Monday, December 17, 2012

Entrepreneurs v.s. CEO: Ideas or Execution


“Ideas are a dime a dozen. Execution is what is important.” -- Professor William A. Sahlman, HBS


       IDEAS  come  from  determining  that  SEGMENT  that  you  want  to  SERVE.  It’s  usually  who  you   are.  You  serve  best  the  segment  that  is  like  YOU!

 If You Think Your Ideas Is an Ultimate Weapon, Think Again.

Venture capitalists look for people, not ideas. Right people will make ideas into actions. If you have wrong idea, you can find another one. But it is very difficult to to change people. It is easier to replace them. 

A lot of young entrepreneurs often think that they can rule the world when they come up with a great idea. They often forgot that they will need to make the ideas work too. They often end up thinking that that the investors are trying to steal their ideas, or even steal their companies.  These entrepreneurs are usually young. They  like having fun. They are not very responsible. They do not know how to deal with people. When they get kicked out of their own company, they complain about it. They forget that if they were still the management, the company might slowly crumble away. 

Young entrepreneurs often forget that the investors do not give that much weight on your ideas from the beginning. You have a good idea, so they give you seed money to prove it. You take their money and you’ve got your change. If you blow it--if you screw their money, they will replace you with someone who will make your idea works.
“An HBS student who gets in to an argument with a member of the school’s administration. As the debate grew heated the student exclaimed 'Why are you treating me like this? I’m your customers!' Shaking his head, the administrator soberly replied 'No, you’re not. You’re the product.'”

Ideas or Management?

A lot of advanced technology company begins with a great ideas by a young founder. The founder tends to think that they should own everything. But most founding CEOs are forced our of their own company after the first round raising investing capitial. This is because they don’t know how to lead, they don’t know how to build sale forces, and so on. At this stage, you don’t need ideas, but you need management skill.

But this is understandable. Founding CEOs starts off being an idea guy. As the company grows rapidly, the founding CEOs do not have enough time to develop management skills. They cannot keep up with the growing size of the company. So, the investors would have no choice but to replace the fouding CEOs with those who have better management skills.


Entrepreneurs and CEO

The objectives of entrepreneurs and companies are quite different. If you were an entrepreneur, you'd probably don't care much about moving up the corporate latter. You might even be frustrated with bureaucracy. To launch a new product, you might have to tell you boss. You boss then has to put your idea together and require a lot of supporting documents. Then you case would go through the marketing department to make sure that your product do not kill other products. It may take months if not years until your product hits the real market. 

You get tired of this bureaucracy. You have a great idea, and you think you can do it better than the company you are working for. You do it because you believe in it. You want adventure and excitement of doing something you truely believe in. You don’t need proof or supporting documents, because you know that it's gonna work in your own heart. You don't even need a lot of money. Money is important, but just up to the point to nurture your venture. What's more important to you is the success of your venture, because you want to prove to the work that it works.

So you did it and it works. You start your own company and become a successful entrepreneur. But the irony is that, after your success,  the company you’re working for came in and offer to buy your company. And, you think “I told you so!”

So, your main objective is to prove that you’re right. You did so by launching your first product. Now you’ve become the company. From this moment, you objective would change significantly, if not completely. The key question changes from “how do I launch this new exciting product?” to “how do I keep my company alive”. At this point, you should be worried about marketing and selling you products. You might also have quite a few people working for you. What’d happen to these people if your company go out of business. Let’s say that one day an employee come in and tell you that you need to change your business models from getting money from customers to offering free service to your customers. You believe it, you think it’s gonna work, but would you risk doing it? Would you put your company and all your employees’ well-being behind this idea? If you find yourself asking this question. You are transforming from an entrepreneur to a CEO. 


That's why you should sell your company!

Good investors look for the quality of the management team, rather than you product of the company. They look for what you do, rather than what you created. They want to buy your company not the product that your company make. 

Don’t be afraid to be taken over by these people. When you sell your company, you get, say, $20M for the company ownership. And, if you are good at running the company, they are going to hire you as one of the management team. So you get the money, and you get hire by the investors. When you have $20M, you can choose either to work as the CEO of your founding company, or to leave and starting up another company. What more would you ask for?
“Start and build, and take your win! Take some money off the table.” -- Ledeky-Darman theory of entrepreneurship
But do afraid of a few things. First, if you are not a good at running the company. For example, you spend company’s money buying your luxury house, flashy cars, and so on, you don’t know how to sell your products, you don’t know to how to motivate people to work for you and so on. Don't blame the investors to kick you out of your own company. If you watch “Social Network”, or read either “Accidental billionaire” or “The Facebook Effect”, you’d probably heard of Sean Parker. Parker is a tech savvy and enterpreneur who complained that he was kicked out of his own company after letting VCs invest in his company. And, he’s been trying to get a vengence on those VCs. I was empathetic to Parker at the time. But looking back, I think it’s fair for the VCs to kick the Parker out. Sure, he was a great innovator. He had great ideas. But he was unpredictable. He did things in his own way. He preferred having fun to running company. If the VCs did not kick him out, the company would consume itself to death anyway. So that the first caution, look at yourself. Are you good at running the company? If so, you don’t have to worry about it. 

Secondly, you need to watch out for bad investors, e.g., the arbitrage doers. These investors could not careless about your company. They want to buy your company as cheap as it can be from you, and then sell it dearly to someone else. They don’t care about the well-being of your company unless it make the selling price higher. 

Source:The Intelligent Entrepreneur: How Three Harvard Business School Graduates Learned the 10 Rules of Successful Entrepreneurship by Bill Murphy Jr. 
[Read the Book Review] [Read the Previous Part] [Read the Next Part].

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Book or Audiobooks?

Personally, I prefer audiobooks. It's fun, and I can listen when I'm doing something else. It also makes other activities (e.g., jogging) a lot more fun. For more detail about audiobooks, please read [this post].

There is one more reason that may encourage you to go for the audiobook version. You can get it now for FREE. Audible offers you a free trial for 14 days. Even if you get the book and cancel the subscription right away (so that you don't have to pay), you can keep the book. And, don't worry if you lost the audiobook file. Just log into audible.com. You can keep downloading the over and over again.
About the summary: It takes time to finish up a book. And, when you do, sometimes, you want to review what you learn from the book. If you do not make  notes as you read, you might have to go through the book once again. This can be time-consuming when you are dealing with a book. But you can still flip through the book and locate what you are looking for.

However, when the material is an audiobook, it is extremely hard to locate a specific part of content. Most likely you will have to listen to the entire audiobook once again.

This book summary will help solve the pain of having to go through the book all over again.

I am leaving out the details of the books. Most books have interesting examples and case studies, not included here. Reading the original book would be much more entertaining and enlightening. If you like the summary, you may want to get the original from the source below.

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