#1 Venture Insight From Harvard Grads: Brilliant Breakthrough Or Blindingly Basic?

A study by 2 Harvard grads of Harvard graduates turned entrepreneurs suggests that most venture failures are caused by poor execution.

Is this a brilliant breakthrough or blindingly basic?

Yes. And yes. This insight is both basic and a breakthrough.

Why Basic?

In the early stages of the VC industry, a common saying was “Management. Management. Management” to remind everyone that good ideas lose out to poor management, aka bad execution. But in the last few decades, the Entrepreneurial Ecosystem (EE) has focused on the idea, the pivot, and on VC instead of on skills – even though most ideas can be imitated and improved, and VC only helps ~20/ 100,000 ventures. Among 85 billion-dollar entrepreneurs, only 1% succeeded because of the idea (Truth About VC).

The role of execution was obvious, but the hype and glamor of VC beat out the not-so-glamorous learning of skills in order to grow without VC. To understand the importance of skills, ask yourself whether you would have financed startup entrepreneurs with ideas such as imitating a big store for retail or a big store to sell consumer electronics, or starting a venture to sell personal computers, or to sell coffee, or to start a new search engine, or to sell furniture on the Internet, or to help landlords rent rooms and houses. Few, if any, will say yes to all. The above entrepreneurs, in order, are the founders of Walmart, Best Buy, Dell and Apple, Starbucks, Google, Wayfair, and Airbnb. All of them grew with skills and avoided VC or delayed getting it, often because they were rejected for VC before Aha! All built real unicorns.

Problems with the VC Entrepreneurial Ecosystem (EE).

#1. VCs wait for Aha, i.e., for proof of potential. Although shark tanks, and pitch competitions have cemented the myth that experts can identify successful ventures from a pitch before proof, VCs are smarter. VCs wait for evidence of potential in proven strategies and leaders. Perhaps this is why many VCs, including the highly respected Tom Perkins of Kleiner Perkins, rejected Steve Jobs and nearly 12, including the eminent VC fund Bessemer, rejected Airbnb, Apple, and Google. Entrepreneurs need skills to get to Aha. But the VC Entrepreneurial Ecosystem offers skills to ideate, plan, pitch and pivot – not to sell and build.

#2. Lost Growth Opportunities with the VC Entrepreneurial Ecosystem. The assumption that the idea and capital are key has encouraged the growth of incubators and angel funds. One highly successful VC suggests that angels should get into financing ventures for love, not for money. And only about 2% of VCs are said to do well because, as noted by Marc Andreessen, about 15 ventures are said to account for ~97% of VC returns. Should the focus switch to the development of skills?

The Brilliant Breakthrough

This new insight from the Harvard graduates that execution is key is a brilliant breakthrough because it shatters the VC-focused clutter in EEs and suggests new directions based on what really works in unicorn development – skills. Perhaps because of VC hype, business schools have sought the glamor and gamble of VC, instead of the hard work of skills.

What should Business Schools do?

The focus on the idea and capital has encouraged business schools to teach innovation and ideation to generate ideas, and sponsor shark tanks and pitch contests to develop pitches. But they do not teach how to find unicorn opportunities without VC, which is what about 99% of billion-dollar entrepreneurs (BDEs) did, how to takeoff without VC that 94% of BDEs did, and how to build a billion-dollar company without VC that 76% of BDEs did (see Nothing Ventured Everything Gained and Finance Secrets of Billion-Dollar Entrepreneurs). They focus on spectacle instead of on skills.

MY TAKE: After spreading the gospel of VC for decades, it is good to see Harvard, one of the leading beneficiaries of the VC EE, highlighting the key role of execution in venture development. Perhaps they will influence others to pivot from VC-based EE to Skills-based EE and develop more unicorns for the 99,900/ 100,000 ventures who do not get VC, for the 80/100 that fail after getting VC, and for the 19/ 20 that are heavily diluted by the VCs.

NytimesVenture Capital Firms, Once Discreet, Learn the Promotional Game (Published 2012)
TechCrunchWhy Angel Investors Don’t Make Money … And Advice For People Who Are Going To Become Angels Anyway | TechCrunch
Bessemer Venture PartnersAnti Portfolio