Fred Wilson comes to Harvard Business School

by Jeff Bussgang

For the second year, Fred Wilson of Union Square Ventures was kind enough to come to HBS to meet with the class Professor Tom Eisenmann and I co-teach called Launching Technology Ventures. Similar to last year, it was a terrific session.

I started the class off by encouraging the students to live tweet the entire 90 minute session. The Twitter stream (which you can see here, using the hash tag #hbsltv) nicely captured our dialog. The class is made up of 100 "start-up ninjas", half of whom will start their own companies in the next year or two and half of whom will join start-ups. The class covers the fundamentals of lean start-up theory, seeking product-market fit, and scaling challenges post product-market fit. We do not have a final exam. Instead, students need to write two blog posts, comment on two of their classmate's posts and participate in a business model excercise modeled after Steve Blank's "business model canvass" exercise at Stanford. You can see the course blog here.

A few of the takeaways that struck me:

• Fred observed that failure is typically a valuable and powerful experience - forcing introspection, humility and an extra drive to prove something to others. He observed that the entrepreneurs he has been most successful with typically had a major and personally defining failure in their career.
• He repeated a comment that we drew out from last year's conversation, which I particularly like: "Start-ups should be hunch-driven early on and data-driven as they scale". What was interesting was discussing the profile of the entrepreneur that has good hunches - often they come from outside the domain, yet are obsessed with the opportunity to disrupt the new field with a fresh perspective.
• We discussed the role of gate-keepers in start-ups. Fred is skeptical of businesses that involve gate-keepers. In fact, he encouraged the students to look for industries that have gate-keepers, and compete directly with them (e.g., education).
• When evaluating whether you want to join a company, think like an investor. Conduct extensive due diligence on the team, the product and the market opportunity. Ask yourself whether you would invest your money in the company before deciding to invest your career.
• Entrepreneur and start-ups have many varied models for success. Don't try to follow someone else's model. Stick with your personal passion and your authentic leadership model. If you don't have your own start-up idea, go join a 50 person company and leave when there are 500 employees. And if you have an idea and no one can talk you out of it, go be an entrepreneur. (Interstingly, Fred confessed that if he could have done it over again, he wishes he had joined a start-up for the first 10 years of his career.)
• We had an interesting dialog about the various start-up ecosystems - Silicon Valley, Boston, NYC - and how long it takes to build that ecosystem. Our mutual friend Brad Feld has written extensively about this topic and is writing a book on it that should be coming out shortly.

At the end of the class, Fred had an encouraging perspective for MBAs around the world, not just in today's classroom. He observed that the start-up community is all the richer due to the contributions of MBAs. Just be sure not to be arrogant about your knowledge or degree - instead, put your head down and do great work!

(Reposted from Seeing Both Sides, http://bostonvcblog.typepad.com/vc/2012/02/fred-wilson-visits-with-the-hbs-start-up-tribe.html.)

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Why Does Everyone Seem to Hate “Copycat” Startups?

by George Levitte

Earlier this week we were fortunate to have Fred Wilson, from Union Square Ventures, visiting our LTV class. Towards the end he remarked offhandedly that as a VC he refuses to invest in copycat startups. He said that it’s not because copycats are always bad financial investments, but rather because copying just isn’t right. It seems like stealing. So he doesn’t have much respect for copycats and doesn’t want to be involved with startups like that.

Unrelated to LTV, a couple days later HBS also hosted a recruiting presentation from Oliver Samwer, one of the cofounders of Berlin-based Rocket Internet. Rocket is best known for incubating and quickly scaling many startups in countries outside the U.S. that have business models which closely resemble those of successful U.S. startups like Amazon, eBay, Zappos, Groupon, and others. Although wildly successful, Rocket is often cast in a negative light for using the business innovations created by others.

One common rationale for the copycat hate is that copying reduces the upside potential for inventors, so it leads to the creation of fewer cool new inventions. Society would love to have both a plethora of new inventions and a highly competitive marketplace, but to encourage innovation we have decided to sacrifice one for the other. Providing a 20-year monopoly to patent-holders greatly boosts the incentive to invent new things, even if it reduces competition for making a particular widget. Copycats erode this incentive.

Although certain types of innovations are protected from copying by law (e.g. technical patents) and some are protected by secrecy (e.g. the recipe for making Coca-Cola), business model innovations are not. Nor should they be, because society has a vested interest in promoting competition. It forces companies to move faster than their peers, to price lower than their peers, and to execute more efficiently than their peers. Consumers, and society at large, benefit tremendously from this. If businesses were unable to use and adapt others’ ideas then many of today’s companies would never have existed. Google search in many ways copied the business model of Yahoo search, which in turn had copied earlier search innovators. Microsoft’s office suite applications copied ideas from a variety of earlier (and arguably more inventive) companies, its browser copied Netscape, and many elements of its Windows user interface were copied from Apple.

In fact, most innovation actually seems to come from people building off of each others’ ideas. One person creates something, and somebody else sees a way to make it better. So they do. The important thing to highlight is that they make it better. Copying somebody else’s microchip exactly does not create anything new, so it doesn’t benefit society and as a result we prevent such behavior with patents. But getting the idea to make a microchip from someone else’s success and then making a different microchip that works better than the existing one does create value for society, so we allow it. And the new inventor patents the new chip.

Similarly, taking somebody else’s business model idea and making it better can create a lot of value. I agree that exact copying is not a great thing, but it turns out that many businesses that people dismissively label as “copycats” are actually improving on existing ideas. For example, some of Rocket’s businesses create ecommerce websites that look similar to other businesses, but they innovate on how the product gets delivered. Developing countries don’t have USPS and many don’t have a reliable, timely local equivalent for delivering items. So Rocket hires people to drive around on mopeds or bicycles to deliver small items, and they innovate on delivery to adapt an existing business model to the country in which they’re operating. In that sense, they’re not too different from Microsoft trying to build a spreadsheet product or from Google trying to build products in search, email, maps, browsers, and mobile operating systems.

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