells, took advantage of govern-
ment incentives in Spain and Ger-
many in order to grow the compa-
ny. However, a change in Spanish
government policy in 2008 dented
its profitability.
There are many ways that govern-
ments can promote new ventures in
green technologies and other envi-
ronmental causes. Tesla Motors, a
United States start-up, was founded
in 2003 by Silicon Valley entrepre-
neurs to explore the potential of
electric cars. The U.S. Department
of Energy has provided Tesla with
$45 million in advanced technology
loans to help the U.S. to be competi-
tive in battery technology.
Great ideas can arise anywhere
and often do so simultaneously, but
alert entrepreneurs who use an idea
transfer approach can be early mov-
ers in taking already proven ideas to
other parts of the world. For exam-
ple, Robin Li observed the early suc-
cess of Google and then replicated it
in China in the form of Baidu. “We
recognized that Internet search
in Chinese was an under-served
market,” says Li. “During my time
on Wall Street and in Silicon Val-
ley I had thought deeply about how
searches could be vastly improved
for the Chinese.”
Niklas Zennström, who co-
founded Skype in 2003 set out to
solve a market pain point – the
monthly phone bill, by creating a
free telecommunications network.
“Hundreds of millions of people
STARTING AND
BUILDING A
NEW VENTURE
REQUIRES AN
ENORMOUS
AMOUNT OF
OPTIMISM,
STAMINA AND
THE ABILITY
TO SURVIVE
SOME VERY
ROCKY SEAS.
comings in existing markets, as the
China Lodging Group did in regard
to economy hotels.
VALUE CHAIN
OPPORTUNITIES
l
Value chain restructuring can
take many forms and may be
based around outsourcing of pro-
cesses or research, IT expertise or
restructuring to reduce activities
that add no value. In the case of
Net-a-Porter, its founder Natalie
Massenet saw in the nascent Inter-
net an opportunity to sell high fash-
ion directly to customers. “I wasn’t
trying to transform the store, I was
trying to transform the magazine.
I thought it would be amazing if
you could tell readers what to buy
and also to give it to them with one
click,” Massenet says. In 10 years,
Net-a-Porter’ s revenues have
grown to over $100 million.
Discovery and research knowl-
edge ventures tend to be in the
field of life sciences or the extrac-
tive industries. Companies that
seek to discover major product
breakthroughs for medical condi-
tions such as cancer or diabetes
face daunting risks of success. New
ventures that start at the very early
stages of the discovery process
face a long period before revenues
come in. However, there can be a
very large payoff if a successful new
product is created.
In the extractive industries sector,
in the early exploration stage com-
panies face a very low probability of
finding significant reserves for any
one company but very high payo?s if
that discovery is made. Commodity
price ?uctuation is a signi?cant risk
factor in this sector. For example,
from 1990 to 2002 the price of ura-
nium was below $10 per pound, but
between 2007-2009 the price ranged
from $40 to $90 per pound.
ROLLUP OF
EXISTING VENTURES
l
Acquisitions, mergers and joint
ventures are an important ele-
ment in the growth strategies of both
existing and new companies. How-
25 JANUARY-MARCH 2012 / No. 124 IESE Alumni Magazine
would be interested in this idea,”
he said. “My belief was that if you
could successfully address this ba-
sic idea, you could probably create a
good business out of it.” Two years
later, eBay (a 1995 start-up) paid $3
billion for Skype.
VALLEY OF DESTRUCTION
l
Early-stage companies are
rightfully heralded as a vibrant
and important source of growth.
Statistics on the revenue or jobs
created are often quoted. What is
given much less publicity is the si-
multaneous and sizeable amount
of revenues and jobs destroyed in
the early-stage sector of the eco-
nomy. We characterize these as the
“mountain of creation” and the “va-
lley of destruction,” two concepts
that highlight how the net revenue
and net job creation that we report
for this early-stage sector mask the
larger gross creation by some com-
panies and simultaneous large des-
truction by other companies (who
were the creators in prior years).
Our research also shows that in
the first five years, an early-stage
business will almost certainly ex-
perience one year of losses. For
example, 42 percent of companies
have a pattern of two positive rev-
enue growth years and one negative
growth year in their Year 2 to Year
5. These are among the “dark mo-
ments” that put the ?rm’s strategy
to the test as well as testing the nerve
of those running the ?rm. Start-ups
are not for the faint-hearted. It takes
imagination and vision, but also
plenty of grit and a tough-minded
entrepreneurial spirit of the sort
embodied by Martin Sorrell, CEO
of the communications company
WPP, who said that when everyone
claimed the business was bankrupt
and over-leveraged, “even in those
dark moments I never ever thought
that we were going to go down. Not
even for one second.”
Global Entrepreneurship and the Successful Strategies of
Early-Stage Companies. Foster, George; Dávila, Antonio;
Haemmig, Martin; Xiaobin He; Ning Jia; von Bismarck,
Max; Wellman, Kerry. World Economic Forum. 2011
MORE INFORMATION:
HIERARCHY
OF VALUES
MARTIN SORRELL
WPP, MARKETING COMMUNICATIONS COMPANY
The period from 1990 to 1992 presented the biggest
challenge when people would say we nearly went
bankrupt, we were over-leveraged. The market always
goes one way and another and in dark moments, it always
goes too far one way or the other. But the darkest moment
was then. On the other hand, intellectually, whilst it was
a challenging time, it was a very interesting time. The
biggest test of companies, people, individuals, families and
countries is in their darkest moments, in their toughest
moments. It’s not the easy times that are the true test, it’s
the dif?cult times. In those dark moments in 1991 and
1992 I never ever thought that we were going to go down.
Not even for one second.”
HIERARCHY
OF VALUES
ROBIN LI
CHIEF EXECUTIVE OF BAIDU
CHINA’S LEADING SEARCH ENGINE
After the Internet bubble burst, mainstream websites
no longer wanted to invest in search technology.
In the summer of 2001, we decided that it was time for
Baidu to undergo a major transformation. I recall being in
a conference room in Shenzhen taking calls from members
of the board of directors. I knew right then that consensus
would not be achieved through logical reasoning but through
a demonstration of the founder’s ?erce determination. Later
on, one of the directors told me that the board was not
moved by my theories or reasoning, but by my attitude.”
HIERARCHY
OF VALUES
PIERRE OMIDYAR
FOUNDER OF EBAY
In the early days of eBay, my view was that as long
as it was legal, we could sell it on eBay. One of the
few times we made a decision to limit legal items was when
a member of our board became very upset about Nazi
paraphernalia being sold on the site. It was a tense time
and there were lots of discussions – you could argue that
some of these items hold signi?cant historical value despite
the fact that they offend many of us (myself included). The
community had key input in these discussions and helped
us to ?gure out how to proceed. In the end I think we made
the right decision to prohibit those items from being sold on
eBay. Since then, we’ve also limited other items that promote
hate and racism.”
Recreated PMShttp://www.ebay.com/
doc_877301999.pdf