Stanford Webinar: What it Takes to Launch a Successful Venture
09 Nov 2024 (13 days ago)
Introductions of Mike Lions, Ray Levitt, and James Courier
- Mike Lions is a serial entrepreneur, adjunct lecturer at Stanford, and venture capitalist across five different funds, having founded numerous companies and currently serving as the chairman of two high-tech startups. (15s)
- Mike Lions is also a general partner with Native First Capital and managing director of New Line Ventures, an incubator, and was the founding professor of the class MSN 273 or C246, now called Venture Creation for the Real Economy. (29s)
- Dr. Ray Levitt served on the faculty of MIT's Civil Engineering department until 1980 and then joined Stanford's Civil and Environmental Engineering faculty, founding and directing the Stanford Advanced Project Management program, which issued over 9,000 certificates during its 20-year run. (1m4s)
- Dr. Ray Levitt co-founded three software startups, is the president of the Farmers Investment Club and Angel Investment Group of Stanford faculty and affiliates, and became an operating partner of Blackorn Ventures after retiring from Stanford in 2017. (1m34s)
- James Courier is a five-time founder and angel investor in companies such as DoorDash, Lift, and Patreon, and a founding partner at NFX, having co-founded successful companies like Tickle, Wonderhill, Iron Pearl, and GIF. (2m8s)
- James Courier is a lifelong learner and developer of talent, sharing wisdom among founders and providing valuable resources on the NFX website. (2m29s)
- The discussion aims to cover what it takes to launch a successful venture, drawing from the experiences of the three guests as founders, venture capitalists, and educators, and exploring how to teach and learn those skills outside of a coaching environment. (2m53s)
James Courier's Entrepreneurial Journey and Early Experiences
- The entrepreneurial journey began at Princeton, where a couple of companies were started, and a year was taken off to pursue entrepreneurial ventures (3m36s).
- After working at Battery Ventures as an associate from 1994 to 1997, the experience provided an early look at the industry, with only 40 venture firms in the US and 150 General Partners (3m53s).
- Upon graduating from Harvard Business School in 1999, the first company, initially named incorrectly, was started, and the name was later changed to Tickle (4m11s).
- Six classmates were initially asked to join the company, but all declined, until the seventh person agreed to join (4m44s).
- The company raised money from friends and family but promptly ran out of funds, requiring monthly fundraising efforts to keep the business going (4m56s).
- The founder went without a salary for six months, and the company was on the verge of missing payroll and going out of business before securing Series A funding from a venture firm (5m6s).
- A key lesson learned from the experience is the importance of hitting hard, raising more funds than anticipated, talking to more people, iterating faster, and making quicker decisions to break through in a startup environment (5m37s).
- Despite studying entrepreneurship at Harvard Business School and working at a venture capital firm, the lessons learned from the first startup experience were invaluable and could not have been fully understood without going through the challenges (6m6s).
- The struggles and hard lessons learned during the initial startup experience were valuable in instilling the importance of perseverance and adaptability, which contributed to future success (6m33s).
- The experience suggests that suffering and perseverance are essential components of the entrepreneurial journey, and those who do not enjoy these aspects should not pursue entrepreneurship (6m47s).
The Nature of Entrepreneurship and the Importance of Suffering
- Running a startup is the opposite of being a high-achieving student, as it involves dealing with constant negativity, suffering, and criticism from employees, investors, and the market (6m55s).
- Founders must be prepared to face suffering, fear, and self-doubt, and should only pursue entrepreneurship if they feel compelled to do so and cannot imagine not being a founder (8m9s).
- Corporate transformation requires personal transformation, and founders must be willing to change, accept their mistakes, and adapt to new situations (8m23s).
- The resistance and suffering that founders experience often come from their own lack of willingness to change and accept criticism, particularly for those who have been high achievers throughout their careers (8m27s).
- Entrepreneurship programs often fail to teach the importance of suffering and personal transformation, and founders must be prepared to learn these lessons through experience (9m33s).
- Even experienced entrepreneurs, such as James and Mike, have had to learn these lessons through their own experiences, and emphasize the importance of being prepared for the challenges of entrepreneurship (9m28s).
Mike's Transition to Entrepreneurship and the Challenges of Building a Venture
- Mike's background in engineering and his experience running a group of control systems engineers at Lockheed did not prepare him for the challenges of entrepreneurship, and he had to learn through an "abrupt transition" (10m9s).
- Building a successful venture requires intense effort and dedication, making it challenging to balance with other responsibilities, such as a PhD program (10m28s).
- The process of entrepreneurship is brutal, demanding, and can be rough mentally and physically, with entrepreneurs often experiencing extreme highs and lows in a short period (11m32s).
- While some aspects of entrepreneurship can be taught, such as process and thinking, the grit and intensity required to succeed cannot be fully prepared for and must be learned through experience (12m5s).
The Importance of Team and Pivoting in a Startup
- A crucial factor in building a successful company is the team, with a good team able to improve a mediocre idea, but a bad team likely to fail even with a great idea (13m13s).
- Most early-stage ventures require significant pivots to get things working, and entrepreneurs must be prepared to make quick decisions and adapt to changing circumstances (13m55s).
- The ability to pivot and iterate on an idea is essential, and entrepreneurs must be willing to make changes and adjustments as needed to achieve success (14m49s).
- Coaching people through the process of entrepreneurship involves preparing them for the intensity and uncertainty of the journey, and helping them develop the skills and mindset needed to succeed (14m59s).
Ray Levitt's Entrepreneurial Journey and Transition to Venture Capital
- Rey started his entrepreneurial journey in high school by launching a company to import Swedish clogs into South Africa, which eventually broke even but was not a long-term success (15m33s).
- He attended Stanford to study construction management in the early 1970s, but the business school at the time had no interest in entrepreneurship, leading him to organize a course for Boards of Directors for private companies (15m53s).
- Rey's decision to pursue a PhD led to him becoming a professor, as the industry would not hire someone with a PhD, and he eventually taught at MIT and Stanford (16m11s).
- At Stanford, he became involved with graduate students who wanted to start companies, and he launched his first company, which applied early AI technology to medical diagnosis, construction safety, and other areas, but ultimately failed due to a loss of faith from the venture capitalist (16m57s).
- Despite the failure, Rey was able to raise money for his next company, which developed a configuration system for data centers and oil refineries, and achieved more success, with one of the products being acquired by Bentley Systems (18m1s).
- Rey later met venture capitalists while running a board of directors conference and decided to pursue a career in venture capital after doing three startups and becoming an angel investor, eventually joining Blackhorn Ventures in 2017 (18m23s).
The Role of Luck and Support in Entrepreneurship
- Starting a successful venture requires a combination of being smart and lucky, but if one had to choose, being lucky is more important, as it can help navigate the brutal hardships that come with entrepreneurship (18m44s).
- Founders often face significant challenges, such as pitching to potential customers who may not be interested, dealing with last-minute changes from venture capitalists, and facing rejection (18m51s).
- It's essential to have a support system, such as a partner or team member, who can provide encouragement and help navigate difficult times (19m27s).
- One lesson learned is to avoid starting a company with a spouse, sibling, or close friend with whom you've never worked in business before, as disagreements can be challenging to resolve and slow down decision-making (19m41s).
Identifying and Coaching Potential Founders
- When identifying potential founders, it's essential to look for traits such as grit and persistence, which can be demonstrated by their ability to bounce back from failures and setbacks (21m9s).
- To coach people through the suffering that comes with entrepreneurship, one technique is to provide tough feedback during pitch sessions and observe how they react, looking for openness to changing their idea and adaptability (21m45s).
- Founders should be prepared to face significant challenges and setbacks, but with the right mindset and support, they can navigate these difficulties and increase their chances of success (20m10s).
- Engineers often struggle with product-market fit, and when salespeople fail to sell their product, they may attribute it to the salespeople's incompetence rather than their own product's flaws, which can be a personal failure to accept (22m11s).
- Successful people tend to attribute their success to their intelligence and hard work, while failures lead to reflection on what went wrong, which is why Silicon Valley often invests in entrepreneurs who have experienced failure, as they have learned valuable lessons (22m36s).
- Experience is a better teacher than hearing advice from others, and it's essential to be open to feedback and willing to change course when a solution isn't working (23m15s).
- Investors look for people who are open to being told that their idea is flawed and are willing to listen and adapt, rather than defending their solution at all costs (23m26s).
Assessing Persistence and Resilience in Entrepreneurs
- Identifying persistence in entrepreneurs involves assessing how well they are calibrated to the number of ideas they need to have to find one that works, with those who expect to need many ideas being more resilient in the face of failure (24m37s).
- Entrepreneurs who are aware that they may need to come up with many ideas before finding one that works are more likely to bounce back from failure and come up with new solutions (25m17s).
- Investors can assess an entrepreneur's persistence by asking them about potential challenges and seeing if they can quickly come up with alternative solutions (25m28s).
- A key characteristic of successful venture founders is their ability to be resilient and flexible, which can be developed through a mindset shift and discipline, allowing them to iterate and generate multiple ideas to overcome obstacles (25m37s).
- This flexibility and resilience can be observed in the way founders approach problems, thinking of multiple solutions and being open to feedback and criticism, demonstrating confidence and a growth mindset (26m11s).
- Successful founders are able to mitigate risks and adapt to challenges, thinking critically and creatively to find solutions, and being willing to try new approaches when initial ideas fail (26m20s).
- A key factor in developing this resilience is abandoning the mindset that a single idea will lead to success, and instead embracing the reality that it often takes multiple iterations and failures to achieve success (27m20s).
- Coaching founders to adopt this mindset involves helping them to realize that it's okay to fail and that persistence and enthusiasm are crucial in overcoming obstacles and eventually achieving success (27m3s).
- Winston Churchill's quote, "continuing to fail but not losing enthusiasm," is cited as a key principle in developing this resilience and persistence (28m20s).
- To indicate that a founder or team has this persistence and willingness to fail, look for their ability to generate multiple ideas, adapt to challenges, and maintain enthusiasm despite setbacks (28m39s).
Coaching Founders Through Failure and Feedback
- Coaching founders through failures involves helping them to develop a growth mindset, avoid self-doubt, and focus on the process of iteration and improvement rather than getting discouraged by individual failures (28m52s).
- Effective entrepreneurs must learn to handle feedback from the market, reality, and investors without taking it personally, as this feedback is crucial for making ventures successful (29m4s).
- Entrepreneurs need to be able to absorb and analyze feedback to determine whether it's important and requires action or not (29m37s).
- A course at Stanford is designed to provide operational feedback, simulating the experience of creating a new venture and the challenges that come with it (30m3s).
- Reading books and understanding case studies is not enough; entrepreneurs need to experience the tough feedback firsthand to truly understand the challenges of entrepreneurship (30m39s).
- The Stanford program aims to replicate the pressure and time crunch of real startups, preparing entrepreneurs to deal with the challenges they will face, including pitching to investors (31m24s).
The Stanford Program and the Importance of Speed and Feedback
- Speed of execution is a critical advantage for startups against larger companies, and entrepreneurs need to be able to execute quickly to succeed (33m22s).
- The Stanford program tries to replicate the kind of pressure and feedback that entrepreneurs will face in real-world startups, including getting feedback from customers on how to sell a product (32m41s).
- Entrepreneurs need to be open to listening to feedback from customers and investors, and be willing to make changes based on that feedback (32m30s).
- The program at Stanford prepares entrepreneurs to pitch to investors, such as those on Sand Hill Road, and to handle the time crunch and pressure of real startups (32m59s).
Academic Pressure vs. Real-World Pressure in Entrepreneurship
- The pressure and stress experienced as a student striving for straight A's versus the pressure from the market or a product are different, with the former being more deterministic and the latter having no actual right answer and multiple ways to achieve results (34m13s).
- In engineering coursework, students learn tools, techniques, and physical principles, and do a lot of homework problems and complex engineering problems, but there is a right answer and a fixed outcome (35m16s).
- In entrepreneurship, there is no fixed path, and the outcome is uncertain, requiring convincing others, including team members, to work towards a common goal (36m0s).
- The difference between academic pressure and real-world pressure lies in the level of uncertainty and the need to convince others, with academic pressure being more predictable and individual-focused (34m45s).
- The Venture Creation for the Real Economy course (c246) is mentioned as a resource for learning more about entrepreneurship and the real-world pressure that comes with it (34m34s).
- The skills required for entrepreneurship, such as convincing others and working with uncertainty, are different from those required in academic settings, and teaching these skills is a key aspect of entrepreneurship education (37m22s).
Teaching Entrepreneurship and Simulating Real-World Problems
- Launching a successful venture requires hard work and a grind, but there is a closer correlation between hard work and success in this field, making it easier to figure out the relationship between effort and outcome (37m32s).
- Collaboration and teamwork are essential in a company, and it's crucial to teach students how to approach these aspects of venture formation or entrepreneurship (37m45s).
- Simulating real-world problems at the highest level of fidelity is an effective way to teach applied courses, such as project management and organization design (38m37s).
- Experiential courses, where students work on real projects and build models, can help students learn by doing and prepare them for the challenges of launching a venture (38m40s).
- Creating an environment where students can come up with an idea, test its viability, and build a financial model can help them develop the skills needed to launch a successful venture (40m45s).
- The most successful students in entrepreneurship classes are often those who are willing to pivot and come up with a new idea when their initial concept is not viable (40m29s).
- Building a financial model is a crucial part of launching a venture, as it simulates how the business operates and helps entrepreneurs understand what it costs to sell, develop, and operate the company (40m55s).
- Mike and Pedrum, who have been teaching entrepreneurship for a long time, helped create a course targeted at students in the construction industry who wanted to get into construction tech (39m51s).
- The course, which was compressed into 10 weeks, allowed students to come up with an opportunity, pitch it to a group of people, and receive feedback, simulating the experience of launching a startup (40m10s).
- Launching a successful venture requires a good simulation of the startup experience, which can be learned from past experiences and applied to guidelines for students, allowing them to learn from failures and harsh feedback (41m10s).
- The ability to pivot, get up, and dust oneself off after receiving harsh feedback is crucial for success in a startup, and this skill can be taught and applied in a course setting (41m30s).
Technology Transfer and Licensing from Universities
- Taking technology out of universities and into startups is a topic of discussion, with a focus on proper licensing terms to avoid importing potential problems into the startup (42m10s).
- One of the challenges of working within a university environment is determining who owns the ideas and technology, and how to obtain the necessary licensing and permissions (43m1s).
- When it comes to team formation, a strong CEO is typically at the helm, and they go on to find co-founders, with two or three co-founders being the most effective number, as four can be difficult to manage and solo founders face additional challenges (44m20s).
- Coaching teamwork involves teaching students how to work effectively with co-founders, hire the right people, and build a strong team dynamic, going beyond typical team-building retreats and activities (44m10s).
- A successful venture often requires a team with diverse skill sets, as one person may not be able to handle all aspects of the business, such as vision, technology, and finance (45m3s).
- The founder's role is to identify their weaknesses and find co-founders who can complement their skills, ensuring the company can build and grow successfully (45m8s).
- In many cases, the initial co-founders may not remain with the company long-term, but the CEO will often bring in new people with the necessary skills and experience to drive the business forward (45m38s).
- A startup is often the expression of a single vision, and having too many voices can hinder the company's progress and culture (46m11s).
- Team members may come and go, and that's okay, as people are suited for different stages of their careers and businesses (46m33s).
- The key to successful teamwork is to find people who make up for the CEO's weaknesses and ensure the puzzle pieces fit together (46m49s).
Self-Reflection and Identifying Weaknesses
- Self-reflection is crucial in identifying weaknesses and blind spots, and failure can often force this level of self-awareness (47m24s).
- The idea of a solo entrepreneur is often unrealistic, as everyone has weaknesses or deficits that need to be filled by someone else (47m47s).
Building a Successful Team and the Importance of Domain Expertise
- Building a successful startup, especially those involving deep tech, requires a more complex approach than the Lean Startup method, which may work for simpler products like iPhone apps (48m7s).
- Successful ventures typically have a team with a domain expert who understands the industry and a person with strong technical expertise, such as AI or fintech, depending on the specific area of focus (48m20s).
- The construction industry is particularly unique due to its spiky demand, making it challenging for outsiders to appreciate its complexities (48m44s).
- A combination of domain expertise and functional expertise in a pair of founders is ideal, with one founder often not being enough to achieve success (49m31s).
- A founder who is not reflective about their own weaknesses and tries to do everything alone will likely fail (49m51s).
- In a simulated environment, such as a class, team formation can be facilitated through informal mixers where students with ideas can pitch and attract team members with complementary skills (50m54s).
- To encourage self-reflection and team formation, students are given the opportunity to pitch their ideas and form teams before the class starts, with priority admission given to those who have already formed teams (51m37s).
- A software tool is used to facilitate team formation, allowing people to post ideas and others to pitch their skills to join the team, in addition to face-to-face mixers (51m54s).
- At the end of the class, team members allocate 100 points or a million shares to each other based on their contributions during the quarter to prevent free riders and ensure everyone feels responsible (52m11s).
- Having two or three founders is generally more successful than having one, and the course aims to teach students how to put together a team, a crucial skill for launching a venture (52m51s).
- The experiential entrepreneurship program emphasizes the importance of forming a team, which is a key part of the learning process and cannot be covered well in textbooks (53m12s).
- Students are encouraged to reflect on their strengths and weaknesses and identify areas where they need help, such as technology, customer sales, or finance, to form well-rounded teams (54m14s).
Network Effects and the Importance of Network Choices
- The concept of network effects is relevant to the course, not just in the context of products like Facebook, but also in the sense of building a network of connections and relationships in one's life (55m23s).
- Every choice made in life is a network choice, and these choices add to one's network, influencing the way decisions are made and how success is understood (55m55s).
- The information used to make decisions in life comes from the data on one's "dashboard," which is comprised of information gathered through one's networks (56m21s).
- Network decisions made in the past, such as choices regarding high school, college, courses, and teams, impact what's on one's "dashboard" and ultimately affect one's future (56m41s).
- The website nx.com, run by Andreessen Horowitz, has a popular blog post titled "Your Life on Network Effects," which discusses the seven stages of major life decisions that affect one's outcome by looking at them as network choices (57m1s).
- The blog post can help frame various decisions, including whether to start a business, and understanding one's context is very important (57m27s).
- When thinking about starting a company, it's essential to consider the network implications of every decision, no matter how small they may seem (57m43s).