How I Built This - critical summary review

During his interviews with successful entrepreneurs, Guy Raz realized that the entrepreneurial journey is much like a hero’s journey: there is a call to action in the form of an idea, the startup then goes through many trials and tests and finally arrives victorious at the destination. In “How I Built This,” Raz has organized his findings into specific steps to create a journey on how to become a successful entrepreneur. Get ready to learn how to drive your startup to success!

Take the leap

Taking the first step on a journey is often the hardest part. The hero setting off from home into the unknown world will probably have one or two reservations - as do most entrepreneurs. Stepping into the unknown is always scary to do, and yet most successful startups start out that way. 

Just think of Mark Zuckerberg, Bill Gates, or Steve Jobs. We would not have the likes of Facebook, Microsoft, or Apple if they had been too scared to take the leap. Raz says what often holds young entrepreneurs back is a lack of distinction between what is scary, and what is dangerous. 

More people are afraid of dying in a plane crash than of dying in a car accident. And yet, you are 86 times more likely to die in the latter than in the former. More people drown in their baths than get attacked by a shark, and yet we are more scared of sharks than of bathtubs. There is a difference between what is dangerous and what is scary - and we are not always scared of the dangerous things. 

We are less scared of the things we know and more so of the things we don’t know. That is why so many people struggle with taking risks. Just remember, even if you are scared of taking your idea and starting a business with it, that does not necessarily mean that there is any real danger involved. Sometimes, there is more danger staying in the job you are in right now and wasting your life on something you are not passionate about.

The good news is that you don’t have to be a risk-taker to start your own successful business. Many entrepreneurs made sure they were very prepared before leaving their safe jobs and income behind. Either you can stay in your job until you are sure that your startup is going to make profit for you, or you can have a plan to fall back on in case it does not work out. 

How to get funding

No matter how great your business idea is, you will eventually need to fund it. Most businesses start out by bootstrapping: using your own monetary resources and pouring them into your business idea. Bootstrapping is not only about money, but also about using your time, resources, talents, and networks. Bootstrapping means keeping control of your business for as long as possible by doing the things that you would normally hire others for, and saving money in the process!

Airbnb is a prominent example of a business that started out in this way. When Joe Gebbia and Brian Chesky started their bed and breakfast service, it was just the two of them and three air beds on their living room floor. They organized everything themselves - from designing the website, cooking breakfast, picking up the guests and guiding them throughout their city. 

Another way of getting funding is OPM: other people’s money. That does not necessarily mean getting venture capital or other kinds of professional money, but your friends or family, or anyone who is willing to give you money for your project, can help. Daymond John, the founder of the affordable hip hop clothing line FUBU managed to raise several million dollars in funding because his mother took out an ad in the New York Times that read, “Million dollars in orders. Need financing.”

Once your business has taken off, you might think about getting professional investment as well. To understand the world of venture capital, take the example of Jenn Hyman, founder of Rent the Runway. The idea was that women could rent designer dresses for special occasions, rather than spend incredible amounts of money to buy them.  

Even though this was a great business idea that explored a niche in the market, when Hyman tried to get funding from (the predominantly male) venture capitalists for her business, she was met with condescending comments. The so-called experts did not know anything about her business and therefore turned to their wives and daughters for advice, who were either too rich or too young to be in Hyman’s target group. This example shows that not all investors know everything; ultimately it is you who knows your business best and the sector you are trying to capture.

Go in through the side door

Another hurdle your startup will face is how to enter an existing market. You will be entering a market full of competitors and they won’t be happy to see you. Just take Microsoft as an example. In a bid to get investment from Warren Buffet, Microsoft Vice President Jeff Raikes likened the Windows operating system to a toll bridge, and its software applications to a moat that, when combined, allowed Microsoft immense “pricing discretion.” 

Microsoft was the biggest fish in the pond of personal computer business at the time, and it was intending to use its monopoly to drive out the competition. It had created barriers of entry to the market, and was willing to use these against any new competitors. For example, they used their pricing discretion as a carrot to get Microsoft installed on any new PCs coming onto the market. Then, they used that as a stick to drive prices down and competitors out of the market.

Raz says that for new startups, it is generally best not to be seen by the competition before you enter the market. Instead of knocking on the front door to gain entry, try to walk around and enter through the side door. This is something that female and minority entrepreneurs have had to do for years, and often, the side door will prove to be much bigger than the front one. 

How do you find alternative routes into an existing market? Just take Peter Rahal and his energy bar, the RXBar, as an example. When he decided to enter the protein bar market in 2013, it was already oversaturated. One day, while walking through the aisles of a Whole Foods in Chicago, he saw that there was no way he could get shelf space in the already overstocked energy bar aisle.

But Rahal had a different plan: he was going to create a Paleo protein bar. It would contain no grains, no dairy, no pea or bean protein, and no sugar. He decided to sell it directly to the consumer through gyms where people working out could get them immediately when they needed them. In 2017, RXBar was acquired by Kellogg’s for $600 million, and it still is one of the fastest growing brands among protein bars.

Managing crises

A successful startup knows how to navigate challenges. Any business can be hit by catastrophe at any time. Just take Johnson & Johnson as an example. In 1982, it was one of the most successful pharmaceutical companies, largely thanks to the success of its painkiller Tylenol. In 1982, Tylenol made up 20% of the company’s profits, and it was widely believed that number would continue to grow in the future. 

But then the unthinkable happened: in the fall of 1982, seven people in Chicago died after having taken Tylenol capsules. Upon further investigation, it turned out that these capsules had been tampered with - someone had purchased them and then laced the painkiller with cyanide.

Johnson & Johnson’s CEO Jason Burke’s reaction was swift and definite: he decided to recall all 31 million bottles of Tylenol capsules. This was unheard of at the time - before 1982, companies did not recall products. Both the FDA and the FBI tried to stop the recall, but Burke was adamant: his company had been built on trust and he would not misuse the trust people had in him to misrepresent the brand. 

He did not stop there, either. He offered to replace the recalled Tylenol for free with safer tablets to everyone who had to have their products returned. And he remained in constant contact with the media throughout to keep his customers informed on what was happening. Eventually, the Tylenol capsules were relaunched in tamper-proof packaging, the first of its kind.

Burke was willing to make short-term sacrifices to ensure long-term success. Within a year, the share of Tylenol in the company’s profits had almost gone back to normal. Throughout the crisis, the company’s credo helped Burke to stay on course - it spelled out the importance of trust and allowed Burke to even defy the FBI. The values your company is founded on can help you navigate even the direst of crises.

When to sell and when to stay

Even though it might be scary to take the first step into the unknown and start a company, the possibility of failure when you begin to see success is even scarier. At first glance, this sounds counterintuitive. 

When your company starts being successful, there are increasingly more difficult decisions you will have to make. How do you make the company last? How do you create more revenue? Keeping a company afloat often creates more anxiety than building it.

Many entrepreneurs will at some point encounter what Harvard Business School professor Noam Wasserman calls “The Founder’s Dilemma.” Do you want to retain control, or do you want to create profit? Selling out to investors also means giving up control, but maintaining control might hinder you from creating sufficient revenues. 

Most entrepreneurs, when faced with this choice, choose poorly. According to Wasserman, “They will act either against their own self-interest or, in some instances, against the best interests of their companies, and sometimes both.” 

The author argues that between the “rich” and the “king” choices, there is a third option that entrepreneurs can choose: what is it that makes you happy? You won’t feel successful until you have made a decision that feels right for you, whatever that may be.

Take Clif Bar as an example. In 2000, it was the largest independent energy bar company still on the market. One of the founders, Lisa Thomas, wanted to sell - at the time, there was $60 million dollars to be made. At first, co-founder Gary Erickson agreed. But on the day of the sale he found he could not go through with it. He had poured his entire life into the creation of the company, and his employees were like family to him. 

So, he pulled out of the deal. Even though this turned out to be the better decision financially, it was never about the money for Erickson. Leading his company in the right way was more important to him than any amount of money he could possibly make from selling.

Final Notes

Creating a company can be a scary process. So, it is always useful to have a backup plan or to stay in your current job until your startup takes off. Try and enter the market through the side door so that established competitors don’t give you a hard time. And always keep your values in focus, as these will help you to successfully navigate change and make difficult decisions. 

12min Tip

If you are plagued with anxieties about the founding of your own company, try to write them down. Read through them a couple of months later and see if any of them actually came true!