Saturday, July 19, 2008

Choosing the entrepreneurial path, by Reid Hoffman of LinkedIn

Stanford university Nicolas Schriver Reid Hoffman StanfordI am fond of Utunes, podcasts released by the main US universities, including Stanford. Today, I was listening to one of these free classes, called "choosing the entrepreneurial path" (you can find it easilly on Utunes), which special guest was Reid Hoffman, founder of Linkedin, the famous business social networking site. As a former undergraduate student of the prestigious university, he explains the entrepreneurial path to students, from his experience and his point of view. Here are some of the key points, that I found interesting to share with you.
  • There is no sure bets: As Reid Hoffman explains, usually, entrepreneurship is highly risky. There is never a sure bet. An entrepreneur is "jumping off a cliff with some tools, and assembling the plains on the way down".

  • A MBA is not a good predictor of succesful entrepreneurship: From his prospective he says most of the time people owning a MBA do not really insure success as an entrepreneur. Owning a MBA is in fact pretty far from the entrepreneurship mindset. A MBA is designed to insure a certain salary, and therefore some certainty, something that do not exist while you create a business. It is a way to prepare the future, but that is not taking a risk.
  • Easy problem solver: You don't try to show that you can solve difficult problems. You try to solve problem once at a time.

  • Financial strategy is central: People usually thing that what is important for an entrepreneur is the product strategy. But to develop a great product is not the key factor of the success. Your strategy has to reflect what your financial status is. If you are under capitalized you are screwed. If you can't raise money, if you are not up to date with the financing world, you could die because you have inadequate financing.

  • In the Internet entrepreneurship world, the distribution strategy is crucial: the three keys are distribution, distribution, distribution: Team and technology are not valuable. If you did not acquire enough users to distribute your product, you are screwed. That is actually the whole idea of the business model of LinkedIn, where they have focused first of all on the number of users they had prior even picture a way to get money out of it. This is also an idea that drives Loic Lemeur with Seesmic: Prior to have defined any kind of business model, he is focusing on developing a community which will somehow develop the value of the business. In the corporate world, you don't notice how important it is because when you are in a big company, you already have a base of customers developed, which ease the game.

  • The birth of ebay: Reid Hofman was part of the founding team of Paypal, a successful online payment service. He explains how it started and also how the initial concept moved to something totally different from the original goal. A friend of his came to see him because he had the cool idea to start a business about encryption on cell phones. Reid found this idea terrible. Indeed, even though encryption on cell phones was a very valuable thing, because very hard to do, there was no business model: who is going to use it? Nevertheless he accepts to be part of the board. So he advised them to focus on cash on mobile phones, to start a business model, which drove them to market with Palm Pilots. Then eventually they found out that they will make a payment service. Now the problem was that none of them had banking experience. And they had to struggle to explain to the federal government that they were not a bank. The main lesson is that you should solve your problems one piece at a time. That is what helped Paypal to move from cellphone encryption to payment service online.

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