Session 1, Part 1: Introduction: Most Startups Fail; How to Improve Your Odds

I'm Joe Hedzima. I'm going to be your guide on our six session journey through the nuts and bolts of new ventures. Uh tonight at the beginning I'm going to try to give you sort of a set of guideposts for you to think about as you go into detail on all of the topics we're going to cover over the next six sessions. And in that regard, I'm going to uh ask you a bunch of questions that I want you to think about after every session that you come to because at the end, if you can answer those questions or at least get closer to the answers, we'll have accomplished a whole bunch about your journey. So, the first question is why are you here? You know, it's a beautiful warm night in Cambridge. windshills in the single digits. You know, why are you here? I know it was for the three units of credit you're going to get for the students. Uh you know, perhaps um you don't know anything about entrepreneurship and you'd like to find out something. You just want to dip your toe in the water. So, how many people here have not taken a formal course in entrepreneurship? Okay, there you go. All right. Including Bob back there. Um, so we're going to hopefully, so this is a great environment for that. It's a two-week period uh during January where you don't have a lot of other distractions. And uh hopefully we'll cover a lot of the things that will tell you a lot about entrepreneurship. Maybe you see something that sucks and you want to make it better. Anybody have that? Okay, good. Well, another student who had that um was somebody who was taking a bus back from New York City after Thanksgiving uh back to campus and he forgot his USB drive and he couldn't get his files and he said, you know, I wasted the whole trip. I want to figure out how I can have those files anytime, anywhere I am. And I said, well, you know, that's cloud storage, right? That's Google Drive. That's Box. com. and he said, 'Yeah, but they really suck. And I'm going to make something that doesn't suck. He went on to found something called Dropbox. And I've been using it ever since. And it certainly doesn't suck. It works quite well. So maybe that's something that you want. Maybe you have an idea or an invention and you want to bring it to life because you want to like change the world. I think for most people that I run into in entrepreneurship, that's sort of a primary driving factor. They think they can make a big difference and that's I think the real a real driver for most people. Of course, being an entrepreneur is glamorous and you can make a lot of money. How many people like that one? Okay, there's good realistic people in the audience. Well, we'll talk about that, too. uh so many questions regardless of why you're here. So many questions you need to ask and we're going to try to help you over the next six sessions. How do I start? What actually do I do? What is the problem I'm solving? Does my solution provide uh an answer to that problem? Who cares about my idea? specifically who cares, who's my customer, and how do I find people? These people. Bob Jones will be here in the second part of this evening, and he's going to be talking a lot about that. If you don't have a customer, you don't have anything. Uh, how will I make money and make it a sustainable venture? That's the business model or the venture model we call it. And we'll be talking about that tomorrow. How long will it take to bring my solution to market? What will it cost? What resources will I need? All of that stuff is about financial projections and thinking through the model that you have. Will I need to set up some sort of entity uh to attract investors, other people to join me? And what should it be? Corporation, maybe a limited liability company. And uh can I use that in any way to provide some ownership incentive for people? We'll be talking about that. How do I keep people from stealing my idea? You know, maybe you want to put it out there for everyone. Uh but maybe you want to control a little bit of how it gets used. So, we'll talk about, you know, can you do it and how could you protect your idea? Uh will I need co-founders and what will our relationship be? Do we need some

sort of an agreement? Maybe a founders agreement. Uh tomorrow we'll have a panel on the founders's journey. Some people that are in the midst of their journey. You can ask that question of them too. How will I negotiate with employees, consultants, whatever. Entrepreneurs are always negotiating, right? Because almost by definition, you're trying to assemble things you don't really own or control to accomplish a vision you have. So, you got to negotiate in some way to bring on uh customers, to bring on people that are going to join your team, advisors and investors. We'll have a session on negotiation. And the big one, how do I figure out what I don't know? And you know, one simple answer to that is, well, maybe you find people that have done it before who can advise you. Um, reason I'm here and all the other presenters are here is we've been down this path. We have plenty of scars and we can perhaps tell you what not to do or caution you on things. What are the potholes in the road and how will I recognize them? You know, you're going to make mistakes. If you don't, you're not doing it right. The problem is not making a mistake. It's making it twice, right? So if you make a same mistake twice, you haven't learned anything. The problem in entrepreneurship really is, you know, those things come at you in different clothing. And there have been a number of cases when I've been down the road and I go, "Oh, I recognize this. I've been here before. I didn't see it coming. " Can we give you some early warning things on that? So there are a lot of moving pieces. So the next question is, you know, why should why why do this? These are personal questions for you that you ought to think about as you hear everything through the course. Um, oh, did I miss one? A lot of move. Oh, why do this? Sorry. What's the reward? Fame, fortune. You may recognize these people. Some of them were at the presidential inauguration yesterday. Okay, that may be the reward. But this is the reality. This is How many people have heard of Nvidia? Yeah. Jason Long, the founder was interviewed and he said, uh, he built a trillion dollar company. You know, give or take a couple of billion. That's what it's worth today. Would he do it again? He said, I don't think I would. If I'd known three decades ago what it would take, I wouldn't have done it. This quote is amazing. If we realize the pain, suffering, and how vulnerable you're going to feel, the challenges you're going to endure, the embarrassment, and the shame, and the list of all the things that could go wrong, nobody in their right mind would do it. So, I must conclude from that, you guys are all crazy, right? But this is a guy who spent three decades to get there. The reality is only 10% of startups succeed. 10%. Nine out of 10 fail. Now this includes everything from sandwich shops and things like that. Now many of you are interested in venture capital I'm sure. What do you think the success rate is for venture capitalists? Out of every 10 companies they invest, how many successes do they have? Anybody? — One. I hear one. Two. Anybody else? Well, the most successful long-term firm was Kleiner Perkins, and they got three successes for every 10 companies that they invested in. Now, these are guys with money, smarts, with venture capitalists. You got to realize they're always the smartest people in the room. Do make sure you understand that. They'll let you know. Um, and connections. And with all of that, they only win three out of every 10 times. Can you think of any other thing you could do where if you failed seven times out of 10, you'd be a hero? — Baseball. All right. If you bat 300, you're probably, you know, leading the league and you're probably making, what do they make now? 50, 100 million a year. So, if you really want to make money, go play baseball. But the point is success is only 10% in general. Now, there are many reasons uh when you look into them. I want to focus on the one in the bottom right

which says 99% of the time people fail. By the way, these slides will all be available. So, but feel free to take pictures. Uh 99% fail because of a lack of planning and experience. We're going to try to help you on the planning part. And with that, you'll get experience. But even though 10% is a success rate, maybe all is not dismal. We're here at MIT. The Kaufman report. MIT um is known for entrepreneurship around the world. Kaufman report in 2009 studied the 26 roughly 26,000 active companies that were founded by MIT alum or faculty. And now that's out of 120,000 living alums at the time. So that's like one out of every five uh that were out there. These companies employed 3. 3 million people. They had annual revenues of $2 trillion a year. And if you put them together as a single country, it would be the largest 11th largest economy in the world. Now, does that mean we're better at success here? I don't know. But it might mean that when we do succeed, there are much bigger successes. The with these statistics, people come from all over the world to try to figure out how MIT does it. Well, we'll give you a little hint about some of the things that can help on that. Okay. So, what why this course after all of that? Well, this course is not about theory. It's about doing. The people that are going to be talking to you are not academics studying entrepreneurship. Every single one of them either are actively doing or have done what they're going to talk about. And it goes back to sort of the beginning of the course. Um I was teaching a course on which is now called law for entrepreneurs and some students came up and said you know you have some very practical things that you talk about could you do a course during January independent activities period on how to start a company and I said oh you know I'll think about it well this is pre- internet believe it or not uh they went and somehow got the course in the catalog and they called me up and said, "We put it in the cat catalog and we dare you not to show up. " I said, "Boy, that's pretty gutsy. " I was a little annoyed at that. But then I said, "You know, there's something here. These are like customers. These are people that want what they think I can deliver to them. They actually want it. I'm not looking for them. They came to me. So, how am I going to do that? " I didn't have time to really plan anything out. So at the time we had four uh nights and I thought well what are sort of two things a night that we could talk about. Uh and I got on the phone and I called people and some I knew and some I um I knew all the people I called. Some of them I say could you come and talk to a group of people at MIT students about whatever the topic is and to make it easy u just come and say I wish here are the three or four or five whatever things that's I wish somebody had told me about the area that I'm going to talk about uh when I started up and then we'll just open it up for questions. Now, about half the people that ended up showing that came to present, I didn't know personally, but I had people that I called and said, "Do you know anyone who can do this? " And they've got to be able to, you know, keep it simple. And then because I was worried that I was going to get all these, you know, people in the audience or these presenters to come, I said, I got to have some people in the audience. So, I called everyone else I knew and we packed a room with 120 people and people were sitting in the aisles. And it was a real good lesson for me. It was a great success. And it was a real lesson because what I did is I basically said, um, here's the goal. Here's what we want to do. I found good people. I gave them an idea of what to talk about or, you know, what they wanted them to talk about and then I got out of the way and they did a fantastic job. And we sort of refined that model over the years. So, it's really about doing. It's we call it new ventures. It's planning and executing new ventures. That could be business. It could be nonprofit. It could even be government. One year we had the US Mint show up for class. They were thinking of launching some new thing and they wanted to come and see about new ventures. And by the way, it's the Sloan School of Management. It's not Business. So it's in our DNA. Our goal is to increase the probability that you'll be in the 10%.

That's what we're trying to do. Now, you have to recognize that entrepreneurship is a lifetime incurable disease. If you get it, you will have it for the rest of your life. Fortunately, it's not fatal in most cases. Uh it's highly contagious and it's transformative. But what it really is also is a full contact sport. So it's again not about theory. It's about getting out there and doing things. And uh again the people that are going to be talking are doing or have done what's involved. So let me give you an overview of the specifics we're going to cover and what you can learn during the six sessions. First, how to evaluate a venture from a impact and economic viewpoint. This is really a key thing. What is the scarcest resource you have? — Time. And if you're planning to do a new venture, you saw that Nvidia took three decades. You know, it's not going to be a six-month thing. And if you're going to spend your time and effort working on a on something, you want to might think at the beginning, do I think this is going to work? Is this going to have impact? How do I do that? because it's your time that you're burning up if you uh do that. We had a um I used to do a seminar on Tuesday nights and u I know we have some people from Harvard here. So I don't mean to disparrage people from Harvard but one night this is a seminar with 12 people and one night three people show up from Harvard Business School and you know we were an open seminar. I said well great well tell us why are you here? What are you looking for? And they said, "Uh, well, we're taking an entrepreneurship course at the business school. " Okay. Uh, and we have to start a company. Excuse me. You Yeah. We got to start a company. Well, like what is that? You got to learn how to incorporate. No, we actually have to start something. I said I said, "That's really stupid. You know, if we spend four months with you looking at something and you realize this is something you shouldn't do, it means you're going to fail the course. " and they said, 'I don't know. We supposed to start a company. The point is figuring out what to do and figuring out what not to do are a key part of entrepreneurship. Okay, so we're also going to figure out who's your customer? Um, how do I get financial resources for the venture? How do I scale it and make it sustainable? How do I build or retain a top-notch team of both internal and external people? How do I negotiate deals and resolve team conflicts? What are the legal pitfalls? And how do I pitch my venture idea? And Bob is going to come. Bob Jones will be back to talk about pitching your venture. And it's not only to investors, it's to all the people you need to convince to join you in whatever journey you're taking. So there are a lot of moving pieces here. These personal questions, these are things you need to think about. Do you really want to do this right? Should you do it? Why? And should you do it now or later? You know, if you're an MIT student now, you know how hard MIT is and how you're getting by on meager resources and your diet probably isn't the best in the world. Probably a good time to start a company because you won't notice a difference. You 10 years later, you're married with children. A whole different scenario. and is this for me? So as you look at each of the sessions and you we dig down into the nuts and bolts, you know, think about these and by the end uh think about personally what does this mean for you? Okay. So uh what's tonight's plan? Uh we're going to talk about who you are. We're going to introduce the teaching team. I'm going to give you an overview about frameworks to frameworks. I'm going to give you some things to think about to help you digest the stuff you're going to see in the future. Then we're going to do a break for team building and we'll talk about that and then Bob will be back with his magnifying glass looking for uh or binoculars looking for customers. So, who are you? Well, you're students from all of these different departments. Uh the first time we opened this up for credit uh we didn't know who was in the audience and it was really interesting. We had you know clump of people over there and a I said uh and I'll do it tonight. How many people from Sloan? Okay. science and engineering? Oh, good. All right. You you've done better than the first class because all

the Sloan people were there and the science and engineering people were over there. And so I said to the Sloan people, look at the number on your seat. If it's an odd number, get up and go find an odd number and you know, switch because we wanted to bring people together. And then I'm thinking, God, how's this going to work? The Sloan people probably know everything I'm going to talk about. So I'm going to bore them to death. And the science and engineering people, this is all brand new and they're really smart, but you know, am I going to overload them? But I had what I had and I just went forward. And it turned out to work well because the things we were talking about were very practical things. So the range of people here, these are the um interest groups that uh if you signed up on the email list that people were interested in. We'll talk about that at the break. We also have non- studentent participants. We have uh alums, some people that have done num numerous companies successfully and are back. We have I think some MIT venture mentoring service people in the audience. Uh we have people I think we have a faculty member or two. Uh we have people from large companies who are looking to spin out something. This all came from when you signed up on the email list. What are you looking to get out of the um the course? So the question is how do we deal with all of that? Well, it's MIT, so we have to have an equation. H= R / E. The goal is to maximize H. H is happiness. If you I know a couple people have taken the course before. Don't answer the question. What is R and what is E? — Rity. — Reality. — Huh? people. [clears throat] — Okay. Well, typically maybe this is good. Reality is the thing. The first time I did this, the Sloan people said, "Oh, it's very easy. It's revenue is R and expenses are E. " And I said, "Yeah, that's great. " But that's a subset of this equation. So R is reality. What is E? — Expectations. Okay. So, you're happy if reality exceeds your expectations, right? If you u underpromise and overd deliver, are people happy? If you overpromise and underdel, are they happy? Not as much. Right? So, this is a universal principle. Happiness is reality divided by expectations. Now, I'm tempted to say I can make you infinitely happy if you just stop having any expectations for this course. You have zero expectations, you're going to be happy. But I know that's not possible because on that email list, the things you wanted to know about that E is very high. And we're going to try to deliver the R. And I hope at the end you're happy. We'll come back to that and do a poll at the end. Okay. So, who are we? Again, we are highly unpaid volunteers who have done this. And I hate to say it, but the TAs are the only people getting paid in this course. And for them, it's nothing. It's like a couple of lattes, right? Um and um now, why would these people come and spend cold nights in January to talk about this stuff and not get paid for it? Well, we're going to have some mugs or something, but other than that, well, because I think if you ask entrepreneurs who have been successful, especially ones successful, and you really got them in a quiet moment with a couple beers or whatever, they'd say, you know, I couldn't have gotten here without a lot of help, and people help me along the way, and I want to help the next generation coming by. And I think that's really true. There's a real give back uh in the entrepreneurial era. and you know when you guys succeed, please make sure you're mentoring and helping entrepreneurs after you. So, a little bit about me. Um, I've done a bunch of ventures. Everything from being the lawyer, co-founder, investor, board member, adviser, bunch of different companies. I'll talk about several of them when a little bit later. Um, I was I've been a lecturer at Sloan for a long time. I was a partner at Sullivan and Worers II big law firm in Boston. I founded their high-tech new ventures group. Um I was chairman emeritus at the MIT Enterprise Forum which no longer exists in its current forum but it had 20 some odd chapters all over the world. uh a director at uh Main Street Partners that commercializes technology and I'm currently uh working on two uh companies

IP vision which is an intellectual property analysis firm and Neurosim technologies which is making lowcost medical devices. Now, the most important people you need to know are TAs. Janet, hands up. She's a 2026 Sloan candidate. Uh, Deote Consulting before that in media and tech. Uh, psychobiology. I don't want to mess with you. And head of operations at the MIT uh, 100k competition. Uh, there's a big connection between the 100k competition and this class. The class was actually formed to see if we could help people entering the competition have more of an understanding of what a venture was and not what I just ideas were. So tomorrow night Janet and Sopria will present a little bit about the 100k. Hopefully you'll be interested in it. U Sria Yep. Uh 2026 also software engineer at Amazon Web Services and gaming. That's good. uh was a forbrite neighbor scholar and co-founded a company there and she's the incoming managing director of the 100k competition. So you probably already been in contact with them on a lot of logistical questions and they've done a great job so far. If they don't let me know and I'll you know don't tell me tell them. Um okay uh and I'll introduce the pres the presenters when they present uh going forward. Okay. Now, new ventures. Um, I said it wasn't about theory, but I wanted to leave you with like three or four things to think about as you're looking at the nuts and bolts of each of the areas we're going to talk about. Sort of some things to think about uh and help you digest it. So, the first one is my basic very simple concept. Now, in entrepreneurship, the questions are really simple. the answers are not. That's the real key. If you know what questions to ask, finding the answers hard, but if you do that correctly, you'll be a success. So, what do you need for success? Well, the first thing you do is you have to create value. Because if you don't create value, you don't have anything right now. There's a lot behind that like what kind of value for whom am I creating the value? How much value do I create? What does it cost me to create that value? How often do people want that value? A lot of things. We're going to talk about all that stuff. So, create value. But if you create value and that's it, you don't have a successful venture because you've got to capture some of that value so you can do it again. In the for-profit world, that's eventually profit and cash flow. In the not for-profit world, it can be creating um enough interest that you can other get other people to give you resources. It's the model that you're going to create that will allow you to capture some value that you create. Real simple. Create value, harvest value. So, that's one way to think about the things you're going to look at during the six sessions. Now, another way to look at it is what I've called the three W's. I've looked at probably several thousand business plans over the years and heard pitches and I've talked to investors about what they're looking for and I've talked to, you know, founders and other things and I think it boils down to three basic why questions. The first is why this? Why is this idea that you're telling me about worth doing or investing in? Why is it the size of the market? Is it a problem worth solving? Uh Amy Smith um entered the 100K competition probably I don't know 15 years ago. Um and she was at the Edertton Center. Amy was big on the developing world and DAB I think was part of what she did and she got into the finals of the 100K and she got up on Kresy at the big auditorium and I remember her pitch. It went like this. She said 1. 9 billion people on the planet don't have access to clean water. I mean I was clueless that you're kidding me. 1. 9 billion people. That's a big problem. The only way to test for biological contamination is to incubate a sample of water. The only incubators in the market today are powered by electricity. The 1. 9 billion people that have don't have access to clean water by and large

don't have access to electricity. I've got an incubator that doesn't require electricity. Would you like to hear more? Big problem, right? Now, that's something I can get behind, right? She went on and done did a bunch of things. Eventually won a MacArthur Genius Award. Uh I haven't talked to her in several years, so I hope she's all right. But I just it was so riveting her presentation. So, why this? Why is this a big idea? Why is this worth spending your time? Or if you're an investor, why would I put my money behind you? or if you're trying to get me to come on board and be part of your team, why would I want to join the team? Okay, why this? [snorts] The second why, why now? Why is now the right time to do this? Well, sometimes it can be the uh convergence of opportunity and solution. So, uh, one of the, uh, contestants in the 100k back in the day had an elegant plan for fixing the defects in the air traffic control system in the United States. I mean, it was really quite well done. And the judges were there saying, "Well, that's all fine and good, but you know, you can't just fix part of it. You got to fix the whole system. " And they looked at us and they said, "Well, didn't you know that the FAA has put out a request for proposal for a new air traffic control system? " No, you didn't tell us that. Well, now we have a timing. Why? Why now? Somebody wants this now and we've got the solution. If they had that solution five years before or after the new system was put in place, even though it's a great idea, it may not be the right time to do it. So, why this? Why now? The third why, why this team? Why do I think these people will win? Great idea, good timing. Why these people? Well, it could be prior experience, although that doesn't always count. There was a company back in my law days that I represented called Encore Computer. And Encore was founded by the technical founders of Digital Equipment Corporation, Prime Computer, and Data General, the three biggest mini computer companies at the time got together and they were going to make a new generation of computers. Prior experience, out of the park amount. Did it succeed? No. bunch of issues there. But prior experience got them funded. But if you're a starting entrepreneur and you don't have private pri prior experience, how do you show that this team is right? Well, it could be a compelling model you have. It could be the people you attract around you. Okay. So why now? Why this? Why now? Why this team? And then the fourth question that comes up, why won't this work? Now, salespeople will tell you when the prospect starts asking you a bunch of questions about, you know, the limits of the thing you're trying to sell, they know they they've got you on a hook. You're, you know, because you're interested. You want to you're trying to test it out. So, this fourth one is if you get don't get through the first three, you won't get to the fourth. This is where you got to start thinking about how to what are the risk in the in what I'm doing and how do I derisk it? How do I anticipate things? How what's my plan B? So that's another way to think about it. So we had the first concept, create value, capture value, the three Y concepts for you to think about as you look at ventures. Now I'm going to do some lesson learned from things that I actually worked on that would hopefully give you some ideas about how to look at things. And there are four critical components that I've distilled from thinking about all the things I've worked on over the years. uh their ideas. You need all of these components together. You need ideas. You need to be able to execute. You have to get the timing right. And you got to get the people right. And if you do all of that, that's probably your 10% success right there. And maybe it's bigger, but if you don't get all of those things aligned, you're going to have a hard time. So let's look at it a little bit more detail. Ideas, you got to have something. But ideas are a dime a dozen. That's an expression people use around MIT. There are ideas all over the place. Everything from, you know, genomics to uh AI to nanotechnology to latest drug type stuff. They're all over the place. The question is, is it a valuable idea or can it be made valuable? And the question is to whom?

Is this idea valuable? And how much value? This is again riffing on that create value concept. And then finally, is it easily copied? And so if I have a great idea, but anyone can do it. That may be still something you want to do. Maybe that's open- source stuff, but you can't build a venture around that very well. So you have to have some good ideas. The second component execution Thomas Edison vision without execution is hallucination. Now Edison in the modern day Edison Dyson you know spent how many experiments did they run to try to figure out in Ed Edison's case it was to try to find the filament that would work as a light bulb and eventually it was bamboo of all things and Dyson I don't know what it is but he talked about finding the 10,000 ways things didn't happen but execution on that idea is key I'm going to tell you about two deals that I passed on uh because I had concerns about their execution. The first is Zipar. People heard of Okay. So, you know, Zipar was the concept that, you know, I don't need to own a car. If I want to get from here to there, I want to there's a lot of things I can do. I can own a car. I can get a cab. I can rent a car for a day or a week. But what if I could rent a car for an hour or two? That's a fundamental break in how transportation is done. And they came in and they talked and I said, 'Well, tell me about it. Oh, we're going to have this thing. You can an app and you can uh you'll see a car on the in a parking space on the street. You'll you know, swipe it. You'll do this and then you can do it and you know, take it back and oh, it's going to work that way. I said, "Okay. Uh well, where are you going to start? " "Oh, we're going to start in Cambridge. " I said, "In Cambridge? " He said, 'You you clearly don't know the story about recruiting faculty uh in Cambridge where they say to the faculty that would be faculty member, I'm going to give you three things. You can pick one of them. We can give you tenure, the Nobel Prize, or we can give you parking. And the smart ones say, "I'll take the parking because if I have parking, I can get to work and I can figure out how to get tenure on the Nobel Prize. " Parking is a big deal in Cambridge. And if you got to do that in every single city, that's a major execution thing. I don't see understand how you're going to do it. And I said, you know, u I wish you well, but I'm just not going to be on that journey with you. Now, it turned out they did eventually, I think, go public. It was a hard slug. The founders might have felt good that they changed a fundamental part of transportation, but in terms of their personal economic reward, it wasn't very much at the end of the day. But that's okay if I go back to the questions of what am I looking for if that works for you. But it didn't work for me just to join them on that journey. The second one was a precursor to eBay. It wasn't eBay, but the same concept that I saw before eBay. And I listened to him and I said, 'Okay, let me see if I can boil this down. I'm going to buy something sight unseen from somebody I've never met and nobody's standing behind the transaction. Boy, that sounds like it could be a fraught with fraud. You know, I don't quite figure out how you're going to do it. U and so I'm going to pass on it. Well, eBay itself got going and there's a great story about how, you know, Pez dispensers and all that stuff if you read about it. And eventually they you know they did have fraud and they did figure out how to get insurance. But the point is there were a lot of execution things that were very difficult for me to understand and I didn't think that I could help them on that journey. So that was two examples of execution issues. Now MIT this is right at the heart of MIT ideas plus execution. The motto of MIT is men's at manis mind and hands. So this is you know not unknown that you need ideas and you need to execute but those two are not they're necessary but they're not sufficient for success because you need the other two pieces and timing. I've lost more money in time being ahead of the curve. This is a quote from somebody, you know, me. Fortunately, I've been able to catch some waves and I've done all right. I'm not complaining, but I've crashed and burned a lot of the times because I was

ahead of the curve in thinking about stuff. It can take this especially for technology ventures, it can take a long time to be an overnight success. Nvidia, three decades, 3D printing over 25 years. The last night of the course, Marina Hatsopoulos is going to come and talk about some things that she's learned over the years. She was one of the founders of Zcorp, which first 3D printing companies. And uh a couple years ago, I was at an investment conference and someone came up and said, you know, you do stuff at MIT. Yeah. Yeah, I do. They said, ' Tell me about this new 3D printing. And I said, 'It's not new. The patents have expired, the original patents. What has happened is in the last few years, there have been advances in material science, in sensor technology, and in micro electronics that have now made some of this stuff work beyond the simple area of 3D printing so we can do more broader things. The point is it took a number of years for all the ancillary pieces of technology to come together to really make 3D printing what it is today. And it's even the jury's out whether it's really that successful. There have been, if you follow the news on this, there have been a lot of strain among some of the 3D printing companies that have gone public. Another example is Prodigy. Um I doubt any of you have heard of Prodigy. Anybody? Oh, couple of historians here. Good. Well, Prodigy was a joint venture. It was one of the first sort of online things. It was a joint venture between CompuServe and Sears and Robuk. And one of the things they were going to do was on you were going to be able to go online and shop. And back then, you know, they didn't have the browsers weren't anywhere near what they are today. They spent more than a billion dollars trying to get that concept off the ground. And that's what a billion dollars was real money. I guess it's still real money. But today, how many people have bought something at Amazon in the you don't raise your hand. I know you all have in the last month. That's here today, but it took a long time for that to happen. The other one, and this has a double meeting on it, is fusion. People have been working on fusion for uh generating electricity for 50 plus years now. there recently there have been some advances or at least people investing there's commonwealth fusion here in Massachusetts back big bucks by people like Bill Gates etc. One of the problems with something like fusion and I call it my fusion problem is fusion doesn't work unless it all of it works. You can't it's not like 3D printing when you can make a little thing and do a little prototyping with a 3D printer. It either works or it doesn't. And if you're going down and looking at a venture that requires all of the pieces to come together, that's a risky proposition. And things like fusion, that's where the government long-term investment should be, you know, to provide uh the stability to build out those technologies. So timing is important. And then finally, people. People are the single biggest source of failure in most ventures in my experience. It's a quote from Alice in Wonderland. One day, Alice came to a fork in the road and saw a cheshure cat in a tree. "Which row do I take? " she asked. "Where do you want to go? " said the cat. Alice answered, "I don't know. " And the cat said, "Well, then it doesn't really matter, right? " "And what happens? Let's say um we decide that we're going to go watch the New England Patriots play football uh next week. Well, wait a second. There are a couple problems with that. First of all, they've had a terrible season and they're not playing next week. So, what if we want to go see the Celtics? All right. It's a pretty good team. So, we agree we're going to go see the Celtics. And we start off and we had a road close sign. You know, in Boston there are two seasons, winter and construction. and recently they seem to be the same season. But if we go to that road closure sign, we know where we want to go. We'll figure out how to get there. We might have to take a big long more expensive way to get there, but as a team, we'll figure it out. Number of years ago, I had three MIT teams come in to my office when I was practicing law, which is great, and they had some great ideas. And u the first one came in and there were three of them. And the first person I said, uh, tell me what are your goals. What are your goals for this venture? The first one said, I want this technology to be a

standard in the industry. Oh, that's a pretty good goal. How about you? The next person, oh, this is really big. I want to grow it and take it public. We can make a lot of money. Well, that's a good idea, too. What about the third person? Well, I think it's important, but you know, I really I think we should be a collegial group and, you know, we can make money, but we don't have to grow like gang busters. I want to more of a I don't want to call it lifestyle, but go crazy. And I sort of put my pen down. I was writing and I said, "Did you did you three just meet in the elevator? " I mean, think about it. The one who wants the stand the technology to be standard might want it to be open source. Give it away. I want it everywhere. The person who wants to go public wouldn't want that to happen unless they can figure out an open source model, right? Because I want to grow something fast and valuable. And the third person, I don't know where they are, but you know, when they hit their first bump in the road, what do you think's going to happen? And that's it doesn't matter if you don't know where you're going, right? So maybe I've overblown it, but it was so stark. I said I really said, did you just meet in the elevator? Okay. other people re related issues. This doesn't happen too often, but when venture money, there's a lot of money chasing deals out there and there are hot periods of time. AI is part of that. Now, you may get funded before you really understand what you're doing. And an example, sort of an analogy example is suppose your idea was you think people want to watch football. So, you assemble a football team and you buy a stadium, right? And then you go out to start to sell tickets and what happens? People say, "I want to watch basketball. You know, it's cold out there. I don't want to go football. " Now, you've got a situation where you've invested all this time and money with people, football players, great athletes, but they don't really play basketball the way that a basketball player would. And now you've got an internal pivot, right? Instead of looking at the customer, you've got this internal conflict like who's going to get fired? We got to change the bottle. What's I mean, it just starts to disintegrate all over the place and then not knowing what you don't know. So, uh, e- in came out of the media lab here at MIT. It was a ability to make a lowcost at the time black and white display that would you know display things electronically. Uh eventually it ended up as the original Kindle reader and they came in and uh you know they really knew what they were going to do. They were all you know going oh we're going to do this that and the other thing and you know we listen to them ask them questions and we're thinking I don't know about these guys. Um how much you think you're going to take to get there? Oh, 15 million. That's be more than enough. And I remember saying, I don't see how you're going to do it for less than 80 million. And I was off by 80 million. Eventually, they raised 160 and they eventually got it out. But they were so sure they knew everything that they were doing. They didn't know what they didn't know. And again, we didn't want to partner up with people that don't know that they don't know stuff and want to learn about it. So now this uh this is a curve graph you'll see it later uh this week in the 100k competition you know we bring together people and after a few years we realized that some of the teams were having internal problems and blowing up and typically there would be a technical founder and then a business and um you know they would try to figure out what they're And as I listened to all the cases of all the problems they were having, I came up with this graph. And it's the vertical axis is relative importance and the horizontal axis is time. And if I have a technical founder whose idea it is his or her idea working maybe in the lab working 60 70 80 hours a week, you just like crazy. The business founder at the beginning, you know, may be working on another, you know, regular job, working on this in the evenings and weekends, trying to figure out the market and all that stuff, but until we have something that works technically, we don't have a business. And now it comes to have a discussion about who's how we're going to split up the equity in the company. Where would you put the technical entrepreneurs's view of the world at the beginning? Pretty high. What do you think the technical person is going to think about the business person? Pretty low. Now, how do you build a team around

that? What happens over time? The relative importance of the technology goes down. business side goes up. Whether they cross or not doesn't matter. But when I put this graph together and they realized, you know, it really takes a team to make this work, it began to open up a whole level of discussions about, you know, how do we structure ourselves? How is it going to work? A classic people issue happens, of course, with technology companies more than others. Okay, so there's what we're trying to get at. Now, I'm going to give you four um uh actual companies I worked with and I'm going to talk about how these came together or didn't and what we can learn from them. The first I'll call Speech Co. Uh this had all of the four components. It went public and basically if you have Siri on your phone, that's where Siri came from. DARPA the defense advanced research project agency had funded four or five universities across the US to do speech recognition and natural language processing. So speech recognition was, you know, what words were said when I say something, what did I say? My accent is different than somebody from Scotland or somebody from the deep south. So it's a sort of a problem. What words what are those words? Then the question is what do those words mean? Now this is before we've had the advances in AI that we've had today, but that's sort of you can see the beginning of it. So the uh technical founder came out of Victor Zoo's lab here at MIT and uh came to me and we started talking about this concept and he said you know we can do this now in telefan we can do telephone systems spark workstations have the power we don't need mainframes we can make this work at the same time there was a client of mine who had just sold his business to Adobe and was on a one-year sort of earnout out work out non-compete type thing. So I put the two of them together and the three of us spent that year having endless meetings, Chinese food dinners, talking about how could this all work uh because the business guy couldn't really do work on it yet because he was still working at Adobe. Um, by the way, I could usually figure out when a former client would after they sold their business would be back. I could almost put it on my calendar. A year and a day after the deal closed, they'd be back wanting to do something else. So, we went out, you know, spent all that time planning and thinking about it. They went out and we raised money from, you know, a venture firm. Uh there's a whole history of if you haven't studied it in the world of speech recognition about um some fraud that went on that these guys managed to avoid. Uh they went public and uh it worked out just fine. And the reason is the idea was great. The timing was perfect because the compute power was there. the execution back then because of the way AI you know we didn't have the power if you were going to do this you normally wanted to do it in a domain of knowledge and so you would learn from how people spoke in that domain so they managed to figure out how to do a deal with Eastern Airlines which was one of the big um airplane carriers back in the day um and Eastern want thought this was great that they could do uh online or you know over phone reservations but they didn't want to expose their customers to it. So they said, "Can you do this for our flight crews? " So when you're uh a flight crew on a thing, you need to figure out how to shuttle back to your home or whatever. And so they set it up and the flight crews were the ones that tested the system and they learned the domain around it and how to deal with it. You know, I need to be in Cleveland on Tuesday. You know, obviously they wanted to fly. they weren't going to, you know, be renting a car or something like that. Uh, so the execution was great and the people because of that year they spent getting to know each other, they worked well, very well together. So that was a success. U, the second one is also a success. I'll call it video co, although I'm going to show you the name in a moment. Uh, this was uh, somebody out of Sloan technology out of the media lab. It was uh desktop video editing on the Macintosh computer. At the time, if you were going to do video editing, the equipment was like a million dollars kind of equipment. Usually, you'd go to a video editing studio and you'd spend a day there. And they said, you know, the technology is

such now, even though the Mac wasn't the most powerful computer, that we can actually do video editing on a desktop machine. Um, so the idea was good. The time timing was good be the timing was good because of the uh the technology was there. Uh the execution had me worried at the beginning. Uh so the name of the company when they incorporated it was Macromedia Business Applications Corporation and in short order they got a letter from Macromedia, a bigger company saying hey wait a second that's our name and you know trademark infringement we're going to get you and everything. And it turned out our guys used the word the term before Macromedia did. So Macromedia the big company said well can we buy out the name? So they said, "Here's $25,000. All you have to do is change the name of your company. " Hey, good way. Non-dilutive equity, non-equity funding. So I got the check and you know, all they have to do is file something at the state says change the name to, you know, anything. And two weeks go by and I'm calling. I said, "What's wrong with you guys? Just give me any name. I don't care what. " They said, "Well, you know, we found some uh really cheap space in Cambridge. why don't you come over and you know we'll show you what we're doing. So I go over there and they have a whiteboard covered with names and I'm going oh god these guys they can't pick a name. How are they going to execute on anything? So what they did eventually, this is the name that they came up with, digital video applications corp. And they shortened it to D. VA. Two years later, the largest video editing company acquired them. The name of that company, Avid. Here's how Avid is spelled. They weren't picking a name. They were picking a strategy. Right. D. Va is Avid spelled backwards. It focused everything they did. We went to the closing. They gave me a t-shirt. They said, "I know you didn't think we could execute very well. " They gave me a t-shirt in the front. It said, "Diva from home. " and the back said avid to Hollywood. So, an example of a company that I had doubts about on the execution. The people part worked out well. Okay. Now, some stories that didn't work out. I'll call this one HIV co. This was back when AIDS was just hitting a big epidemic. The two co-founders were the discoverers of the CD4 uh which is the main receptor as part of the immune system. Uh they got funded by some very big Wall Street people, names you would know if I told you. Um they had a science advisory board that included Anthony Fouchy, that's when I first met him, and two other a couple of other people, but two very notable people at the time. Luke Montineier from Institute Pastor and Robert Gallow from the National Institutes of Health. In public, these two had disputes going as about who first discovered uh HIV enough so that eventually President Reagan and President Shurack of France had to resolve the issue. But on that science advisory board, they were very collegial and they got things done. So what went wrong? It was the people issue. The idea was great. The execution of what they actually decided to do was good. The question is, did they pick the right things? The timing was great. They're in the middle of an AIDS epidemic, you know, and they had some solutions. It was a people issue. The co-founders had massive problems with each other. It turned out they had never really worked together. It culminated in an all night in Manhattan where at the curb of the building there were four or five stretched limos with drivers waiting for the high big people on Wall Street that had invested in this company. And they spent the evening basically hashing it out of how the company was going to work. And at one point one of the big Wall Street guys got up and said, "If you guys don't figure this out, you're going to be radioactive and you're never going to raise a dime from anyone ever. " I mean, it was that big of a moment. They got over it. The company eventually went public, but it had only moderate success. It was people issues on that one. Uh, the final one I'm going to talk about is I'll call Nanoco.

This was one of the first nanotechnology companies based on quantum chemistry. Our concepts uh came out of some here at MIT. Uh the we looked at a variety of different things to do and the product we were trying to go to market with was called nanofuel. We were mixing diesel fuel and water together and running it in unmodified diesel engines. Now you might say you can't mix oil and water together. Well if you figure something out you can. Uh you could pour it into an unmodified diesel engine and you got an emission profile cleaner than natural gas. We were running it in buses at Logan Airport for testing and in new buses and in Costa Rica. At the time, if you wanted to get clean uh transportation, people were talking about compressed natural gas. But the energy density of for gas is much less than diesel. And so you need to have whole other new facilities to handle the natural gas. You needed to change buses. The routes had to get changed. our stuff. All you had to do is pour it into the tank. Um, we had to do some execution issues, including some skunk works because we had some disputes going on in the lab. You know, the lab people had their head up. I won't say where. Um, the timing was and there were also some other senior management issues, but the timing was a big thing here. When we were ready to go to market, the price of diesel fuel was at a 50-year low. It was 50 cents a gallon at the terminal. Wasn't that way when we started out. Uh I did a calculation and you couldn't even buy a gallon of diesel of distilled water for 50 cents. I did a calculation that said, well, if diesel fuel were $2 a gallon, this would be an economically neutral type thing. It just wasn't going to work at the time. The company went off and did some other things, but eventually it failed. And every time I get behind a big diesel truck or bus spewing fumes, I get it. It really annoys me that we had the solution, but we couldn't figure out how to bring that venture to market. So hopefully those are some ideas. This allows me to do one of the cheesiest animations you're going to see. There you go. Success. [snorts] Okay. All right. So if you get all these things right, you get the idea execution, you get the timing and the people, you're going to have to convey that to people in some fashion. And so I want to spend just a couple of minutes uh talking about conveying ideas. One of the top level things you're going to want to do is come up with a mission statement or a vision, sometimes called the value proposition. C Blank out of Stanford, you know, came up with this version of it. You want to example would be one sentence that says we do we help X do Y by doing Z where X is your target audience Y is the goal or problem that they need solve and Z is how you do it. So, an example here would be, we help people without 3D printers bring their ideas to life by providing a 3D printing services and a marketplace for 3D printed products. I think you can pretty much see what they're about as a business with that statement. Okay. So hopefully by the end of this course, if you're actually thinking about a venture, you might be able to do that with something you're working on or you'll remember this uh when you're looking at other things. Now any vision needs to be supported. This is my famous pyramid. I'm looking at Bob. At the top is the mission statement. Below that is the elevator pitch. So each of these sort of leads to the next. So, an elevator pitch is something, you know, it the term came about back in the days when the venture capitalists lived in, you know, their offices were in high-rise buildings, and you'd get in the elevator and uh somebody would turn to you and say, "Well, tell me what your guys are doing. " And you had the time it took that elevator to go up to explain what it is. And the the hope after that is they would say, "Well, come in and tell me more. Maybe come in or send me something. Do you have something you can send me an executive summary that something written that could tell me about it? And then maybe if I like that I'll invite you into do a pitch to, you know, really get into it more. So the mission statement is, you know, be a sentence or a paragraph, the elevator pitch 30 seconds. You know, when the VCs moved to low-rise buildings, it became harder. You had to do it quicker. The elevators were slower, but you know, you still had

time. Executive summary, one, two, three, no more than four pages. And the pitch deck, this is Guy Kawasaki. 10, 20, 30. 10 slides, no more, not more than 20 minutes and 30 point font on the slides. Okay. So that's that all of that is sort of the sizzle. that underneath that you need to have understand all of these other things to support that distillation of what you're doing to the top. And the stuff we're going to go through each night are going to talk about all these different things down here to help you support the plan you come up with the venture idea. Now, if you get the sizzle right, but you don't get the support right, you may end up like Theronos, Elizabeth Holmes, sentenced to prison guilty on four of 11 charges. She promised all this stuff and underneath it was there was nothing really there. This was fake it till you make it, which can work in some things, but this is medical devices. This is, you know, blood testing and if you didn't diagnose somebody, people could die. You don't want to end up here. So, most of the people here are going to have the substance and have a hard time with the sizzle. But I got to caution you with sizzle without steak is an empty meal. So, back to our h= r / e. Well, I assumed that reality was a fixed constant, but people like Steve Jobs and maybe Elizabeth Holmes thought you can fake it till you make it because we can do a reality distortion field. I wouldn't recommend it. Does this make sense? All right. So, final some final thoughts. Um Venote Kosla a famous venture capitalist invested in a company of a friend of mine and my friend asked him you know what advice do you have for us and Venode said you'll face a dozen real challenges in developing the technology and venture which is common to most ventures five of these you'll be resourceful enough to figure out from friends colleagues etc. and five of them. You and your team are smart enough. You'll figure those out. My friend said, "Well, what about the other two? " And Venode said, "For those two, you better get darn lucky. " Well, luck favors the wellprepared, and we want you to be prepared. That's the goal in this course again to help you be in the part that succeeds. If you decide to do a venture, if you look at something and decide it's not for you, that's success also because you go find another one. So with that, that's my overview of new ventures. Um we're going to do a break here a little early for team building. Um around the room we've put on the walls uh different uh interest groups that you identified when you were um signing up for the course. Going to suggest you go if you're interested in that just go stand there meet somebody and uh see if you have some interest. Um, and we'll come back in 10 or 15 minutes and we'll talk about course logistics and finding your customers. We also have a WhatsApp uh group that our TAs put together where you can actually sign up to a WhatsApp uh group on one of these interest things. So, we're at about 710. Why don't we come back at about 7:25 and we'll do the second we'll do uh we'll talk about course logistics and then we'll do u we'll have Bob come in and talk about customers