Ahead of the Curve

by Philip Delves Broughton

  This was all well and good, but what the course lacked was a discussion of what seemed to be the most important question for anyone undertaking his own venture: Do you have the stomach for it? It was easy to start something, but were you ready for that wet Wednesday afternoon eighteen months into the plan when customers were still scarce, your investors were losing faith, and you were running up credit card debt to pay your staff? Max, a German student, was one of the few in the class who had raw experience like this, having set up a successful financial data firm in Germany. He complained that sitting through each session of The Entrepreneurial Manager was “like hearing virgins talking about sex.” He received the lowest possible grade for the course, which told you all you needed to know about the futility of HBS grading.

  Bo and I decided we should try setting up a media business. We envisioned a monster, a vast, world-spanning empire to make Rupert Murdoch feel like a pipsqueak. Disney, Viacom, even Microsoft would slither like blind, formless amoeba in the gloom cast by our shadow. If it went really well, Bo would be able to record an album of big ol’ Georgia boy rap, and we would release it around the world. Japanese teenagers would spend their nights doing the Bo, in which you lean backward as if you were seven feet tall and rest your hand on the steering wheel of an imaginary Chevy Tahoe. My role in this project would be that of muse and occasional Svengali.

  But first things first. What would our offices look like? Bo wanted something like an airport hangar. He would sit at a desk surrounded by computer screens, a sort of mission control. There would have to be a basketball court nearby. A personal chef would cook whatever Bo wanted, whenever he wanted. And he would spend a great deal of time on the company jet following his basketball team around the country and cutting deals.

  I wanted something more like a Persian rug dealer’s lair. A small, quiet room with a window overlooking a leafy courtyard. The sound of water in a fountain. A wooden desk with an old-fashioned black telephone and no computer. The only other item allowed on this desk would be the single sheet of paper listing my activities for the day. There would be two leather armchairs for guests. Outside, an extraordinarily competent secretary would control access to my inner sanctum and produce the most delicious coffee. “I do apologize, Monsieur le President, but Mr. Delves Broughton is busy. He would, however, be delighted if you could join him for lunch two weeks from tomorrow. Would that be acceptable? Wonderful. We shall have the tête de veau prepared just how you like it.”

  On a side table by the window, there might be a bowl of quinces to scent the air. Behind a hidden panel in one wall would be a television set, so that I could watch European soccer matches with my lawyer, an old and trusted friend, whose modest and affable manner meant he was always fatally underestimated by our rivals. In a series of outer offices encircling the courtyard, a team of brilliant and loyal minions would manage the minutiae of my affairs.

  Bo and I would sketch out the outlines of our peculiar senior management structure each morning over breakfast in Spangler. Neither of our study groups had survived into the second semester, so we had the time. Most mornings at the table beside us, three elegant Asian women who looked like they had stepped straight from a Shanghai luxury boutique fired up their laptops and prepared for class. They spoke in Chinese at what sounded like a ferocious pace and their palpable ambition goaded us on.

  Now all we needed was an idea. It came bubbling up from the frontiers of what came to be known as Web 2.0. In late 2004, a group of journalists and technologists at the Berkman Center for the Internet and Society, a curious little association housed in a Victorian building on the edge of Harvard Law School, were playing around, distributing self-made audio recordings online. They called the new medium podcasting. The principle was that any individual could make an audio recording, post it online, and distribute it for free. To me, at that time, it seemed astonishing. Blogging was already well established, but the creators of YouTube were only just starting work in San Bruno, California. Their product was still months away. Between text and video blogging, there seemed to be a window.

  I tried to think about the idea using what I had learned in twenty weeks at business school. I began with the consumer. Everywhere on campus, students wandered around with that iPod glaze. Might they not like something else to listen to? Something not sold on iTunes and not provided on any radio station? I asked everyone I knew, what else would you like to have available on iTunes? News? Entertainment? Stories? Audiobooks? Lots of people said they would like to have a thorough news program, such as The Wall Street Journal, in audio form, which they could listen to while working out. Others said they would like to hear great lectures or talks they had missed on campus. They wanted to hear businesspeople discussing their greatest deals or surgeons explaining operations. There was no limit to the kind and length of content conceivable in a podcast. You could have anything from a thirty-second poem to a three-hour roundtable discussion.

  I thought of my journalist friends. One of the main frustrations of working for a newspaper is the limiting nature of paper and ink. You could kill yourself on a story only for a bomb to go off at 7:00 P.M. right on deadline, and see it shrunk by half to make way for the breaking news. There was also the issue of meddling editors extracting your best lines or most interesting quotes so that your piece could fit in a box hemmed in by advertisements for washing machines. Every journalist I knew had far more material in their notebooks than they could ever get into print. Podcasting seemed like the ideal outlet. It would be easier, after all, just to spin your thoughts straight into a microphone than into more words for a blog.

  Bo started riffing about doctors and medical students. They had so little time and yet so much to learn, they would love the idea of receiving information through their iPods. Maybe we could persuade some leading surgeons to spend ten minutes each week talking through a procedure. These people were unlikely to have time to write a blog. But if you made it easy enough for them—perhaps they could make their recording while driving home—they could just talk. The same with lawyers; we could get them to talk about cases, offer advice.

  Our idea was starting to take shape. We would create a website that would be a supermarket of audio content. Users could come and find a favorite journalist or a renowned surgeon and download an audio file. We would try to get them to subscribe and download audio files every week— and pay for them. We would then pass on a piece of the revenue to the creators to keep them interested. Our role in this would be to sign up the speakers, help them create recordings, and then manage and market the website. Bo created a spreadsheet outlining our revenue and cost forecasts for the next two years. We were going to be rich!

  HBS was a wonderful place to get this thing going. Everyone seemed keen to help. We had lunch with a section mate who used to work in the strategy department at Disney. He warned us about the difficulty of building a content brand. Another, who had worked at Yahoo!, advised us on our website layout and functionality. Finally we created a ninety-second pitch, which we recorded onto Bo’s iPod. We took turns speaking and even had a cool soundtrack going in the background. Feeling pretty good about it, we asked for an appointment with Gompers. “This week’s crazy, but I have fifteen minutes available in ten days’ time,” his assistant said. This was absolutely normal at HBS. Everyone was always “crazy.” Nine times out of ten, if you asked to meet someone, student or faculty, they always said “things are crazy right now, but . . .” The few who said “great, whenever you’d like” were that much more precious.

  So, ten days later, Bo and I turned up to see Gompers in his office in Morgan. He kept us waiting for ten minutes. When he finally waved us in, we set up the iPod and played him our pitch. He fidgeted in his seat for the entire ninety seconds. When the recording was finished, we asked him what he thought. He rambled awhile, sounding unenthusiastic. We asked him how we might find financing. He suggested we bootstrap the business as far as we could. He said that he could not see the potential. We tried asking
him a couple more questions, but he excused himself, saying he had a doctoral class to attend. We had received maybe seven minutes of his time, and he could not have been less encouraging. We left cursing his name.

  “What the fuck,” I said to Bo back in his colossal SUV. “You’d think the entrepreneurship professor might be a little more enthusiastic about his students trying a little entrepreneurship.”

  “Yeah,” Bo said, “but do you think if he were a real entrepreneur, he’d have been a professor all his life?”

  “But even if our idea sucks, you might expect him to encourage us a little. Say, ‘Good for you for trying to do something.’ ” I then descended into a minute or two of violent cursing. Bo seemed to enjoy my Anglicized versions of familiar American swear words, and soon we were vowing one day to prove Gompers wrong.

  Next we turned to the anti-Gompers. Rodger had been a part of our section for just a few weeks of the first semester, until he dropped out to run his business and take care of his ailing mother. He was an entrepreneur to his fingertips. I had never met anyone like him, someone so obviously jazzed by the idea of setting up a business. He did not dwell on the difficulties or sacrifices, the financial hardship or personal commitment. He looked at potential, the creation of something new and vital, and he wanted in. As far as he was concerned, there was no other business life worth living besides that of the start-up entrepreneur. Rodger was the same as age as me, but he had already set up and sold one technology business and was on to his second, a cell phone service for students. He had received funding from Bain Capital, one of the most prestigious venture capital firms. VC firms tend to invest in people more than ideas, so Bain’s involvement was a vote of confidence in Rodger’s ability to make things happen. The moment Rodger heard what Bo and I were up to, he swung into action. “I’ll introduce you to some VCs,” he said. “They’ll love it.”

  “But we’re just getting this going.”

  “Just meet these guys. They’ll be looking at you anyway more than the idea. If there’s anything you can’t answer now, just say TBD.”

  “TBD?”

  “To be decided.”

  Before I could make any further objections, my in-box began to swell with advice and online introductions orchestrated by Rodger. Within a week, we had meetings arranged with three of Boston’s most prominent venture capital firms and one in Silicon Valley. It was almost too easy.

  Now we had to write a business plan to go with our audio presentation. Once again, Bo swung into action, and overnight he had compiled twenty elegant PowerPoint slides describing us and our plan. Rodger’s only advice was that we put our biographies up front, as this was the single most important slide. Cash flow forecasts were necessary to show you had actually thought about the business model, but otherwise meaningless. What mattered was us. Could we make this happen? And happen big?

  “Most ideas are good ideas,” said Rodger. “The differentiator is how they get implemented. And that’s about you. You’ll be great. They’ll love you.”

  Bo forwarded me notes he had taken on a speech by two Boston venture capitalists. When pitching to a VC, it was vital to “get them juiced in the first five minutes. Get them captured and fully engaged quickly.” I envisaged a spoiled, hyperactive five-year-old deciding our fate. “Make them see the business pain of the customer, then move into why your team is good and so on,” the e-mail continued. “Do not start with Macro conditions . . . tell them a story . . . make them understand . . . then move into the opportunity. Customer interviews are great . . . how many customers have you talked to? Is there a real problem . . . how many said they will pay? What is your sales channel . . . direct or indirect . . . how do you get to the end user? . . . Use the HBS platform while you have it . . . aim high, solicit big players for input and advice . . . Sell with personal passion . . . have to make the personal connection.” I got the point. Sell yourself. Know your customer. Know what you’re going to do with the money. And don’t let yourself get screwed.

  Word of our endeavor quickly spread. One lunchtime, I fell into a conversation with another classmate, Jon, a phlegmatic New Yorker who before HBS had set up a software applications company and sold it to a large California firm, which appointed him to a senior strategy position. Jon said he had come to business school because he was sick of being patronized by MBAs. He wanted to learn how to patronize them right back by imposing some discipline on the great swath of hunches, instincts, and skills that made up the business intelligence that had carried him this far. Jon told me that meetings with VCs, in his experience, followed a very predictable pattern. During the first few minutes, everyone was excited. He traced a line moving upward. Then the VC started to tire of your presentation. The line began to move down. Eventually you were back at neutral. At that point, the questioning began. How big can this thing be? Rather like Hollywood executives who could envisage new films only as derivatives of others—“It’s Star Wars meets Pirates of the Caribbean!”—VCs liked to feel reassured that the project they were looking at could be the next version of whatever was hot at the moment. “It’s kind of a MySpace crossed with Skype.”

  “This is the moment to strike,” Jon said. “Just as the VC is talking about the hot businesses of the moment, you should look off into a corner of the room and smile. Perhaps shake your head. You’re trying to tell the VC you’ve heard all this before and he is no better than the herd. You are disappointed in his lack of imagination. This totally freaks them out.” He demonstrated his faraway gaze and the gently exasperated laugh.

  As venture capital has become institutionalized, the people in it have become less and less venturesome. Those who visited campus were overwhelmingly male and either white or Asian. Some had worked at a real company before becoming capital providers, but that was no longer necessary. Most had degrees in science, engineering, or business. They liked to think of themselves as renegades and rule-breakers, and yet they struck me as a hardened monoculture. When one of them took up bicycling on the weekend, they all did. If one had pale blond wood in the conference room, they all did.

  In the HBS classroom, the future VCs all affected a similar manner, speaking in a measured monotone, keeping their notes in a leather portfolio, wearing chinos, tucked-in dress shirts, and baseball caps. The comments they made were never surprising, sticking close to the frameworks we were taught. Whereas the bankers were often argumentative and difficult, the VCs liked to affect calm under pressure. They loved to poke holes in business plans by saying things like “I’d like to see more customer data” or “I question the founder’s motivation.” They enjoyed sitting in judgment and looking terribly pleased with themselves, to the point where all you wanted to do was slap them to life and demand they do something.

  Our meetings bore this out. The rhythm of each was the same. Niceties, excitement, drift, reinvigoration, the promise to stay in touch. Each VC gave the same advice: pick a vertical. “Don’t try to accumulate content from all over the place,” said one. “The audience for it is too hard to find. Pick something like medical content, focus on getting top surgeons to talk and market it to doctors. It’s easier to gain traction and get good at what you’re doing if you’re focused on a single area from top to bottom. Vertically.”

  We could not brush off their questions with a TBD, the way Rodger had suggested. They just came back with more. They all asked about video. Why weren’t we going into video? Surely it was superior to audio? Bigger market. Cooler. More money. One of them looked askance at me when I said I didn’t own a PSP, Sony’s new gaming device. Fortunately Bo did, but I had already hurt our cause. The VC looked at me and said, “I don’t trust anyone coming into my office to talk about consumer technology who doesn’t own a PSP.” Luckily, I didn’t have a chance to lay out my vision of an office without a computer.

  Once it was clear no VC was going to give us a huge amount of undeserved money, we decided to press on regardless. We created a series of podcasts for our section, in which fellow students tal
ked about their lives and ambitions. Every day, we tracked the evolution of podcasting. A team of ex-Google technologists in San Francisco were developing a software product to allow anyone to record and post podcasts online. A group of wine lovers had achieved some success with a podcast called Grapetalk. And a hyperactive DJ based in London, calling himself the Podfather, was garnering a lot of attention. Working each night in front of ESPN, Bo built us a functioning website. He taught me how to make recordings on my computer and post them. My friends on Fleet Street came through like troopers, allowing me to interview them about goings-on in Britain for an American audience. We began mixing music into our recordings, and each day our archive grew.

  Then one day we went to talk to Felix, our strategy professor. Unlike Gompers, he was generous with his time and he asked us a question to which we did not have an answer: “How much value are you going to capture doing this?” The barriers to entry were low. People had shown they were reluctant to pay for online content. We would never have a technology advantage, so our only hope would be to build a brand and style of content that people could find nowhere else. He did not say all of this, but once he had asked the question in those terms, we began to figure it out. When we discovered that Kleiner Perkins was investing over $8.85 million in the Podfather and asked ourselves why, we could not figure it out. It was not a good sign for our own business. We had been thinking of spending the summer working on the company, but as the cracks in our model became ever more apparent, Bo stepped up his search for a biotech/venture capital job in Boston and found a great one.