Entrepreneurship Through the Lens of Venture Capital

By Bob Gourley	Article Rating:
July 6, 2012 09:45 AM EDT	Reads:	988

There is a bit of an entrepreneur in all of us. Most of us just admire these great champions. Others take the plunge and create and build as entrepreneurs themselves. Just about all of us benefit from the results of these heroes of the IT industry. Whoever you are, I would like to draw your attention to some lessons from a master of this art, Gilman Louie of Alsop Louie Partners. Gilman has a great history in IT, including time as a video game designer and time as the first CEO of In-Q-Tel.

Gilman gave a talk at Stanford University on 14 February 2012, and this talk was captured in a YouTube video. As a venture capitalist, he had many good points to make to the class. I summarize them below.

He started out by explaining why someone would want to create their own job. The two most common reasons he listed seems to be that the person was just fired, or let go; or they could not find another job. Creating a new company, he said, was just like going to war: the entrepreneur has to conquer new areas of expertise or technology, and they would be going up against opponents that are generally more better equipped and better staffed. However, even if the opponents have better technology or more money, it doesn’t necessarily determine their win from the beginning. If the small company is successful, then they can become a threat to the bigger, older companies, and thus, the battles are won.

To begin with, we look at decision making. Of course, decisions are what drive the companies, new ones and old. Louie stated that the crazier the idea that a company starts with, the better the probability of their output. With more risk comes more gain if successful. He stated that if, after making a decision, the possible options for the next decision increase, then the decision was a correct one. If no more options open up, then the probability of victory decreases.

The next important aspect of business is measurement. This is to create useful data to help with the decision making that one would be doing as an entrepreneur for the newly created company. The data that is received should all be focused on the good of the company, not just what is beneficial to ourselves. It is just as important to look at how well the competition is doing, rather than simply focusing on your own customers. Finding what brings consumers into the opposition can help with modifications to the decisions your company makes.

A very important principle for a business is the concept of the OODA Loop, Louie said. The OODA concept (stands for Observe, Orient, Decide and Act) was developed by military strategist and USAF Colonel John Boyd, but is now also an important concept for business strategy. Here is how it applies: First, it is essential to try to gain an advantage over the opponents (observe), looking for elements that would help your decision making. Second, must be swift in the decision makings, by taking a stand in the corporate world (orient). Third, using the data that was received from the analysts, or the competition, pick a popular idea and send it out (decide). Lastly, “act” is what it is all about. You exist to act. And that act will change the current situation.

So, what would be a good strategy for a young company that is still starting out? Louie suggests a “spirally developed strategy.” This consists of:

Code and fix
- Instead of agility, take small steps and go for little objectives, while tuning up the company along the way
Develop a vision of the future
- The clearer the vision of the future, the better the basis of the path there
Check strategy
- Fly under the radar, don’t pick a fight with a major company
Settle battleground market
Understand your competitors
Generate tactics
Find and win lighthouse
- Think about taking customers from the competitors
Adjust with feedback
Dominate the battlespace
- Stay in one market that feels the most comfortable with your product
Find the next battleground
Rinse, lather and repeat until war is won
- Winning could mean a big company wanting to buy your small one
Prepare for the next war

This strategy needs to be able to stay fluid, so that anything that is thrown at it would be able to be shaken aside and the company can continue without a hitch. If there is a failure, the company needs to learn from it, and find a way to turn it into success. Although keeping the vision of the future in check is important, time is not a friend, and it is important to understand that finding consumers and beating the competitors is all a race, and the goals and objectives, while they need to be realistic, must also be quickly achieved.

CIO, CTO & Developer Resources

So, what details does a starting out entrepreneurship need to worry about? Mostly, Louie stated, it’s better to focus on:

Vision
- Every entrepreneur needs to have a vision to change the world. The more clearer the vision, the more clearer the purpose.
Product Design
- Elegance and simplicity will always beat features and complexity
Strategic Positioning
- Never evolve or improve on a market that has been out there for ages. Create new markets, or destroy old ones
People
- Hire only A players, the ones that are known to get the job done with the most benefit to the company
Distribution and Adoption
Customers
Defensible Position
- Build loyalty to the brand, as this will bring in customers
Exit Strategies
- Get bought!

while it is not as important to focus on:

Business Plans
Business Models and Financials
Work Environment
- “The performance of a startup company is inversely related to the quality of its office”
Venture Brands
- Don’t buy associates, buy partners.
Capital
- Desperation drives Innovation, don’t worry about money (at first)

In conclusion, Louie left the class with the rule for a company’s product: “Vision is more important than products, but products are more important than anything else.” Without the products, how can a company compete against their much stronger competition? The newer businesses need to push themselves to their failure point, so that they know their limit, and they can build around it. And the most important rule that we can take out of this lecture was that as a business person, never be satisfied. Always come back wanting more out of a market. Never give up, and never surrender.

Below is the clip of his lecture. It is also available here.