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  What People Are Saying About

  BREAKTHROUGH ENTREPRENEURSHIP

  “This is Seven Habits for Highly Effective Entrepreneurs. If you want to succeed in business, read Breakthrough Entrepreneurship.”

  Ray Bingham

  Managing Director, General Atlantic Partners

  “Highly recommended reading for both students and professionals. A compelling guide for anyone who wants to become a successful entrepreneur or just think like one.”

  Tom Byers

  Professor, Stanford University

  Director, Stanford Technology Venture Partners

  “This book tells you how to start a successful business and make a billion dollars. Even more, it is a book about how everyone in business should plan for success in our rapidly changing world. Give yourself a chance to be one of the successful new business leaders and read this book.”

  Jim Davidson

  Co-CEO and Co-Founder, Silver Lake Partners

  “Breakthrough Entrepreneurship captures the essence of entrepreneurship. This book provides plenty of practical advice for a new venture founder. It covers all the key concepts in crystal-clear terms, and illustrates them with compelling case studies.”

  Thomas Eisenmann

  Professor, Harvard Business School

  Former Co-Head, Media & Entertainment Practice, McKinsey & Co.

  “Burgstone and Murphy provide a step-by-step guide for developing innovative ideas and turning them into booming businesses. The book is brimming with memorable examples and insights from some of the most successful entrepreneurs on the planet, including Burgstone himself. No would-be entrepreneur should be without this book.”

  Randall Kroszner

  Professor, Booth School of Business, University of Chicago

  Former Governor, United States Federal Reserve

  “Entertaining and essential, Breakthrough Entrepreneurship is a must-read for anyone who dreams of coming up with a game-changing innovative idea, breaking away from the pack with that idea, and ultimately building a successful entrepreneurial venture.”

  Jay Light

  Dean Emeritus, Harvard Business School

  “From his early entrepreneurial days in his business school apartment, Jon Burgstone has had the insight to identify opportunities that others missed, the courage to pursue those opportunities, and the discipline to make it all happen. Together with Murphy in this new book, he provides a step-by-step framework to help others identify, pursue and succeed with their own start-up dreams.”

  Brad Loftus

  Partner & Managing Director, The Boston Consulting Group

  “Breakthrough Entrepreneurship isn’t just a how-to guide. It’s a step-by-step framework that shows you how to come up with great entrepreneurial ideas, build companies, make money, and lead a fulfilling life.”

  John Scharffenberger

  Founder, Scharffenberger Cellars

  Founder, Scharffen Berger Chocolate

  “Entrepreneurs learn by doing, and Breakthrough Entrepreneurship is a great guide for all those who aspire to control their own destiny.”

  K. Ram Shriram

  Founding Board Member, Google Inc.

  “Breakthrough Entrepreneurship provides a comprehensive framework for entrepreneurial achievement, one drawn from the hands-on experience of some of America’s most solid and successful company founders.”

  Ikhlaq Sidhu

  Chief Scientist, Fung Institute

  University of California, Berkeley

  “Amazing and flat-out fun, Breakthrough Entrepreneurship is a must-read for anyone who dreams of finding true entrepreneurial success.”

  Matt Szulik

  Ernst & Young

  National Entrepreneur of the Year Award Winner

  “Breakthrough Entrepreneurship tells readers everything they’ve always wanted to know about entrepreneurship. By presenting an easy-to-follow methodology for building successful companies, the authors help aspiring entrepreneurs focus their efforts in the right direction – without having to learn lessons the hard way. Most importantly, the book is easy, fun and entertaining to read.”

  Burghardt Tenderich

  Professor, Annenberg School for Communication

  University of Southern California

  San Francisco, California

  www.farallonpublishing.com

  Copyright © 2012 Symbol Media Management LLC

  and Much Better Media LLC

  All rights reserved.

  Library of Congress Control Number: 2011937540

  Farallon Publishing, San Francisco, CA

  ISBN: 0983961115

  ISBN-13: 978-0983961116

  eBook ISBN: 978-0-9839611-2-3

  To Ben and Nate,

  and the adventures ahead…

  and

  to J.F. Murphy

  CONTENTS

  1 The Driving Forces in Entrepreneurship

  2 Idea Generation and Evaluation

  3 Customer Pain and Value Proposition

  4 Maximum Information for Minimum Cost

  5 Competitive Advantage, Business Models & Execution

  6 Building Credibility

  7 Marshalling Resources

  8 Learning to Lead

  9 Maintaining Balance and Living the Entrepreneurial Life

  10 Learning to Expect and Achieve More

  Conclusion

  References and Sources

  Acknowledgments

  MODULE 1

  “Destruction, however painful, is the necessary price of creative progress toward a better material life. But the correct sequence is vital: creative innovation first, then the destruction of obstacles that lie in its way.”

  -Joseph Schumpeter

  THE DRIVING FORCES IN ENTREPRENEURSHIP

  You deeply want to become an extraordinary entrepreneur, but you don’t know where to begin. You don’t have enough money; or else you’ve got money, but you wouldn’t feel right risking it. You’re too young; or else you’re too old, and the chance has already passed you by. You can’t seem to come up with the right idea; or else, you’re overwhelmed with ideas and you can’t seem to settle on one.

  Even the most successful entrepreneurs have moments of self-doubt. It’s only human. The next time you stop believing in yourself, though, think of Robin Chase.

  With her 40th birthday in the rearview mirror, Chase had been out of the workforce for a year taking care of her three young children. Despite her strong desire to become an entrepreneur, she’d never been able to develop an idea that didn’t eventually reveal a fatal flaw. She wondered if she’d ever find the right business.

  Then, the big entrepreneurial idea she’d been searching for pretty much pulled up and parked in front of her at a Cambridge, Massachusetts cafe.

  A friend of Chase’s named Antje Danielson had just returned from a trip to her native Germany, and when they met for coffee, Danielson was eager to talk. Things were changing so fast overseas. She’d seen a bold new business in Berlin: a rental car company that offered cars by the hour instead of the day or the week.

  Why hadn’t anybody done that here? Danielson wondered.

  Yeah, Chase thought. Why indeed?

  Neither Chase nor Danielson had worked in the automobile industry. Chase didn’t even like to drive. Yet Zipcar, the company the two women cofounded out of Chase’s home, is now the world leader, with a half million customers, 8,000 vehicles, and almost 500 employees. It all but created the car-sharing industry in America.

  In the process of building Zipcar, Chase became a respected voice on transportation policy and the environment. She impacts things that matter to her from a platform she could
hardly have imagined a decade ago. She’s talked at the global Technology, Entertainment and Design conference (better known as TED) and she speaks to standing-room crowds at top universities. Time magazine called her one of the 100 most influential people in America. When we caught up with her recently, she was launching another new company and marveling that she’d convinced an influential think tank to reevaluate its entire position on a transportation policy for the United States government.

  “I just got this report and recommendation,” she told us, “and they even say—this is 180 degrees from what we were going to do. Billions and billions of dollars, and I just changed how it’s going to be done. I think that’s way cool.”

  It is way cool. But how does it happen? How does a middle-class, 40-something mother of three move from the coffee shop to the corner office?

  And here’s an even better question: How can you make a similar transition? How can you join the ranks of the extraordinary entrepreneurs?

  THE KEYS TO ZIPCAR’S SUCCESS—AND YOURS

  There are two key things you need to do to become an extraordinary entrepreneur:

  First, learn and embrace the step-by-step practical framework that unfolds on the following pages. We’ll show you how to brainstorm a winning business idea, test the heck out of it before you’ve committed too much time and money, and grow it into something great. The framework itself is reverse-engineered from the successful experiences of hundreds of entrepreneurs we’ve interviewed and studied over the years.

  Second, embrace the attitude of entrepreneurial inevitability. Understand and accept that if you can implement the practical strategies you’ll find in Breakthrough Entrepreneurship, your odds of success will be much better. History shows that our free market system depends on the work of outsiders like you who spur real progress by overcoming seemingly insurmountable odds. To help make this attitude become second nature, we’ll examine the economic forces that make entrepreneurship work, and we’ll do that with the help of an early 20th century economist who gave these forces a name: creative destruction.

  Keep in mind, both keys are essential. You’ve got to learn how to do it, and you’ve got to believe you can do it. No practical framework? That’s like a football coach who spends all his time on motivational speeches, but never runs practices or teaches his team any plays. No attitude of inevitability? That’s like an actor who memorizes a script, but never thinks about the character’s motivation, meets the director, or learns about her vision until opening night.

  In this module, we’ll take the second key first—attitude and creative destruction—and we’ll then use the example of Robin Chase and Zipcar to illustrate a quick case study of the entire practical framework. Then, we’ll devote the rest of the book to breaking down the process in much greater detail, using examples from many successful new companies and entrepreneurs to demonstrate how you can put it into practice.

  TALES OF A SWASHBUCKLING ECONOMIST

  Not to malign an entire profession, but most economists can be kind of boring in person. Meet an exception to the rule: Joseph Schumpeter, an Austrian-born professor from the first half of the 20th century who came across as a sort of economic Indiana Jones, only with charts and graphs. There’s a story they tell about the university librarian who in 1909 refused to let Schumpeter’s students remove books from the building. Schumpeter challenged the man to a duel by swords, sliced him in the shoulder, won the day, and got the books. He was a ladies’ man with an outsized ego, fond of telling people that he aspired to become the world’s greatest economist, horseman, and lover—and then adding dryly that things weren’t going so well with the horses.

  Schumpeter had nearly become destitute as a child after his father died in the 1890s. His mother reinvented their family, however, by packing up for Vienna and basically assuming airs of nobility. Her son grew up to become an academic, rose quickly through the professorial ranks, served as Austria’s finance minister in the early 1920s—but then lost everything in the stock market. Schumpeter landed on his feet at a university in neighboring Germany and then fled the country after the Nazis rose to power. Penniless once more in the United States in 1932, he finally found a home at Harvard University, where he spent his last two decades.

  Schumpeter was prolific—the author of dozens of books and articles in both German and English—but the work he’s most famous for is 1942’s Capitalism, Socialism, and Democracy. He theorized within its pages that progress in a free society inevitably depends on big, messy disruptions. He studied how great innovations almost always cause short-term pain and insecurity even while they improve peoples’ lives in the long run. The short-term economic pain could even be a positive force because it created still more opportunity.

  The automobile disrupted the horse and buggy, for example. The factory wiped out the blacksmith shop. Painful as these developments were for livery stable owners and blacksmiths, they represented great progress for just about everyone else. They probably even spurred some of those displaced workers to create promising innovations that they wouldn’t have considered otherwise.

  For all his skillful swordplay and theories, Schumpeter was only a modest success as an academic in his lifetime. Overshadowed by other economists, he also suffered from a note of awkward timing in his work. The world had just emerged from the Great Depression when he wrote Capitalism, Socialism, and Democracy. It might be hard to dream up a less appealing argument for that shell-shocked time than the idea that disruption and lack of economic security were necessary, inevitable, and even positive things.

  Schumpeter died in 1950, at the dawn of the information age, a time of accelerating technological progress that makes creative destruction much more clear and understandable. Think about how much faster things move now than they did just a few years ago—the books we read, the methods we use to communicate with each other, the ways in which we entertain ourselves. The entities behind most of the goods and services we use are constantly being reshaped and even replaced by newcomers and outsiders. Then, those upstarts grow, mature, and even dominate—only to be eventually killed off themselves. The whole process happens over and over, at an impressive pace.

  What’s more, as we dig down into the history of these influencers of creative destruction, we’ll find that there’s almost always a single person, or at most a small group of people, who are responsible for the upheaval. In other words, David defeating Goliath isn’t the exception; it’s often the rule. It turns out there is always a Gandhi standing up to the British Empire, or a Toyota entering the U.S. market and beating the Big Three automakers. At any given time, there’s almost always a 19-year-old in a dorm room somewhere, trying to build a company that will change the world.

  Maybe you’ve heard of the Peter Principle, the idea that in any bureaucracy, each employee will eventually rise to the level of his own incompetence. Well, park it behind what we might call the Schumpeter Principle: Wherever there’s an entrenched economic behemoth, there’s an extraordinary outsider taking aim—with genuinely good chances of winning.

  So, what does all of this have to do with Robin Chase, or with Zipcar, or thousands of other extraordinary entrepreneurs out there? What does it have to do with you?

  Simple. Once you have absorbed and mastered the tools you’ll find on the pages that follow, recognize that economic forces are on your side. There’s a wind at your back. Your entrepreneurial efforts—if they’re designed well and tested according to the framework we’ll be discussing—can work because they’re supposed to work. That is how the world has progressed for centuries. If anything, the pace of change is only accelerating. Hop on, strap in, and enjoy the ride.

  HOW TO WORK HARD IN THE RIGHT DIRECTION

  “This is the elevator pitch that I have given probably close to a thousand times,” Robin Chase replied when asked to describe Zipcar’s business.

  Zipcar parks cars throughout dense metropolitan areas and university towns. You make a reservation online or by telephone for a
very specific car in a specific location and that reservation is sent wirelessly to the car. You hold your membership card on a spot in the windshield and that unlocks the door, enables the ignition and opens the billing record. People drive round trip and park back in that same reserved parking space. The billing record is closed and you are all done.

  That sounds pretty sensible now that it exists. But what steps did Chase take to go from a casual conversation about an interesting idea to building a real company? She had a few mentors and peers that she could turn to, which certainly helped—a classmate who had started a company, for example, and a professional investor she’d met at a social function. Beyond that, she was starting from scratch. How did she make it happen?

  It worked because Chase was methodical, because she followed the good structural advice of people who’d succeeded before her, and because she intuitively understood the forces of creative destruction. We’ve found after researching hundreds of these stories that the practical steps logically self-organize into seven components.

  They include:

  Find and fill an important unmet customer need.

  Plan for profitability.

  Strive for sustainability.

  Establish credibility.

  Gather necessary resources.

  Lead and manage effectively.

  Maintain balance and learn to enjoy the ride.

  FIND AND FILL AN IMPORTANT UNMET CUSTOMER NEED

  If you find yourself lost at any point as you’re planning, launching, or running a venture, the solution is always to let the customer be your compass. From the very start with Zipcar, Chase focused on figuring out who her customers were and how her idea for a company could help satisfy their needs—even needs they didn’t recognize they had.

  “There really was a light bulb that went on in my head when my partner said, what do you think of this idea?” Robin Chase told us. “I personally, as a user, would want to do it.”