TEACHING & LEARNING
New Nigeria

The Man with the Golden Spreadsheet

OUTREACH
Advice to Students: Burn a Bridge

A Pyramid in the Desert

PLUS: Watch the "Alumni Impact" video interview of Farhad Mohitl

Faces of Wharton Entrepreneurship

RESEARCH
Mind over Money

Private Equity Is on a Roll, but Are Investors in for a Let-down?

Advice to Students: Burn a Bridge

Annual Wharton Entrepreneurship Conference teaches ins and outs of entrepreneurship.

Farhad Mohit didn't take an internship between his first and second years as a Wharton MBA in the mid-'90s. He didn't interview for jobs during his second year, either. Instead, he threw all his efforts into preparing to start his company, Shopzilla, a shopping-search website.

Steve Woda, a 2001 Wharton MBA, did the same thing, skipping the time-consuming interview process to concentrate on honing the business plan for BuySafe.com, which insures online transactions. "Not interviewing helps you focus," he told attendees, many of them students, at this year's Wharton Entrepreneurship Conference. The annual conference is organized by the Wharton Entrepreneurship Club and sponsored by Wharton Entrepreneurial Programs.

Focus, both men agreed, matters perhaps more than anything else in separating successful entrepreneurs from dabblers. "Your business will go through hard times when it will seem irrational to keep going forward," Mohit said. "One of my original partners left, and my other partner said he was going to leave. The fact that I didn't have any other options meant that I had to come up with a plan. People who hedge shouldn't become entrepreneurs."

Nobel Prize-winning economist Tom Schelling called this kind of bridge-burning behavior "pre-commitment."  And while it can seem crazy—isn't it human nature to hedge one's bets?—it has a place in a rational economic calculus. People who pre-commit underscore, in the starkest possible way, their seriousness of purpose. In effect, they're saying, "I won't fail because I can't." That can send a strong signal to competitors as well as potential partners, investors and employees. That sort of signaling can be especially valuable to startups, which, in their early days, often lack the funds for advertising and marketing.

Sure, Mohit and Woda said, startups still can crash, and failure can entail costs like a hefty credit card bill or, in extreme cases, the loss of a house that secured a loan. But fear of adhering to social norms tends to deter far more people than the possibility of a financial loss, Mohit said.

Business students, for example, often say they want to be entrepreneurs but then interview for investment banking and consulting jobs because that's what many of their classmates are doing. "The only thing preventing you from starting a business is the herd mentality," he said. "When I graduated, only two of us out of a class of 800 started businesses."

If anything, the end of college or graduate school is the perfect time to launch a new venture, said Sam Hamadeh, founder of Vault.com, a job-search site geared toward MBAs and lawyers. Hamadeh earned both his MBA and law degree at the University of Pennsylvania. Unlike Mohit and Woda, he did interview for other jobs and received an offer from a leading law firm, but he decided to start Vault instead.

"When you graduate is as good a time to start a business as you'll see," he said. "The negative is that you're broke. But the positive is that you're broke, so you've got nothing to lose.

"When I started Vault, I had eight people working out of my tiny Manhattan living room. In the summer, every two and a half hours, all the computers would shut down when the air conditioner overloaded the circuits. We'd have to wait 10 minutes to restart everything."

The fact that Hamadeh had just graduated meant that he hadn't grown accustomed to the luxuries that older friends took for granted and hadn't freighted his life with obligations like a house payment or private-school tuition for kids.

"I went from sleeping on a futon at [Philadelphia's] 24th and Locust streets to sleeping on a futon in the [New York's] West Village. If you go to Goldman Sachs and get used to earning six figures, when will you do it? I talk with my friends in investment banking who say they want to try something, and it's always, ‘One more bonus season...'"

Mohit, too, scraped by in his company's early days, but, having just come from school, his life didn't feel much different from the one he left. "Sure, I maxed out the credit cards," he recalled. "But you'd be surprised at how little money it takes to survive." Ultimately, Mohit made more than enough money to pay off his debts. In 2005, he and co-founder, Henry Asseily, a Wharton classmate, sold Shopzilla to E.W. Scripps for $560 million.   

John Tedesco, president and CEO of Santa Monica, Calif.-based Guardian Mobile Monitoring Systems, argued that waiting to start a business until you accumulate savings or work experience can even hinder one's dreams of entrepreneurship. "The more wealth and prestige you accumulate, the more risk averse you become," he said. Failure costs more if you have more to lose; it's the difference between securing a loan with a $1 million house and a $100,000 condo.

The irony, Tedesco pointed out, is that folks with money, credentials and connections are, in some ways, best situated to bounce back from business setbacks. If their ventures falter, they can seek jobs that might not be open to, say, recent immigrants. Wharton students, likewise, enjoy a safety net not available for a lot of wannabe entrepreneurs: Their degrees make it easier for them to find jobs at established companies if they fail to realize their entrepreneurial dreams. "The traditional corporate job is like a train," he quipped. "There's always another one coming."

Another bugbear key ingredient to entrepreneurship is that entrepreneurs have personalities that separate them from normal folks. This is the notion that Bill Gates is much more driven than average; Steve Jobs, smarter; or Martha Stewart, more creative. In truth, researchers have searched for such qualities and found none, said Prof. Raffi Amit, academic director of Wharton's Goergen Entrepreneurial Management Programs.

"Research shows no unique characteristics," he said. "There's a myth that entrepreneurs are risk takers. But research has shown that they try to manage risk. They outsource it where they can. And there's a myth that entrepreneurs have some sort of secret method that they can apply to venture after venture. But many second-time entrepreneurs fail." 

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Wharton Entrepreneurship Conference

Wharton Entrepreneurial Programs