Why HBS Students Should Start or Join Early Lean Startups

by Oliver Jay

HBS students are notoriously risk-averse – many run away from entrepreneurial ventures for a few reasons: 1) misperception of risk, 2) worry about not understanding “the tech scene,” and 3) relatively lower compensation.  I believe the qualities of a true Lean startup significantly reduce these concerns.

Fail Fast.  HBS MBAs associate career risk with the stage of a company - the earlier the company, the more risky the company.  While I believe this is true from the startup’s perspective (obviously there’s more risk if a company has not reached PMF), I don’t think this is true from a career perspective.  First, in the start-up world, failing is totally accepted and often even embraced.  Second, I believe there is greater risk in joining a “later-stage” company that appears to be less risky just because it has raised more capital from notable venture firms and appears to be growing faster at the moment.  Risk is always high that momentum stalls six months after you join a company but the company has enough capital to sustain and meander through a long period of time.  I think this is an even riskier proposition from a career perspective.  Considering that most venture-backed companies do not survive past a 5 year lifespan, joining a lean startup that “fails fast” is much less risky.  You get immediate feedback on whether you have a something consumers value, and can “pivot” your career earlier if necessary.

Testing culture.  Lean startups are all about having a philosophy of customer discovery through iterative feedback cycles.  It is relatively easier (still hard on absolute basis) to test one’s value proposition with early adopters than it is to test with mainstream users.  For example, we learned some simple and effective methods that Dropbox used in its early days with viral videos, etc.  However, it is actually quite difficult for any startup to cross the chasm given the different behavior and preferences of mainstream users vs. early adopters as Eric Ries described.  The knock on HBS students in general is their unfamiliarity with the latest tech platforms (I would guess less than 40% use Twitter and less than 5% use Foursquare).  The flip side is that this makes a great pool of mainstream users to poll.  Between the 90 section-mates and friends from other clubs/activities, HBS students have a great asset that most entrepreneurs don’t have: a large sample set of willing to provide “mainstream feedback.”  Nick Beim from Matrix Capital last semester attributed a large part of Gilt Groupe’s reaching PMF at such an early stage due to Alexis and Alexandra’s HBS network that provided mainstream feedback, enabling them to cross the chasm early.

Capital-efficient.  The capital-efficient property of lean startups preserves more equity for entrepreneurs.  In the past, startups require massive exits to clear the preferred hurdles of venture investors.  With lean startups, even if it is not a runaway “venture-like success”, by preserving equity, even a small single-digit million dollar exit (as a downside) divided among a few founders may in fact result in pretty nice reward, thereby reducing some concerns about compensation.