Gary Morgenthaler of Morgenthaler Ventures during a lecture January 30th to the Entrepreneurship Through the Lens of Venture Capital class told the aspiring student entrepreneurs that their biggest worry should not be the market or competitors but time.
Morgenthaler delivered a discussion on the topic iterating your market and product strategy, and during the class stressed how entrepreneurs can succeed by innovating and disrupting incumbents. He highly recommended the students read Clayton Christensen’s seminal work, “The Innovator’s Dilemma.” He mentioned that while iterating a product is important, the root of all success for entrepreneurs is innovating and disrupting the status quo.
Morgenthaler said that in order to disrupt a market an entrepreneur needs to be 10x faster, 10x smaller, and ideally 10x cheaper. He emphasized the need to do everything faster—iterating, showing growth, convincing investors, etc—and labeled this entrepreneurial agility.
Morgenthaler also told the class to consider how product can be designed in a way that creates more customer value. Customer value can be thought of in two ways: whether or not it increases revenue or reduces cost (this is the “economic value to the customer” side) or whether or not the innovation saves a customer time, money, or makes them happy.
Morgenthaler also cautiously warned aspiring entrepreneurs to not expect one’s competitors to sit idly and that he subscribes to the business version of the Powell doctrine, and that is “if you have to go into battle, overwhelm them.” He also used another military analogy by telling the class that no plan survives first contact with either market forces or competitors. From his years of experience he has found that startups need to be prepared to fight customer by customer for market share.
Morgenthaler Ventures is a venture capital company that focuses on information technology (artificial intelligence, health IT, financial tech, mobile, enterprise, and security to name just a few). According to Morgenthaler, they have funded 350 startups in over 40 years. They are investors in Evernote and The Lending Club.
Morgenthaler cited the fund’s investment in Siri as a case study on product iteration. Siri was spun out of a $180 million Department of Defense research project when a team of three people decided they wanted to create a virtual personal assistant.
The initial product wasn’t based on speech recognition but it reached that point after several iterations involving customer usage, customer feedback, and understanding market gaps. All of this required the Siri team to devote significant resources into studying potential customers and rewriting code over and over again.
Siri has now become an integral part of Apple and a game-changer in the mobile world.
Morgenthaler not only provided sage advice to the class on how to succeed but also cautiously warned the class that “the odds of creating a multi-billion dollar company are 1 in 10,000, or worse” and that given the stacked odds, entrepreneurs might as well think big.
The Lens of Venture Capital teaching team encourages anyone to submit questions to speakers via [email protected] or by Twitter via the hashtag #lensofvc. On 2/13, Howard Hartenbaum of August Capital will be coming to class to speak on how to create a winning culture by making the team work: executives, board, and partners.