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4 Founders & Harvard MBAs on Finding Startup Traction & MBAs-as-Entrepreneurs
On the heels of our research on HBS entrepreneurs, NextView’s Dimitri Dadiomov (HBS ’15) interviewed several top founders on the early stages of their companies. Below is a summary of some of their answers in which they discuss the genesis of each company, their views on when MBAs should start companies, and more.
On Launching and Finding Early Traction
NextView Ventures: Where did the initial idea for your company come from?
It was January of second semester of my second year, and Michelle [Zatlyn, Matthew’s co-founder] and I were brainstorming different ideas to enter into the business plan competition. What Michelle wanted to get out of it was to get experience pitching to VCs and to build a better relationship with Prof. Tom Eisenmann. I was more open to it becoming a real company, but I never really expected it to be a real company from the beginning. We were on an immersion trip to Silicon Valley, and we said, “Let’s find a way to leverage [a previous open source project],” and we decided to build something around that. It really did start as an entry in the New Venture Competition.
I totally had that lightbulb moment. I was a big Zipcar fan … But I was always worried about getting a car on short notice, and I was always worried about the car being far away. One time, I had to bike through the snow for two miles to get to my Zipcar, and I was passing all these empty cars parked on the side of the road. I was like, “Why am I passing all these empty cars to get to an empty car?” And so then I took the peer-to-peer concept I had seen before school at Kiva and applied it to car sharing.
It came from my deep frustration renting as an undegrad at Oxford for the first time back in 2005. I couldn’t believe how inefficient and non-transparent the rental industry was and I knew then that I’d one day come back to take it on.
We spent two and a half years writing custom software to run large-scale simulations on Boeing’s data centers. While we were able to achieve some great results (over 150 pounds of weight reduction, cycle times [reduced] from 3 months to 24 hours, and over $180 million in cost savings), we thought that there must be a better way for engineers and scientists to achieve similar results for simulation projects without a $50 million investment in on-premise computing hardware and years of custom software development.
NextView Ventures: Did you start to seriously work on the idea during business school or after?
We started talking about in January of second semester and worked on it on and off throughout the semester.
After going back and forth [about attending HBS], including rejecting my initial admission offer to HBS and then panicking and calling the admissions director back and convincing them not to accept my rejection … I ended up going to HBS. We raised $400K seed round at the end of October of my second year.
I started working on Zumper seriously in the summer between my first and second years at HBS (2011), supported by generous HBS startup grants.
During the second year at HBS, it became clear to me that it was a “now or never” type of opportunity. The way I look at it, an HBS MBA is just about the best career insurance policy money can buy, so it seemed like ideal timing to found the company and work on it full-time.
NextView Ventures: In general, when is the right time for someone to put their head down and build something, particularly if that person is attending business school?
Make sure you don’t sacrifice the experience of being [at business school]. You can’t come into any experience with the mindset of, “I’m going to start a company.” Maybe you can say, “I’m going to solve a problem,” and then the question is when do you find a problem that’s worth solving. But the value of being in business school is to get to know the faculty and the other students, and if you’re finding yourself spending all your time in the Innovation Lab, you’re missing out on all the other stuff.
I think in an ideal world you have the first year to enjoy your time, sit back, soak it in, explore other areas, and then you start building over the summer or in your second year. I think I really overvalued experience and undervalued determination and ambition. Startups are all about just going out there and doing it.
NextView Ventures: How did you find initial traction for your company? How did you find your first customers and hit important, early milestones?
In order for CloudFlare to work, we had to build a network, so we didn’t have customers until late spring 2010 [about 9 months after launch], but we had a bunch of people we knew were potential customers. We started getting feedback on the idea starting March 2009 (second semester) and the feedback was overwhelmingly positive. We raised our first $2 million largely on quotes about the problem these people gave us. And then we used the same list to find the first customers. It took us three months to sign up the first 100 customers when we launched (we now do that every 20 minutes) and when we hit 100 customers, we went to Las Vegas with the whole team to celebrate. Today we have over 2 million customers across the whole platform.
Since we were not able to raise money early on, we just started building a product that we ourselves as engineers would want to use. Talking to any engineer who was willing to try it out and give us feedback was very helpful. With domain expertise and a background in aerospace, we reached out to our personal networks (and essentially anyone that would talk to us). Eventually, we broadened our scope to other sectors, but I would always recommend people start where they have the largest unfair advantage. In our case this was clearly aerospace.
NextView Ventures: What did you believe about your business when you first started that you don’t today?
Everyone talks about pivots, but it’s almost creepy how close we got [CloudFlare] on the first pitch. I guess I don’t think I appreciated how being mission-driven is really important, and if you look at how you’re able to grow, attract employees, attract customers, it all comes down to mission — in our case, to build a better internet.
When we first started saying that, I had to practice to say that without a smile, and it sounds absurd. But today a huge percentage of network traffic runs through us, And the reason that people trust us to pull that off is they believe we’re mission-driven — and it’s real. I was skeptical of that, and I’ve come around to think that’s really critical to success.
That if you build the best product, people will naturally just find it.
We focused heavily on building the best engineering team and best product early on. We thought that if we had built the best product, everything else would come easy. For enterprise software companies, this was quite far from the truth.
We heavily underinvested in sales and marketing but have been able to reinvest and recover from that nicely … I think it is critical and make a big difference in the trajectory of the company.
On Harvard Business School
NextView Ventures: Reflecting on your time at HBS and how it connects to your current venture, what was helpful and what wasn’t?
HBS provided a safe environment in which to experiment. You could try negotiation techniques and be a jerk, be a pushover, be a two-timer, and watch how people reacted, with no consequence. That’s invaluable.
Students who get the most out of HBS are the ones who take the most risks. I always thought things like student government were stupid, and I don’t typically win popularity contests, so recognizing that, I ran to be section president which is exactly what I thought people would make fun of. But it was great experience to put yourself in an uncomfortable place to manage 90 Type A personalities.
The other thing I did that most students don’t do is make friends with the faculty, seeking them out, socializing with them, even adding them on Facebook, and that ends up paying dividends later. It’s not obvious – students probably under-invest in that.
In terms of helping my entrepreneurial career, it was pretty 90-10, where 90% of the value was delivered by 10% of the classes. But as a whole, the experience was transformative. HBS helps you make rapid decisions without perfect information, and that’s pretty much your life in the first two years of a startup.
Most important to my personal development, HBS was extremely helpful in building confidence in myself. As an engineer at Boeing, I had no idea how the company I worked for really operated. At the end of HBS I could pick up a 10-K, scan through it, and get a comprehensive understanding of a business in a few hours.
An area that would be more helpful and I think could be improved is [offering] more practical, real business experience in the student population. Our class was at least a third finance and a third consultants. While these were all generally extremely talented individuals, many of the big finance and consulting firms that HBS recruits from teach rigid best-practice standardized problem solving frameworks and business analysis methods, which can limit the diversity of ideas brought to the classroom discussions. In my specific section out of about 100 students, you could count the number of people with a deep technical background and minimal real “business” experience on one hand.
NextView Ventures: Could you have started your company without going to business school?
Yes, but business school is a multiplier effect. Everything you do is a little bit easier, a little bit bigger when it works, because of business school.
I probably could have started the company, but it is unlikely we would have gotten to where we are today as quickly. Market timing is critically important for most companies (in fact, probably around 80% of a startup’s success depends on external factors outside of your control). So I certainly would not recommend going to business school if you have the right idea, founding team, and are ready to dive in full-time.
NextView Ventures: For those who aren’t going to found a company but still want to join a startup, is business school useful? Do you find yourself hiring operators or PMs with that background?
I think coming to a company like CloudFlare is great training ground for an entrepreneurial path, and what we’re going through will still set you up with to build a business that scales or put you in an incredible position to help advise a company that is about to go into that rocketship mode.
Business school is very broad. It can help you be a strong athlete, which makes you an attractive early-stage player. But as you go into the Series A or B stage, you’re looking for more specialists, and then it might be less valuable, and those two years maybe would’ve been better spent building specialization and domain expertise.
One of the most common jobs out of business school is to be a Product Manager, which manifests the vision of the company in the technology, and you have to be worried about and in charge of every area of the business. There, an MBA is certainly helpful, and can be a great entrée into the tech world.
Business school is probably more useful for those not founding a company. Entrepreneurship is very hard to teach, and the learning process is probably faster to learn by doing versus sitting in a classroom. [Harvard Business School] Dean [Nitin] Nohria’s addition of real-world projects like FIELD are probably a great complement to the classroom, but it is hard to substitute real entrepreneurial experience for such a short period of time.
I have, and would consider, hiring people with business school backgrounds. From my experience I would however look for someone who’s profile is not defined by business school and has a good understanding of the real business world.
NextView Ventures: Lastly, for fellow Harvard MBAs reading this, what was your favorite course at HBS?
Prince: Business History
Clark: Competing through Social Networks
Poort: The Entrepreneurial Manager