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Category: Entrepreneurship

Innovation must be more innovative

Johanna Hising DiFabio
Assistant Dean, Sloan Fellows & EMBA Programs

“Innovation needs to become more innovative,” John Thornhill, wrote in the Financial Times not too long ago. Innovation editor at FT, Thornhill said he thought MIT had a good shot at achieving that goal with The Engine, the startup accelerator the Institute recently launched to support complex breakthrough technologies.

MIT President Rafael Reif has called such complex technologies “tough-tech”—potentially significant innovations that aim to solve thorny challenges but have a longer road to market than, say, a customer-service app or a smart screwdriver. As a result, advances that could turn out to be life-changing might never go forward because investors are discouraged by the prospect of a lengthy development time frame.

The Engine portends the future

Katie Rae, President and CEO of The Engine, comes to the project with extensive experience as an entrepreneur and a leader of innovation accelerators. In fact, The Boston Globe once dubbed Rae “the high-profile ringmaster of Boston’s startup circus.” She told MIT News that she believes The Engine portends the future. “Ten years from now, this will be seen as a groundbreaking model, recognized around the world for creating both a vibrant set of funds and the programs that founders need to create high-impact companies.”

Rae oversees both The Engine’s investment component, which includes $150 million in early-stage funding, and the shared services component, which gives prospective entrepreneurs access to legal, licensing, technical, and administrative services as well as capital-intensive equipment.

For this new series of blog posts, we spoke with MIT Sloan professors Pierre Azoulay and Scott Stern about the latest entrepreneurial wisdom. We also asked MIT Sloan Fellows MBA program alumni Abhi Yadav, Snejina Zacharia, Kiren Kumar, and Ray Leach to share what they’ve learned along their storied entrepreneurial journeys. Whether you’re an entrepreneur or an executive in a multinational corporation, I think you’ll find their knowledge and perspectives eye-opening. And if you worry that you’re too old to act on your entrepreneurial dream, take note of Pierre Azoulay’s research about the median age of successful entrepreneurs—hint, a bit of gray hair doesn’t hurt.

— Johanna Hising DiFabio

Starting a business? Build a team as unbeatable as your product

Snejina Zacharia, SFMBA’13, has channeled 20 years of experience in both the intrapreneurial and entrepreneurial trenches into the creation of Insurify, a virtual insurance agent powered by artificial intelligence and natural language processing. Insurify provides car, home, and life insurance quotes from all major carriers in under three minutes. As founder and CEO, Zacharia has propelled the business into entrepreneurial stardom in just five years. After a 250% growth spurt last year—and multiple innovation awards—Insurify is now the most comprehensive insurance marketplace in the US.

Yes, the idea is a clear winner, but Zacharia attributes other factors to the success of her enterprise. For starters, she says, it takes a team. Zacharia pulled together a group of tech stars—many of them with major industry street cred. “Build the right team from the start,” she counsels new entrepreneurs. “This is something you must get right from the outset. And that team must be 100% committed. You will go through ups and downs, and you need a founding team that shares the perseverance that you have—must have—to make a go of it.”

Zacharia notes that it’s not just the management team that must be aligned around the company vision. Every single employee should be committed to the mission and goals of the organization. “Hiring the right people, people who have bought into the vision and can see the big picture, people who are invested, who believe in the value of what they’re working toward—those people are absolutely essential to the future of your business.”

Be selective about investors

Zacharia wants investors to be all-in, too. “Look for someone who feels like a partner. You’ll want an investor who truly believes in your business idea and is prepared to provide follow-on funding at the next stage. Founders need to do their due diligence as much as investors do. Make sure to get references from their best performing portfolio companies—as well as from their less well performing companies. The latter is even more important.”

Zacharia emphasizes the importance of finding investors with domain expertise. “Often, the best investors will be those who have funded companies with similar business models and understand the drivers important for your success. In my case, I was looking for investors with strong knowledge of the insurance industry and of the possibilities presented by artificial intelligence. It has been a wonderful experience to grow Insurify with super-smart investors who are dedicated to our long-term success.”

Be a smart networker

Zacharia has one last tip for those with new-enterprise dreams—tap your network. “Networking is important for business development, fundraising, and team building,” she notes. “When I started Insurify, I data-mined LinkedIn profiles and leveraged the MIT brand to set up meetings with insurance executives. I was surprised how many people were willing to take a meeting with me, both because of my MIT connection and because of the promise of the technology we were building. Creating a marketplace is tough. Carriers want customers and customers want a product that provides value. It took hundreds of meetings and calls until I was able to sign the first contract, and the hard work paid off when the other carriers followed.”

Developing Insurify, Zacharia adds, has been the most rewarding job of her life, but the challenges of those crucial early years were not inconsequential. “Great things take time. You need perseverance and an unerring focus on the big picture. And you need to be able to keep it all in perspective and enjoy the journey.”

Women entrepreneurs say #MeToo

One of the quieter voices of the #Me Too movement is beginning to find its voice—women entrepreneurs—and Ray Leach, SFMBA ’02, is eager to provide a megaphone. Leach is the founding CEO of JumpStart Inc. The Cleveland, Ohio-based nonprofit venture development organization has earned a national best-in-class reputation for innovative economic development models. One of those models is creating support systems for women entrepreneurs.

“It’s tough enough for any entrepreneur to raise capital,” Leach says. “For women, it’s even more discouraging. Only 2.7 % of venture capital investment goes to female-founded businesses.” Leach has made it one of JumpStart’s missions to boost that number. Recently, the organization held an event “The Female Founders’ Guide to Raising Capital” to bring together female entrepreneurs and venture capitalists to discuss the state of funding for women who are launching startups. Leach and his team invited both male and female investors in the hopes of hearing a broad range of perspectives.

“It took us a month to find a female investor for the panel,” Leach recalls. “That was a jarring reminder to the JumpStart team that there is still work to be done in balancing the gender scales in the investing space.” Leach cites industry data indicating that just three percent of US startups backed by venture capital are led by women—and only one percent are headed by African Americans. By contrast, he notes, nearly 90 percent of all venture capital investment professionals are Caucasian men.”

The activist who served as catalyst

Leach points out that the #MeToo movement really began in the venture capital community in 2012 when Ellen Pao sued Kleiner Perkins, where she was an investment partner, for sexual discrimination. “The case brought attention to the cause and provided momentum for the venture and tech startup industry to begin owning up to the cold, hard realities facing women and non-white males in the startup world.” Pao, who went on to serve as an interim CEO at Reddit, embraced her role as an activist and went on to found the diversity consulting nonprofit Project Include.

Leach notes that Pao’s wake-up call set off a chain-reaction of efforts across multiple industries that have resulted in what he calls “a reckoning,” where almost everyone in the venture world now acknowledges the problem. “People across the venture capital industry are now recognizing the issues that have persisted for decades. They know they are real, and they’re identifying actions, individuals, organizations, and institutions to address the challenges and make things better. Overall, I’m encouraged that we’re seeing progress, but we shouldn’t relax our vigilance. The problem is far from fixed.”

Leach remains committed to the cause. Right now, JumpStart’s $10M Focus Fund is investing capital exclusively in Ohio-based female and minority-led tech startups. Meanwhile, a 2017 grant from the KeyBank Foundation has helped JumpStart launch the KeyBank Business Boost & Build program, which has already distributed hundreds of thousands of dollars to grassroots organizations dedicated to providing loans and technical assistance to women and minority business owners.

Read Ray Leach’s blog post in the Huffington Post about the importance of diversity in entrepreneurship and across the greater culture.

 

Change—It’s the only constant

As Assistant Managing Director of the Singapore Economic Development Board (EDB), Kiren Kumar, SFMBA ’12, has seen a good many enterprises come and go, thrive and crash, slowly grow and gradually wither. The common denominator of the thriving enterprises, he noted, were leaders who were both versatile and persistent.

The world is always in a state of flux, markets are continually changing, technology is perpetually evolving, and a smart entrepreneur is ready to change with it, Kumar says. If consumers, en masse, have begun to use their phones as flashlights, for example, a flat, phone-sized flashlight is probably not about to take the market by storm. “When you start something new,” he points out, “you must be prepared to continually innovate, rethink, pivot, and change direction as need be. You must match your product or service to the current realities of the marketplace.”

Persistence of vision

Kumar has advised multinational corporations on their Asian strategies and helped Singapore-based companies expand into the Asian, European, and American markets. He has observed leaders at every stage of leadership. “The best leaders have the sympathy of their teams in good times and bad,” Kumar says. “They have the people skills to shepherd their employees through the tumultuous journey that most startups take. If leaders model persistence and an unwavering belief in their missions, their employees are more likely to share that persistence.”

But persistence isn’t possible, Kumar says, without passion. “Founders must not just be positive about the ventures they are launching, they must be passionate about the value it provides. It’s that passion that fuels the persistence and enables the flexibility. True passion is contagious and spreads across the team, it spreads to investors, to the media and, of course, to consumers.”

Have a little humility

Finally, Kumar underlines an observation that Einstein once made: “A true genius admits he knows nothing.” That humility, he says, is a common trait of the best entrepreneurs.

“Founders—as with all leaders—must realize they don’t have all the answers. If you are honest with your team about the ups and downs, ready to admit what you don’t know, and open to learning what you need to know, you will earn the respect of those around you. Even more important, you will empower others to exercise humility and admit the things they don’t know and reach out for the information they need to make decisions. Bottom line: a little humility goes a long way on a journey with many twists and turns—and that pretty much characterizes any new enterprise.”

Here’s to a kinder, gentler entrepreneur

“As founders of startups, we’ve all had the same basic message drilled into our heads since we first learned to spell the word entrepreneurship: take big risks and be fearless,” says Abhi Yadav, SFMBA ’13, founder and CEO of ZyloTech. When he is asked to give advice to new entrepreneurs, however, those ideas don’t make the first cut—or even the second. “To my mind, the two most important skills in an entrepreneur are also two of the most underappreciated—empathy and gratitude.”

Yadav realizes that a few hardcore business types might roll their eyes at his priorities, but as a venerable entrepreneur and an occasional judge for the MIT $100K, his instincts and experience speak for themselves. Yadav is on a mission to put the humanity back into enterprise. “Let’s take a breath and dial back the whole arrogance thing that has come to be associated with entrepreneurship and increase the human quotient. If you don’t have empathy—strong empathy—with your clients, employees, and investors, you might be able to launch a promising enterprise, but you’ll never progress over the long term.”

Yadav believes that the same goes for gratitude. “Always be grateful for everyone who is helping you to realize the vision you hold for your company. Without the employees, clients, and shareholders who are invested in the success of your enterprise, it cannot thrive. That network is a powerful factor in both your existing enterprise and in future projects, so never take it for granted.”

You can’t fake empathy

Yadav adds that that both the gratitude and empathy must be sincere, and not just lip service. “Empathy is tough to pull off if it’s artificial,” he notes. “If you haven’t truly internalized those qualities, your insincerity will shine through, and you won’t succeed over the long haul.”

Yadav ranks another soft skill high on the list of must-have qualities for entrepreneurs—patience. He says that entrepreneurs often look at the storybook rise of other ventures and think that something is wrong if their enterprise does not rocket to stardom right out of the gate. “Cultivate patience. If you remain persistent and positive, have trust in yourself and your product, and have plotted and are following a logical path ahead—exercising empathy and gratitude along the way—there’s a good chance you’ll win the long game.”

Yadav notes, however, that if an entrepreneur just can’t seem to engage investors, it’s time to give the core idea a critical look. “Are you solving a problem? Are you filling an important gap? Are you making lives better?” Enterprises that change the world for the better—even in a small way, he says, have the greatest chance of success. That might be a software program that only architects use or a water purification system that will transform Africa, but investors get excited at new ideas that promise positive change. “If you are passionate about the improvements your enterprise will make,” he adds, “that passion can be contagious.”

In the end, Yadav says, the smart entrepreneur stays true to himself—yes, another soft skill. “As you launch and grow your business, don’t try to change your personality to fit your idea of what an entrepreneur should be. An entrepreneur is not the king of an empire. Be humble. Take responsibility for what happens in your company—never pass the buck. Always be your very best self. Success will follow!”

In entrepreneurship, age is golden

In a culture where youth is prized, Pierre Azoulay is making a case for age and experience. A pretty strong case, as it turns out. In his recent paper “Age and High-Growth Entrepreneurship,” Azoulay, the International Programs Professor of Management at MIT Sloan, says that although investors often believe that young and cool is king, his study points to a different reality. In short, he says, if two entrepreneurs have the same idea and one is 25 and the other 45, investors should bet on the 45-year-old.

Azoulay describes a sort of Mark Zuckerberg effect on the entrepreneurial universe. “We have a skewed view of the power of young entrepreneurs,” he says, “but our research shows that entrepreneurs who are twice Zuckerberg’s age when he took his company public have a better batting average, whether measured in terms of employee growth, sales growth, or a successful exit.”

Turning to the U.S. Census Bureau for answers

Azoulay worked with coauthors Benjamin F. Jones of Northwestern and J. Daniel Kim of MIT as well as Javier Miranda of the U.S. Census Bureau. Azoulay and Jones are also researchers with the National Bureau of Economic Research. The use of census data is one of the factors that sets this research project apart. Azoulay and his team tapped administrative data to systematically investigate the connection between age and high-growth entrepreneurship. By linking newly available IRS K-1 data, which identifies the initial owners of pass-through firms, with U.S. Census Bureau data about businesses, employees, and individuals across the economy, and USPTO patent databases and third-party venture capital databases, the team was able to uncover surprising revelations about entrepreneurs and new enterprises.

The overwhelming data point: the most successful entrepreneurs are well into middle age. The mean founder age for the fastest growing new ventures was 45. Azoulay and his team discovered that their findings stayed true across high-tech sectors, entrepreneurial hubs, and successful exits. They also found that previous experience in the same industry predicted much greater rates of entrepreneurial success.

“Across the 2.7 million founders in the United States who launched companies between 2007 and 2014 and hired at least one employee, the average age was 41.9,” Azoulay notes. “The most successful entrepreneurs in high technology sectors are in the same age range as are the most successful founders in different regions across the country.”

Success rises dramatically with age

Azoulay points out that one reason for the prevalence of middle-aged founders in high-growth companies is simply that middle-aged individuals are more apt to start companies, but it’s clear that the likelihood of success rises dramatically with age. “A 50-year-old founder is 1.8 times more likely to achieve upper-tail growth than a 30-year-old founder. And founders in their early 20s have the lowest probability of achieving a successful exit or creating a top growth firm.”

Azoulay’s findings are important for a number of reasons. First, he says the study sends a signal to mid-career managers in large corporate environments that they may well have what it takes to launch a thriving enterprise. Second, venture capitalists have been laboring under the Zuckerberg misconception for a long time. This is not entirely a function of the youth mystique, although some older founders are rumored to resort to plastic surgery to increase their appeal. But young founders also tend to be more eager to attain funding from VCs and may tend to sell their equity at lower prices. Given that younger founders have substantially lower success rates, however, investors may be unwittingly squandering valuable capital.

Azoulay and his coauthors concede that young people may well have advantages of energy and originality, but those pluses appear to be overwhelmed by other forces—forces that only come with age and experience.

Read Age and High-Growth Entrepreneurship by Pierre Azoulay, Benjamin F. Jones, J. Daniel Kim, and Javier Miranda.

Entrepreneurship—character matters

Scott Stern, chair of the Technological Innovation, Entrepreneurship, and Strategic Management Group at MIT Sloan, has advice for entrepreneurs—your reputation as a leader will likely outlive your involvement with any given enterprise. “When an entrepreneurial venture goes sour,” he notes, “what people remember most about the failed venture is not what didn’t go well, but how well the founders conducted themselves. Did they honor their commitments? Respect the people who were working with them? Stay true to their mission, their values?”

Stern, who has been awarded the Kauffman Prize Medal for Distinguished Research in Entrepreneurship, has seen his share of enterprises rise to stardom—or never get off the ground. Again, the character of the founder, he believes, has much to do with that outcome. He has observed many variations on successful entrepreneurial leadership over the course of his career, he says, but founders who were not good leaders almost always failed.

Start your enterprise for the right reasons

“The leaders who are most notable in the new enterprise realm are compelled to start an enterprise that will create real value in the world,” Stern notes. “They stay focused on the best way to deliver that value and don’t get distracted by shiny objects along the way that might dilute their solution or change it altogether. Stay focused on why you are launching this company and what you want it to achieve. All the decisions you make should pass that litmus test.” Stern points to the meteoric success of PillPack, which Forbes named one of the 25 “Next Billion-Dollar Startups” in 2017. With 500 employees, delivery in 49 states, and revenue of more than $100 million, PillPack is one of the country’s fastest-growing startups. And it would seem that Forbes was prescient back in 2017—Amazon is seeking to acquire the company for $1 billion (the deal is still in process).

The online pharmacy, which was born at the Martin Trust Center for MIT Entrepreneurship, delivers medications to its customers in presorted packages labeled with times, dates, and instructions on how each drug should be taken. It also coordinates refills, renewals, and copays. Customers are free to email, text, or call for a consult with the PillPack pharmacist. For consumers who take multiple medications—especially those who might not be able to travel to a traditional pharmacy—PillPack could be lifesaving.

Founder Elliot Cohen, MBA ’13, started PillPack because he saw his father, who had severe heart problems, struggling to manage his medications. Cohen was determined to find a solution. He credits Scott Stern’s “Entrepreneurial Strategy” course with guiding his approach to entrepreneurial leadership. What he learned: “focus on creating value for your customer, and the rest generally works out.”

Stern notes that Cohen had a maturity of vision and a dedication to that vision that was unusual for such a young entrepreneur—perhaps because of his early personal experience. As a result of that passion and his diligent study of entrepreneurship, Cohen was able to build a team of people that believes as much in PillPack as he does. “No, you won’t convince everyone of the value of your product and service, but a promising enterprise is one led by a founder or CEO like Elliot Cohen who is able to rally his team around a common purpose,” Stern says. “A single evangelist at the top of the organization isn’t enough. Entrepreneurship is a team sport.”

Learn more about Scott Stern.

Read about Elliot Cohen’s entrepreneurial journey.

Thinking inside the box: Students on two continents embark on an entrepreneurial experiment

Let’s just say it’s not your typical hackathon. On Thursday, September 20, five students, each from a different discipline, will enter a glass cube on the MIT campus and spend the next four days inventing together. As soon as they convene, they will be presented with a real-world challenge that they must attempt to address. MIT’s cube will be located on the North Court between Vassar and Main Streets facing the Stata Center; passersby are encouraged to interact with the inventors inside.

InCube will take place simultaneously at MIT and in four glass cubes across Switzerland—two in Zurich, one in Bern, and one at the Crans-Montana ski resort. Each team will be presented with a different dilemma. On the final day, the five teams will present their prototypes, competing against one another to convince a jury that they have the most actionable solution and, perhaps, a viable startup. The MIT team will pitch its idea remotely to the jury in Zurich, where the Swiss teams will pitch in front of a live audience.

Conceived by the ETH Entrepreneur Club, a student association in Zurich, the event will be the second annual InCube experiment. The first took place in Zurich in 2017. The MIT team, sponsored by The MIT Innovation Initiative, will be participating for the first time. The five MIT students represent a diverse range of disciplines and experience. Undergraduates and PhD candidates alike, they come to the hackathon from the realms of computer science, economics, chemistry, biology, and medical engineering.

A glass cube is not an ivory tower

The idea behind the tiny, glass-walled think tanks is to draw the public into the process and provide a platform for interactive engagement. The transparent laboratories encourage passersby to interact with the teams, providing feedback and serving as sounding boards for ideas. Organizers say they want to foster entrepreneurship among students and the larger society but also erase boundaries—among people, disciplines, cultures, and nations.

The teams will eat, sleep, and work for four straight days in their cubes. The glass abodes are portable and don’t contain bathrooms, but facilities are available nearby. Each of the cubes is being supported by a company, institution, or foundation that will define a problem for the team to solve. Stryker, a Fortune 500 medical technology firm based in Michigan, is sponsoring the MIT cube and will devise the challenge for MIT students.

Learn more about the InCube hackathon.

MIT and China partner to plot the growth of future cities

Where is the city going? What is the future of “urban?” How can we increase quality of life, solve transportation and energy issues, and provide affordable housing for millions of forthcoming city dwellers? MIT and China are partnering to find answers with the new Future City Innovation Connector (FCIC), which will be headquartered in a new space called the MIT China Future City Lab.

MIT and Tsinghua University in Beijing have established this revolutionary collaboration to support research and startup teams that will develop leading-edge ideas that address the challenges presented by China’s rapidly growing cities. As a result, the partners hope to develop new models for urban living and infrastructure that address issues of urban resilience, health, housing, environmental sustainability, responsive urban management, and the development of smart cities.

The FCIC will draw upon MIT research to identify innovative concepts and technologies that can be implemented in China. The program’s founder and faculty director Siqi Zheng is the Samuel Tak Lee Associate Professor of Real Estate Development and Entrepreneurship in MIT’s Department of Urban Studies and Planning and Center for Real Estate. She is also a visiting professor at Tsinghua University.

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In Celebration of the Pretzel Vendor: Broadening Entrepreneurship

A recent report from the Global Entrepreneurship Monitor (GEM) found that 27 million working-age Americans—nearly 14 percent—are starting or running new businesses.

Impressive though that number is, says Mark Anthony Thomas, SF ’14, the uptick leaves many Americans behind.

Senior Vice President of Partnerships at the New York City Economic Development Corporation, Thomas says that while high-tech startups produce innumerable benefits, they tend to create jobs for college graduates. “In the United States,” he notes, “universities have sophisticated entrepreneurship programs that help students bring their new ideas to market.” But entrepreneurship opportunities, Thomas says, should not be limited to those moving along an academic track.

Outside the digital marketplace, Thomas says, relatively few American-born citizens appear to consider starting a new enterprise. In fact, foreign-born Americans outpace those born in the U.S. in developing new businesses.

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