Why Do Startups Fail? | Tom Eisenmann, Harvard University | Searching for Mana

Welcome on to Searching for Mana.

Tom, hello. Thank you for having me.

Pleasure to have you on. Tom, I would like to open with the study that you carried out on betting the company using the cases of Rupert Murdoch's Fox News and UK Broadcasting. Can you reflect on this notion considering the uncertainty that we are all facing?

Yeah.

Early in my career I became fascinated with the company moves that particularly I had worked as a management consultant before I got my doctorate in the mid-1990s. And.

The owners and CEOs of those media companies, Rupert Murdoch stands out as an example. John Malone was a counterpart. He ran the biggest cable company in the United States. They were regularly taking gigantic bets. Murdoch's bet on satellite broadcasting in the UK would be an example. But he did it over and over again. He launched a broadcasting network in the us he bought the Fox stud.

And when I got into the doctoral program and studied strategic decision making, what I found is that a lot of scholars thought that Rupert Murdoch is simply impossible. That nobody could manage an enterprise as complicated as News Corporation and do it be personally the architect of strategy. But there he was, he was doing it. And so that set me off on research on exactly what type of executive was likely to make these bet the company moves.

And I spent a lot of time studying this in the context of US cable TV operators. And what I found was that owner managers, the US cable TV systems were owned by.

Some of them were still run by the original entrepreneur, many of them had a professional CEO. And when I looked at which of the companies were expanding aggressively and taking really risky moves, it was much more likely to be the owner managers, the entrepreneurs. And that started me on a path toward studying entrepreneurship. I became fascinated with these entrepreneurs who were in the face of turbulence, in the face of uncertainty, just constantly betting the company.

And so this when you mentioned that when he successful he keep going with his ventures, these are some of the successful examples that we're all aware of. And I was actually myself always thinking why are we all obsessed with learning from only successful unicorn companies? For example, we all listen to Tim Ferriss guests and this unicorn, that unicorn Dropbox cases and stuff. But yeah, what if we learn from failures? What about that? So your new book, the Fail safe Startup touches the monster's thinking. Why did you write this book?

Well, so I studied these entrepreneurs taking big risky bets and it's a long list of them. If we look today, Elon Musk would fit that profile, right? Tesla has just continued to be an incredible series of big risky bets. Same thing with Musk's SpaceX. So I was fascinated with these CEOs. But when I actually started to teach students how to launch their own startups, I discovered that many of your listeners, I'm sure, will be familiar with the Lean Startup, the notion that you have a hypothesis about how the new venture will work and you test it, and you test it quickly and rigorously, but without wasting time, without wasting resources. And I moved those ideas into the curriculum at Harvard Business School and taught my students and helped many of them launch businesses. And a couple, this is around.

2012 or so, they followed the Lean Startup textbook perfectly. Minimum viable product tests, really well done, validated demand. And yet they still failed. And in one case, I was actually an investor. I had a lot of confidence in the team and I could point to a lot of reasons why they failed, but I couldn't pinpoint the real cause. And that was upsetting, alarming. Here I was supposed to be an expert on entrepreneurship. Two thirds of startups fail and I couldn't really explain the most important phenomenon in my field. So that set me out on a path for the last more than five years.

Studying lots of startups, talking to the investors, talking to the entrepreneurs, reading everything I got to get my hands on, doing survey work and so forth. And that's all culminated in this book that you mentioned.

Yeah, we can learn a lot from that. So I know actually a company who, as you say, everything was perfect. So we have a massive backing from a big PC, Rocket, Internet Ventures, big clients on board. In your head was Monzo, Carvo, all just these big names and yet the startup fail. And I myself couldn't understand it. So what are the potential failure patterns?

Well.

We need to unpack failure. So I mean, at the simplest level, a startup fails because they run out of money and they can't raise more. That's not very helpful. It's like saying the patient died because of loss of blood. Okay, why gunshot wound?

Why innocent bystander in a gang shooting? Self inflicted, you know, so you have to dig deeper and deeper. And when you do that, you can then find there's a set of failures that are really interesting. And these are the failures where there was a lot of initial promise. These are smart people came on board both to join the team and to put money in as investors. And so there was initial promise, and yet the failure in retrospect seems avoidable. We can see mistakes. So anytime we look at failure, we have to figure out what's the balance of mistakes made by the entrepreneur versus misfortunes. So with COVID with a pandemic, tens of thousands, hundreds of thousands, maybe worldwide, millions of businesses will shut down. No fault of the entrepreneur. It's just unlucky timing really. And the same thing happened in the Great Recession, particularly in the financial sector that so interesting to your listeners. In the Great Recession, same thing happened. So we can set those aside. I mean, it's crystal clear why those companies are failures. There's also a set of businesses that really, if we're honest and if the entrepreneur is more self aware, don't show initial promise. Think of them as hapless and hopeless. This is a person who shouldn't be an entrepreneur. They have a terrible idea, they're not fit to lead.

It's heartbreaking, of course, when a business like that fails, but they rarely last very long, number one, and they rarely accumulate much in the way of a team or capital because it's clear to the world that this is a bad idea and this is not a good entrepreneur. So we can set those aside too. So the interesting ones show promise and yet some aspect of the failure was avoidable. And that's where I look for patterns. And then we want to divide those startups into two groups. Early stage failures in the first few years and later stage. The later stage are the ones we hear about and read about. And when something crashes to earth, it leaves a gigantic steaming crater.

One of these late stage failures, you know, hundreds of millions of dollars lost, hundreds, maybe even thousands of employees. And those turn out to be very different set of reasons why, why you see failure. So we can talk about those or we can talk about the early stage. I think your listeners may be interested in both.

Yes, let's start with the early stage then.

Early stage. So.

I found three patterns. There is a pattern where the entrepreneurs and this is this company that sort of set me on the path was actually an apparel company. There were two former students of mine, Quincy Apparel. The idea was better fitting, affordable and stylish apparel for young professional women. They themselves had this problem. Entrepreneurs often solve a problem they have and it was a good idea. And they ran the MVP test, they ran trunk shows. Anybody who's been around the world of fashion will know what a trunk show is. So you bring in samples, people try them on, they get excited and they got lots of orders. So there was clear, clear demand for the concept. They didn't have experience in design or manufacturing apparel. And that turns, it turns out to be very hard to, especially if your promise is better fit to actually get a garment that fits well, and so this is an example of good idea, bad resources. And it wasn't just the founders. The founders lacked experience. They also couldn't agree on which one would be the ce. But because of their lack of industry experience, they hired team members who did have specialized expertise. But fashion turns out to be one of those things where you do just one function. You're the pattern cutter, you are the fabric sourcer, and those people would do that job, but no other jobs. In most early stage startups people pitch in and they do a little bit of everything. But here they hired people that were used to doing just the one thing they knew how to do. So they had the wrong team, the wrong founders, and then because they didn't have a great track record, they had trouble raising money. So they raised money from investors, typical tech investors. They positioned it as a direct to consumer concept and the investors really didn't know enough about fashion. And they also weren't big enough when the company got in trouble to provide follow on funding. So here's a little more money to keep you going. And then finally, the factories that actually manufactured the garments didn't pay any attention to this team, right? They were small, they had no industry reputation, they had unusual sizing requirements for the garments. So all the way around the resources that an entrepreneur needs to be successful, every place you've looked, they had problems. So good idea, bad resources. A second pattern is just the opposite. And here was the example in the book is an online dating site and strong entrepreneur who attracted a terrific team. They could iterate, they could do all the kinds of things you expect an engineering team to do. Supportive investors who put in enough money at the beginning.

And actually partners who were supportive. This was an early example of an application on Facebook. This is back in 2011 or so. And so great resources, but he just never found the right idea. And the problem, and this is a typical problem and one I hope your listeners watch out for. I call it a false start. Just like in car racing or horse racing or track and field, the athlete jumps the gun, gets going too soon. And in this case the entrepreneur who was an engineer, built the site out completely before testing, before talking to customers, before really understanding the appeal of the. He had a special way of doing online dating, but he really didn't test it before he built it. And so he the good news is he could iterate fast based on customer feedback. The bad news is the first thing he built was off target. It was a false start and he wasted the a third of the money he Raised on a product that if he had done proper research in the beginning, if he'd followed. Lean startup is all about minimum viable product, but that's actually the tail end of a process. Lean startup is also about what a good designer would do. Spend so much time studying customer needs and empathizing with the customer and so forth before you actually start the engineering work. And he skipped that step, built the wrong product, wasted time, wasted money. And an entrepreneur only has so much time and so much money before the business fails. So those are the two. Then there's a third pattern which I think a lot of entrepreneurs fall victim to. It's the false positive, same as in medicine, right? False negative, false positive. And the false positive for a lot of entrepreneurs is an enthusiastic early adopter who embraces the product. And you get a bunch of them, you think, wow, I've got something. But it's often the case that the needs of early adopters are different from the needs of mainstream customers. And when that's the case, if you build a product and have a marketing message that's suited only to the early adopters, when you try to bridge, to keep growing and connect with the mainstream, the product can fail. So that's the third early stage pattern.

Yeah, I think I could see this the third pattern. So I think many companies would pivot at that stage. So after they reach the early adopters, they'll slightly pivot to reach kind of a broader audience.

Exactly.

When they scaling, it tends to, they tend to hire a lot of MBA executive actually in that state. So you have the young entrepreneur and then the moment they scale, they hire people from the industry with 10 years experience back to.

Yeah, and you can get a culture clash. That's, that's a later stage problem and a very real one. That's a, that's a company that's successful enough to make it to late stage. The false positive can slow a company down, but not kill it. Sometimes it can kill the company.

So yeah, so we'll go to that late search because I'm very interested in that. But before that I wanted to go back to the first pattern because you mentioned resources and that's something that we are passionate about searching for mana. We also have clients to build ventures basically through hiring and developing careers and acquiring talent. So how do you can you reflect on maybe that the hiring kind of process for innovative startups. What are the pain points here?

Early stage and late stage is a crucial issue. And I would say with the early stage startups, a problem is hitting the right Balance between skills, specialized skill, cutting the fabric, sourcing and attitude.

And this is the problem that the Quincy Apparel founders had. They hired for skill, they didn't spend enough time recruiting for attitude. And in an early stage startup where it's complete chaos, I mean, every day there's a crisis, every day something's changed, every day the entire team will shift to some new priority. You need people who understand those rhythms and can handle the uncertainty, the chaos, the shifting priorities. And so for. And somebody who's spent a long time in a big company may not adapt well. The later stage issue with hiring, it's actually one of the later stage failure patterns, is called help wanted.

And the help comes in two forms of resources. We can talk about the capital later. Sometimes the capital just disappears. I mean the capital markets go through cycles and either the entire economy, there may be no money for startups or in a specific sector like cleantech went through this in the late 2000s. It's just people stopped investing in cleantech. And when that happens, if you don't have enough money in the bank, you have a lot of trouble. But the other aspect of help wanted for late stage startup is the key executive. There's often one function in a startup that's just essential. And as the startup grows, if you don't have the right person in that role, it can kill the startup. So the late stage example I have is Dot and Bo. It was in the business of online home furnishings. So if you look around your studio, the couch, the pillows, you know, the lamps, everything you can see, and that stuff is produced all over the world. It had to be shipped into the United States. Complicated logistics. And then once it arrives in the warehouse, packed and shipped. And if somebody's ordered a couch online, they want to take a day off from, not during the pandemic, but before the pandemic, you take a day off from work to meet the shipper. And so you don't want it to arrive three days early because no one will be there to receive it. And you surely don't want it to arrive three weeks late. You know, it has to be precise. So the logistics and the operations are very unforgiving, you know, plus all the uncertainty about ordering items in Asia and international transportation and so forth. And so the job of vice president of operations for a company like this is just absolutely crucial. This, this startup, Dot and Bo had fantastic demand generation and very loyal customers. They curated rooms and people would buy the entire room, just everything they could see. And of course that's coming from different Suppliers and arriving at different times. So complicated logistics. So the first vice president of operations they hired was a generalist. The CEO, who lacked the founder, who lacked operations experience, knew he needed it, but he also wanted somebody that could run all the operations, marketing, finance, et cetera. And that person just had never had any experience with shipping big complicated items, like in an E commerce context. The second person came from Netflix, used to ship back in the old days when Netflix, the DVDs I assume, was available in the UK the same as the US the DVDs used to come in little red envelopes and they would ship literally millions of those. So he had operations and logistics experience, but with a very different kind of product than a couch. So it took three hires before they finally found somebody that could manage the logistics. And by then the shipments were late. They were expediting shipping, incurring extra cost, spending tons of money on customer service, because people would call in and say, or email, where is my couch? It was supposed to be here yesterday. And they burned through a lot of cash. And had they got that hiring move right from the start, help wanted, the company may have survived.

So, yes, absolutely crucial, this is very important right now because we all are talking about hiring, recruitment using AI and that's basically machine matching CVs based on keywords. So exactly as you say, someone can have logistics on his cv, on her cv, but it's still not the same person with the right attitude and the right knowledge and expertise to deliver the highest service actually and work. How can we hire people with right attitude? I think this is the main problem right now. We're looking at keywords at LinkedIn, just spotting matching things, but yet there are people that are still not incompatible, not compatible with the company. How do we hire for attitude?

No, I think it has to be through the interview process. And.

Many entrepreneurs and some venture capital investors have written.

Really thoughtful pieces, interview guides essentially for how you. So I would direct your listeners to just Google it. How do you hire for attitude and get that list of questions? And in many cases it'll be probing an individual about some specific episode where they were the member of the team. And people will often take credit for contributions. And if you really push them and push them, you find out they were in the background and somebody else really was driving the initiative. You'll find out about conflict, you'll have an opportunity to ask questions about how they managed the conflict on the team.

And so it really comes down to a thoughtful interview process. And in a lot of early stage startups, the Recruiting process can be very haphazard. I mean, best practice is the team. So the candidate will meet many team members, but every team member in the interviewing process needs a role you will probe. We're hiring an engineer, you probe the technical skills, you probe the attitude skills, the team skills, and so forth. So again, hiring for skill and attitude means a really thoughtful recruiting process inside the firm and also for the firm when they work with a search firm for making sure that that firm goes beyond just the transactional aspects. A lot of search firms are just, you know, there's a candidate, I think there's a fit. Good luck finding somebody that understands your values and understands this balance issue.

Yeah, I agree. So yeah, you can have this recruitment firms who are just transactioning things. But if you have like a real search firm that collaborate and partner with the client on a longer period, just a bit like consulting, that really understand the culture of the company, that would actually be way more beneficial. Let's move to the late stage failure patterns, because that's something I always, I wanted to go back.

Yeah.

All the failures are heartbreaking, but these are really pretty amazing to learn about. There are three patterns. Help wanted I mentioned already. The company's doing well, but they either run out of money and they just hit.

A spot in the capital markets where no one is investing. Even a good company can die because they need capital and the investors are not willing. And then the other help wanted aspect is missing, this critical executive. So that's one, a big one is a pattern I call speed trap. And here. Oh, and this happens so many times. The company gets off to a great start, they find an unmet need. Early adopters pour in. Early adopters refer the product to their friends, to their co workers. The growth continues. Investors come in, they pay a high price for the equity. Everybody's enthusiastic about the opportunity, the potential. There's often a charismatic entrepreneur who can sell the vision. And of course, when the investors come in, they want you to use an American baseball analogy, swing for the fences, try to hit the ball out of the park, because that's how VCs make money from a big, big return. And of course the entrepreneur wants that too. So everybody's goals are aligned. But then things start to happen. So the second wave of customers may not be as excited as the first wave. Right. So you have to spend more on advertising to attract them. You may have to cut the price.

Competitors arrive, clones. It's quite common for a successful startup to quickly be copied in other markets or in their home market. And of course, the way the copycats, the clones, get businesses, they cut their price. They spend heavily on marketing. So now customers. And customers are less loyal, so they stay around less long. They're more likely to churn away, to disappear. They're less likely to refer the company to friends. So now to get new customers, we can't rely on free advertising through word of mouth. We have to pay.

And so there's this squeeze between how much a customer is worth, the value because prices are coming down, because they're staying less long, they're buying less, and the cost of acquiring customers. And so the economics of the business start to look pretty bad pretty quickly. In the meantime, in parallel, if it's the kind of business, and this would be true in a lot of financial services where you need humans to do things, think of Robinhood not being able to. Who answer the customer service queries they're getting. When you have that kind of growth, you need to hire all these people, and it's hard to find them, and it's hard to train them quickly enough to make them productive. So either you do without and you don't answer the emails or the phone calls, or you don't.

Yeah. So just like Robin Hood went exactly through this. And then the other factor that's going on is a cultural problem inside the company. So you get all of these specialists in every function in operations and finance. In marketing, there are people now that are doing specialized roles. They're newcomers. And the original, the generalists, the jacks of all trades, the Swiss army knives that were there in the beginning. Look at these new people, and they don't get along. For one thing, if the business is still successful, the new people looking at the old guard and thinking like, wow, they have stock options that are worth $5 million. I just arrived. I mean, I'm not sure. And the old guard doesn't know. They don't appreciate my contributions as a specialist. So you get old guard, new guard, conflict. You get subcultures within the function. So the people in the warehouse will have one culture. The marketing people will blame the engineers for being slow to produce the product. So lots of cultural conflict.

Bad economics. And eventually. But you're still growing. You're pumping money into marketing, but it's not a good investment. Eventually the investors will say.

I'm not sure I want to put more money in. Why don't you go try to raise money from somebody new? The new investors will look at the economics and go, I just don't know. And the thing can unravel Incredibly quickly you see this, we've seen it over and over again. If you know these US businesses, Groupon.

Went through this blue apron, which is meal delivery. In the us you've got European counterparts.

And people selling cars. You just sort of pick any kind of business you can imagine and you'll see this pattern. Sometimes they survive. They slow the marketing down, they focus only on the loyal customers. But often the business just dies completely.

I was in one business that I left at CRC because I was the old guard. And then as you say, there was the new guard coming. They were growing as a crazy level because of the investment round. And I think the old guard just couldn't understand. We didn't recognize each other anymore. And that was kind of a slip. But they can be very painful.

You know, often the original team, you know, the first 10 people in the company, the company will outgrow the roles for those individuals. And it's culturally very disruptive if you take somebody who was there from the beginning and you tell them we don't really have a job for you anymore, or now you're going to work for this new vice president we hired from someplace. So, yeah, the culture can be very difficult to manage in a fast growing firm. So that's the speed trap. The last late stage pattern I think is craziest. It's called cascading miracles. So the concept is sometimes you have an entrepreneur and Murdoch and Elon Musk fit this profile. British satellite broadcasting, I think it's called sky these days.

Is a fantastic example of this. An entrepreneur comes up with a vision that is audacious. It's so bold, it's so ambitious. It's going to take years to develop the product because of engineering challenges, just because of the sheer capital that's required.

You'Re looking at a fundamental change in customer behavior, like electric cars, like relying on a for profit company to shoot satellites into space, like getting British consumers to, instead of watching ITV and BBC to sort of put a satellite on their roof. And so fundamental consumer changes, big engineering challenges, often government approvals necessary in these businesses.

And unclear legality, which is sky went through this. What could we put on the roof? Could we watch TV that way? And tremendous execution challenges and vast amounts of capital. And if you think of all of those things, each one is a probability. What's the probability that that that requirement is going to be successful? And if you just sort of put them all in an equation, sort of A times B times C, if anything goes to zero, the whole equation goes to Zero. So you need a cascade of miracles. You need everything to go right. And if each of them is a 50, if there are five things that have to go right and each is a 50, 50 probability, and you just work out that chain, it's 3% odds that everything, you know that you'll get heads if you flip a coin.

Five times. And so what you often see in businesses like this, it's clear to everybody at the start how amazing it'll be if this works. This will be world changing. Federal Express in the US was this kind of business. Sometimes they work. SpaceX is working, Tesla is working, Sky Broadcasting work. But very often they fail. And when they fail, it's spectacular because you have this. You need a charismatic CEO who can sell the vision and keep the money coming. There's a term that was used to describe Steve Jobs called the reality distortion field. It's used to describe his ability to mesmerize a team, investors, strategic partners. And it actually comes from an old episode of the U.S. science Fiction Show Star Trek.

And the notion is that we will bend reality to our will as the entrepreneur. But sometimes that reality distortion field folds back on itself and the entrepreneur, the charismatic entrepreneur, can't see the real reality because they're sort of caught in their own field. And that often happens. And so the key to avoiding this kind of failure is basically a board of directors. Because it's sometimes the case that the charismatic CEO is also a narcissist.

And if you, I'm sure your listeners will be familiar with that personality type. Very engaging, often able to read people, but ultimately insecure and sensitive to criticism and willing to shift blame and willing to use people in a manipulative way, discard them, demanding loyalty. All these attributes that make them hard to work with, but initially very appealing.

And these narcissists can be at their worst. They can demand such loyalty that inside the company, all you have are yes men, yes men and yes women who basically reflect back to the boss, the vision, and won't tell the CEO that the vision is flawed or there's trouble, or we need to make changes. And so you know when you need cascading miracles and you have the charismatic narcissist, the last line of defense is actually the board of directors. They're the only ones that can save the company.

That leads me to Adam Neumann, from what you were just describing here. So what went wrong here in which one? Adam Neumann and wework. You had a charismatic leader. You had money behind you had the vision, you have everything.

Oh, yeah. No.

I think it's a perfect example of cascading miracles.

And the charismatic CEO. Yeah, I wish I knew. To really.

To really give you the right answer to that, I would need to understand the board dynamics. And we saw from a distance when we read in the newspaper that there were spectacular fights on the board of directors about whether to keep him, whether to remove him, what role he could play, and so forth. So we know there was tension and we know the board was working on this. But whether the board saw it early, whether the board made efforts to.

Control the behavior, I don't know. Because you really need to be inside the company to say, I mean, in a situation like this, what you want is often an executive coach. There are folks out there who will work with a CEO like this. You need the CEO to want to be coached. And it's often the case that a narcissist is convinced that they're right. They believe in their superiority, the superiority of their ability, the superiority of their ideas. And so the notion of. And that somebody might come in and coach them how to do a better job. So it's actually.

There'S some good writing on this. There's a classic article in Harvard Business Review by Michael McCobby who's a psychoanalyst on how to manage a narcissist in a productive way. And some of it involves flattery. Right. If you basically. And they want to be successful. So if you can convince them that their success is somehow linked to getting coaching, that can, that can. And then just some board best practices. I mean, a good board will do an annual review of the CEO and they'll work on a development plan and so forth in, in startups. I mean, the good news is most venture capitalists who were in this position are pretty good board members. So, so you'll see some of those best practices. But yeah, I wish, I wish I had the answer. I'm gonna, I'm gonna try to get inside the WeWork story to be able to give you a better answer to that question.

Yeah, I think in fewer years we can reflect on that broader context. I wanted to lead back to you mentioned board members and then I thought about MBA students and I bet a lot of your previous students are now sitting on boards. But there was this recent controversy. One of the recent articles on the financial times, Ben McKinsey alum Tom Peters suggests that the root of McKinsey's issues that relates to this opioid controversy is reliance on quant based MBAs with no regard for people and culture. Stuff. What would you say about that? Is that still true?

I don't think it's been true for a long time. I think, you know, when we came, We've had a whole series of, of ethical problems that can be traced back to MBAs. And I mean, Enron is a classic example. Jeff Skilling, who was the CEO of Enron, was a Harvard Business School graduate and was a McKinsey partner for many years. And, you know, and then he went to jail for a whole series of ethical lapses and legal problems. So I think if we go back that far, there is something to it. But I would say the leadership of most top MBA programs is acutely aware there's a lot of societal pressure on business in general and there should be the role of business in society. So Harvard Business School, and I don't think we're unusual. I think you'd see this at any top business school. We have a required ethics course. It's not called ethics, it's called Leadership and Corporate Accountability. But, but every MBA takes it. And even further, I would say we are in a process of, because we've seen such pressure on business and society of rethinking.

How into every course we weave these ethical considerations. I've been thinking about it in the entrepreneurship context. It's a very hard problem in entrepreneurship and it relates to this failure story. So. So every entrepreneur is constantly selling. You're trying to persuade an employee to join. You're trying to persuade a big customer to sign up in a B2B context to get an investor to give you more money. And there's this line between enthusiastic.

Exuberance and telling you how great it's going to be and outright lying or failing to tell people things. You know, if they just asked you and you told them the truth, that they would want to know it. So do we have an ethical obligation to talk about that? And so we're spending in our entrepreneurship courses a lot of time getting students to think about their responsibility. I mean, just yesterday we did a case in my. I'm teaching a course on entrepreneurial failure right now and we had a founder in. One of his employees committed suicide. And.

So we had a long conversation about how does an entrepreneur stay close enough to the employees to actually, you know, you see them every day, they're there for nine hours and you think you understand what's going on, but do you really understand? And in this case, you know, an early stage startup, there are a lot of young people, they haven't had experience with mental health issues. You often don't have benefits in place that make it easy for somebody to seek professional help because the company's poor and just getting started and saving cash. And you may not even have a well organized human resource department that can. That can be very thoughtful about this. So we had a conversation about the entrepreneur's ethical responsibility to.

Really do the right things there and pay attention to all this. So I would say we've got.

Way more to do as business schools to train MBAs to behave responsibly. But I think we're doing a pretty good job and I think we're aware of the need.

I think it's actually more difficult nowadays for this remote working. I think it's very difficult to judge the person sitting on the other side of the screen. And I think it's so difficult to run a business now remotely.

Yeah. And we're having some business success with remote work. I know your research focuses on that. I think we're going to. Even after the pandemic is done, I think it's going to become much bigger part of our lives. So we have to solve this problem and many other problems. Maintaining a culture that we were talking about before, you know, when people are scattered all over the world.

Yeah. How to maintain a culture remotely, how to stay productive, creative, engaged, motivated. I think that's all of this booming issues. And then. So with all your experiences with hbs, you are giving us a small brief stories previously. So you've been teaching over two decades at Harvard Business School. Has anything changed during this period?

You know, if a Martian came down and looked at our students and listened to our students and they didn't pay attention to changes in the eyeglasses and how people are dressed, I think it would be more similar than different. But what I would say. So a big difference is in the entrepreneurship class I'm teaching right now, exactly 50% of my students are female. Harvard Business school overall is 43% female. When I was an MBA in the early 1980s, it was maybe 25% of the class. So that's a pretty big difference. And gender now, I mean, it's obviously always an issue and it's in the background and so forth, but I think we now take for granted that, that it's moving toward 50, 50, particularly in tech and entrepreneurship. I mean, there's still. I mean, the reason I have 50% and it's only 43% of the school is there's a lot of students interested in investment management and private equity and so forth.

Those sectors are still Disproportionately male tech turns out to be much more evenly balanced. So that's one big change. The other change is, I think.

When I started the MBA program, the typical profile was two years of experience. And then graduate school. Now our typical. When they start, they're 28 years old on average. And five years of experience after college might be quite typical. That changes the quality of the discussion you have. And we teach by the case method. So people have been on the job for five years instead of two years. They can have a much richer conversation. So that's a big change. And then I think the.

Some of the big societal changes. I think I'm teaching Millennials, and I do believe they are far more committed than my generation was to having an impact in the world. And so I think they're constantly asking, as they think about their career plans, do I feel good about what I'm going to do and what kind of difference will I make? And that's great. And that gets reflected in the class discussions, too. I think we are much more likely to talk about ethics. We're more likely to talk about the social impact of the ventures we study.

Yes, I've noted that as well. Kind of both millennial and the generations, that I think everyone really would just want to work for a real cause rather than just.

Building money. But then it leads to. What about the share of students that finishing MBA going to launch their own businesses with, let's say, social impact and then causes or go back to consulting, for example?

Oh, well, consulting has always been, I don't know the percentage right now. I Suspect it's around 20%, and it's always been at least 20%. You know, in some years it probably approached 30%.

So. And I don't think that's going to change quickly. The fraction launching their own business upon graduation. So you have to be careful here, because if you take an entire career in mind, 50% of Harvard Business School students will launch a business at some point in their career, usually within the first 15 years after graduation. And people think of Harvard Business School as sort of a factory for consulting and investment banking and private equity. And we are, we do those things, but a lot of people will leave those tracks and go off and launch something. And so it's a very entrepreneurial group, actually immediately upon graduation. For the last few years, the fraction has been 7 or 8%, and that's high by top business school standards. Stanford would be higher. I think Stanford approaches 12 or 14%.

MIT would be a little higher than us but we have some populations. I mean, one of the programs I run within the business school is a joint degree where they get a master's in engineering and an MBA in two years. And we've just graduated our first cohort of 30 students and 38% of them launched their own business upon graduation. The goal of the program is to teach them to be designers and entrepreneurs. And it's working so far. We're very excited about that.

Can you talk about that course?

Pardon me?

Can you tell me more about that course? Yeah. So I'm from the department which we have a master called Innovation Design Engineering, and it's Engineering from Imperial Coach London and Design from Royal College of Arts. Two main big institutions in the UK merging these two skill sets. So what are your reflections on the course that you're having now at the joint?

It's really exciting, the program. So the core faculty come from the engineering school and they have design in addition to engineering backgrounds. Design backgrounds. And then half from the business school, half from the engineering school. They get the two master's degrees in two years. There are very few programs that will. There are a couple of others in the U.S. mIT has a similar program, but much more focused on big company logistics and operations. And Northwestern University has a similar program, very focused on product design. So ours is new. The students take five core courses that basically move. We teach the basics of design thinking and entrepreneurship in learning by doing mode, and then we add concepts and skills in each course. And the beauty of the courses is they were designed together with a sequence in mind, as opposed to when you come to most universities. The courses don't really fit together in a logical way because they were started at different points in time. And you can't assume that somebody that took A is also going to take C. Ours, they must take these five courses and they were designed with a sequence in mind. And it's basically design cycles sort of design and build a thing and launch a business, do it again, do it again, and each step of the way will teach you more. And then in the background, the students, they take three hardcore engineering electives, cryptography, machine learning, whatever it might be, and they take four MBA electives. They take the entire first year of the MBA program, which is required for us. And so it's less MBA electives, it's less engineering electives, and the. And it's this core course. I love the students. We pick them. So they all have worked in tech product development before grad school.

And they all have technical backgrounds. So it's just Fantastic to teach them.

That's something that we would not think about 10 years ago, I think merging all the skills, especially even design, into business and engineering. What do you think will be the future that will be in 10 next.

Years of the future of this kind of program, the future of entrepreneurship, of.

Training the future innovators.

Oh, you know, so I have two priorities on that front. I'm very focused on Harvard and how Harvard can do more to prepare entrepreneurs. And I think you'd find this at a lot of top UK universities too. The attitude with undergraduates is we shouldn't teach them professional skills, we should broaden them. But the reality is they're going to go get a job and they need some preparation for that job. So Harvard College students don't have entrepreneurship courses they can take, but they're hungry to learn about entrepreneurship. So I want to create programs, extracurricular programs outside the, the core curriculum. I'd love to get permission to actually teach them entrepreneurship within the regular curriculum. So that's one group that I see as a priority when we do a great job with graduate students, with the master's students. And then the second group is all of the inventors in our labs. We have labs at the engineering school, we have labs that Harvard has tremendous research hospitals and a lot of scientists who are working on medical technologies and leading edge genomics.

And so forth. And it's hard, as I'm sure you know, to take something out of a laboratory and commercialize it. So one of the things I want to do is through, through the business school, find better ways to support those inventors in the Harvard labs, teach them the basics of entrepreneurship, teach them the basics of the design. And so that when something comes out of their laboratory that can, that, that can turn into a business, they're better prepared to make it successful.

That's great. Let's just ask about your mana. What has been this one, one thing that helped you excel over the last so many years?

Mana means power, Right? So my superpower. Wow.

I think. Are you familiar with the Isaiah Berlin fox and hedgehog analogy? Do you know this one? Yeah. So for your listeners, if they haven't run into it, it comes from the Aesop's Fables way back. And.

The fox knows many things, but the hedgehog knows one big thing. Hedgehog is a creature that will just sort of put its nose down and find the roots and the bugs and eat them. And the fox will eat almost anything in roves all over the landscape. And intellectually, people tend to be either a fox or a hedgehog. I have colleagues who have one big idea and they just push it, push it, push it, push it in every context, and they develop it further and further. I've been a fox.

I love to do something new, to roam into a new territory and learn it and then master it to some extent. You probably can't master it as if you'd spent 15 years studying the same thing, but to move on. And I love to find the connection between.

Between these fields I study. So I think the failure research is an example of that. I mean, people will tend. The hedgehogs will oversimplify failure. You know, it's all about a character flaw of the entrepreneur. It's all about a bad idea. And of course it's not. It's about many things. It's complicated, but there are patterns, and the fox will find the connections and find the pattern. So I've been like that my whole career, and I love doing it. It's one of the reasons I launched so many courses.

Right.

Because each course is an opportunity to learn something new and connect more dots.

Great. Thank you so much.

Yeah, thank you very much.