Difference Between an Idea and an Opportunity, Lecture by Tom Byers / Stanford (2006)

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Entrepreneurs aren't born. They are made. Entrepreneurs - can they be taught? Hell yeah. Because they can learn. It's that simple, and so that's our job as educators and we know that most of them around the world and it's such a noble profession to be part of, but it's difficult to come up with, "OK, how are you going to explain this stuff." So this is a friend at Babson which is a school in the suburbs of Boston and he says, "Look, let's look at Entrepreneurship this way". So we are still on this first question, this mega-question of the difference between idea and opportunity. He says "OK, we've got this notion of opportunity, but let's break it down a little bit more." Entrepreneurs evaluate and recognize opportunities with this collision up top here between ideas and products colliding with problems with what Venow called market opportunities. Alright? Then they don't really think too much at the time as they're evaluating and recognizing what they are going to do in terms of money and talent, so that's the pursuit of opportunity. We haven't thought much about this yet, but now we are going to have to gather some resources which is as old as any capitalism discussion or anything that is decades, if not centuries old. In other words, capital and talent. So if we break it down this way, the rest of my chat with you is going to be three of them having to do with sort of the top part, three of them having to do with finance, and three of them having to do with team. 

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Written in 1997 from a professor at Harvard, called "How to Write a Great Business Plan." And I love the tag line it says, "Which information belongs and which doesn't may surprise you." It's very short. You can order it from Harvard Business School or just borrowed it from someone who has taken one of our classes because certainly in my class it's a sign along with the textbook and Randy's book. And this is just a pictorial diagram of it, and without a lot of time here. It just shows that some people might think that the business plan only is important about that is getting a deal done. It is just getting something, some money out of some investors to make something happen. In fact, it's a set of questions that have to be answered so the whole ecosystem of a venture has to be in alignment. The opportunity has to be in alignment with resources and people in the context we talked about the economic environment and so forth - regulatory environment with the deal. When they are in alignment the deals will get done. It has nothing to do with whether the business plan is super-polished or spiffy or anything like that. 

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So, I couldn't do one without talking a little bit about this where does money come from. Remember we were talking about the retriever, the first dog to get the company started. And they got a trade stock for ideas, capital and talent. Let's talk about how they trade stock for capital. These are the different sources of capital and it's a lot of fun in our classes to dive down and talk about the pros and cons of each one of these. And you'll hear that a lot in here as well. For example, there's angel investors which is just wealthy investors, individuals. There's corporate venture capital which is something like Intel. There's the traditional VC like the Sequoias, Excels and Kleiner Perkins. There's bootstrapping which is either personal funds or convincing a customer to pay you some funds upfront. Then there's other which, what do you think the other is for a moment? It's the public! If the company ever gets really successful they can go public and that becomes an investor for growing the company. And what got really weird five years ago is the public was really interested in getting involved super early on when there was tons of risks until everything got unraveled. There are pros and cons on each one. We could sit here for another half an hour and talk about that. It's really a lot of fun to do that. Traditional VC what's the pro? They got lots of money to deploy and for people who really are going for something that would really change the world. They have lots of money to deploy and they got lots of expertise to bring to the table and help. And you'll hear that over and over here again. But what's the downside of VC? It's really expensive money! In terms of the dilution and the ownership that's going to have to be given up in order to have them involved. And we could do that across the board. The other one I want to mention here is over and over we see the following, it's really fun to do this one we are teaching this material. It is a process, all this stuff is a process and a set of mechanisms. This notion of venture capitalists and entrepreneurs getting together and cutting a deal, like it is some sort of television show or something like that, is really way off line. In getting the best price like it is a used car. What really goes on and over and over again it's not the best price that gets the deal done. There's been academic research on this and there's been just layman research done on this that shows that rarely does an entrepreneur take the best price from a venture capitalist. They get the most money for the least amount of ownership given up. It's all the other stuff, all the other terms and conditions that come into play about how they are going to help each other to be successful. 

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If you are going to do something great to turn an idea into an enterprise that changes the world, whether it's a business, government, education, you are going to have to sell. You are going to have to convince some customers or stakeholders to buy your story. And that can only happen if you look for these win-win situations, all those one plus one equals three type situations, whether it's partnerships, like we talked about earlier between Visio and Microsoft, or whether it's just directly selling a product or service. And so this is a list of characteristics of entrepreneurs by a person who wrote a paper called "A Test for the Fainthearted." It is in the Harvard Business Review. And he studied entrepreneurs all over the globe, which I told you I have a great interest in. And he studied them all, and he came up with five attributes. And maybe you've heard some of the other ones before. They are audacious and courageous and patient, and certainly I talked about adaptive. But I love the one that he also found that was common to all cultures, low tech, high tech - closer. And that is just another way of saying being good at sales.