THE ARGUMENT FOR BOOTSTRAPPING
“In terms of the funding question, I definitely don’t see that as a validation of whether or not it’s a worthy idea,” says Rhonda Shrader, the director of the Berkeley-Haas Entrepreneurship Program. Shrader says she’d look to venture outputs rather than inputs when deciding on the value of an early stage venture. “I look at sales and revenue productivity per employee, how many customers you have. That’s an indicator of your base and your future. I think those are all very important. You may not have Haas companies in your Top 100 this year, but I would definitely stay tuned. There’s a lot cooking in the background.” With a record 12.5% of Haas’ Class of 2015 doing startups, that is certainly true.
And she’s certainly not alone in those sentiments. “I think observers of entrepreneurship and the media tend to focus on a particular template, which is, they start, they raise seed capital, then a Series A and a Series B and it’s sort of a venture-backed trajectory,” says Wharton’s Ulrich. “Only certain kinds of businesses benefit from that (venture-backed) funding,” he maintains. “And they tend to be those that require a ton of capital to get started and have really big unicorn potential-like payoffs. If you look at the universe of ventures, that’s a pretty small subset.”
Eisenmann agrees that while focusing on venture capital certainly “covers the vast majority” of larger and impacting early stage ventures, there are some bootstrapping “outliers.” Specifically, he notes Tough Mudder, a Harvard-founded company that puts on adventure races. “It’s a big, profitable business,” Eisenmann explains. “If they sold it today, it would probably end up on the Top 25 of your list.”
THE FIRST (AND ONLY) TURKISH STREET FOOD-INSPIRED FAST CASUAL FOOD CHAIN TO MAKE THE LIST
Still, behind B-school walls seems to be an ideal place to test nearly any business idea. When Dominik Stein, 28, and Michael Heyne, 31, entered the full-time MBA program at the University of Texas’ McCombs School of Business, they did so with a plan to open a Turkish street food-inspired restaurant chain in the Lone Star State.
Investors would have had the right to be skeptical. Hand-made falafel in the land of steak and chili? But co-founder Stein says the pair “leveraged our time in university to really explore the market, and we used the resources at the university to dig deeper into different subjects like finance, accounting, and marketing,” Stein adds. “While we were studying, we were already planning and researching our startup.”
Two days after graduating with their MBA degrees in 2011, the duo opened the doors to their first restaurant, calling it VertsKebap. Five years later, they have 26 restaurants in Austin, Dallas, Houston and San Antonio and plan on opening 45 more in a major expansion to the East Coast by year’s end. And they are doing it behind the $36 million in venture capital backing.
But don’t tell Stein and Heyne, who come in at 20th on this year’s list, he owns a startup. “The true and honest answer is [VertsKebap] is not a startup, anymore,” he says. “At 30 restaurants plus, we’ve got several hundred employees. It’s difficult to compare that with a company that’s just starting up,” he says.
For many of these enterprises, this next year could be the toughest they have ever experienced in raising cash. Harvard’s Eisenmann believes it’s more difficult now than it was as little as six months ago. “The bubble is deflating,” he insists. “Bubbles can deflate slowly. Or they can even stay the same size and the world can sort of catch up, if you will, with the valuations. But we have seen a deflation over the past six months or so. It’s getting tougher.”
(See the following pages for the pioneers and risk takers who’ve gained enough venture capital support to be named to the Poets&Quants’ Top 100 MBA Startups of 2016.)