Formed, Not Born

Roger (not sure where Roger is from) e-mailed me about the age old question: are entrepreneurs born or made? As Roger said in his e-mail:

I am one of those that believe it’s impossible to teach anybody how to become an entrepreneur because I believe that they are born and not made.

Although I have addressed this issue before, let me try a new angle. My answer is: neither.
First, although I continue to make this mistake, we should avoid using entrepreneur the noun in such discussions. I have written about the risks of viewing any career as a noun in an earlier post. By describing someone simply by what they do for a living misses so much about who they are as a person. I think this might be part of the problem with this on-going debate of nature versus nurture in the context of entrepreneurship.
Entrepreneurship is not in our genes. People come to pursue entrepreneurship by their life experience. For some of us it comes from our family upbringing. I caught the bug at an early age by being involved in family businesses (thanks Dad!). For others, entrepreneurship is the result of some career crisis — often this means getting fired. Unemployment can be a powerful motivator. Pursuing entrepreneurship may be the logical way out of a frustrating career. Maybe they finally realize they hate their job, don’t belong in a cubicle any longer, are sick of “working for the man,” etc., etc. You get the scenario. For others, entrepreneurship comes out of an insatiable desire to pursue interests and passions in life. Self employed musicians or artists are great examples of this type.
Another factor that we cannot ignore is the role of our culture. As we see in so many studies, the culture in which we live is a powerful force creating start-ups and fueling entrepreneurial economies.
Entrepreneurship is much more passion than personality. We are not born with passion. It comes from our experiences — our family, our work, our hobbies, the people around us, the gifts we have been given, and our culture.
But even though they are not born, I cannot make someone choose this path in life, or even inspire someone to pursue a career in entrepreneurship who is not already headed that way. The fire has to be in their belly. Once in a while I have to stoke that fire, or help them see that the fire is there. And when they feel that fire, my job is to help them have a better chance for success. By learning about the process of properly defining and aligning the opportunity, securing the necessary resources, planning the venture, and managing growth effectively, we can increase their chance of financial success by an average of about 50%.
Entrepreneurs are formed — not born or made. Oh, drat! I made it all the way to the end before I used that pesky noun again! Let me try it one more time. Entrepreneurship is a career that comes out of our life experiences, and with some education, we can improve the success rates of those who start-up new ventures. Not quite as pithy, but hopefully your get the point.

The Art of the E-mail

When we first installed e-mail in our company in the early 1990s, I had to “pull the plug” on the system after just a few months. People were sending incredibly caustic messages, writing things in their messages that they would never say face-to-face. It was a new form of communication, and we had to take the time to train people on how to use it and how to be polite and courteous when communicating via this new medium before “turning it back on.”
Fifteen years later it seems that people still don’t have a clue on the effective use of e-mail communication. Web Worker Daily offered a wonderful tongue in cheek post on negotiating via e-mail that illustrates how little progress has been made.

In the new world of web work, you might find yourself negotiating by email over a job or project. Most of us know how to screw up phone or face-to-face discussions. Scotching plans by email requires a completely new approach.
Remember that email is asynchronous, impersonal, and only seemingly private. Use these characteristics to best advantage and you’ll never have to deal with a pesky email-negotiated business deal again.

It would be even more funny if it weren’t so true!!
(Thanks to Ben Cunningham for passing this along).

Competing for Good Talent

Eric from Canada e-mailed me the following question:

How exactly would you answer the question: “why should I work for your company when there is a bigger company offering me a great salary?”

I found that just listening to what the employee really wants and being flexible in how you structure the offer and the job can be very effective.
There was a manager I wanted to hire to run a new program we were starting, as he was one of the best in our industry. He worked for a large, national company. I knew I could not match his salary, but I did not give up.
I got to know him and found out what he was really looking for in his career and in a job. He wanted to have more control over his department. That was easy as we were small and our structure was quite decentralized. He could run the new program like it was his own business.
He wanted to have some real ownership in the business he worked in. We could do that, too, as we set up separate corporations for each new program we started and we had already planned to offer a small ownership stake for the right manager. Equity or equity-like incentives can be a way to defer compensation until you can afford it, and create an incentive that gets everyone pursuing the same goals.
There was one more thing he wanted, however, and it was clear it was a deal breaker for him. His current employer had very strict rules on vacations and holidays. He was a Viet Nam veteran and had wanted to go to Washington, DC each Veterans Day to remember his fallen comrades. His current employer’s rules did not make it possible to guarantee that, and he had missed the last two Veterans Day observances. So, in my offer I promised him that he would be guaranteed Veterans Day and one work day on either side of it off each and every year (they were counted as vacation days). That was all it took to convince him that we were the best place for him to work. He came to work for us taking a significant cut in base salary from what he had been making before.
I also find that being able to work in an entrepreneurial company with a team that is excited and committed to what they are doing attracts many managers to smaller companies. So when you interview prospective management candidates make sure to use your team as not just part of the interview process, but to sell the prospective employee on the benefits of working in your company.
Finding management talent in the first place can be a daunting challenge. For example, where should you look to find a Controller, a Marketing Director, or a Human Resource Manager for your company? I recommend using your network. Talk to your CPAs and your attorneys. Talk to your advisory board. Talk to other entrepreneurs that you know. Talk to people you trust in your industry. That is usually the best way for entrepreneurs to get a good pool of candidates for their growing businesses.
To attract them to your business you need to listen to what they want beyond the salary, and find creative ways to put it all together. Once you know who you want, get into the selling mode and use all of the important attributes you know are important to them in your pitch.

VC Career Advice

I meet many MBA students studying Entrepreneurship who tell me they are planning to have a career as a venture capitalist. Guy Kawasaki recently wrote a post at his site offering some lengthy, but very good advice to young aspiring VCs. Here is his conclusion (edited to make it “G” rated).

Here’s the bottom line: You should become a venture capitalist after you’ve had the [expletive deleted] kicked out of you. This will yield at least two positive results: First, you’ll stand out from the full-of-[expletive deleted] artists who entered the business when they were young. Second, you’ll really be able to help your portfolio companies–which is what venture capital should be all about. See you in ten or twenty years.

It is similar advice that I offer to those who aspire to teach Entrepreneurship. Go out and be one, or at least work for one. A little miles under your belt and some wear on the tires goes a long way!
(Thanks to James Shewmaker for passing this along).

Study on Small Business Growth Trends

Small business growth and decline tends to persist and is not easily reversed, according to a study released today by the Office of Advocacy of the U.S. Small Business Administration.
“We know that overall small business is a dynamic sector of the economy,” said Dr. Chad Moutray, Chief Economist of the Office of Advocacy. “This study shows that the growing and declining firms tend to stay in the same mode over time. Consequently, policies that affect growth or decline can have an impact on small businesses over a longer term than originally anticipated.”
Drs. Rich Perline, Robert Axtell, and Daniel Teitelbaum of NuTech Solutions wrote Volatility and Asymmetry of Small Firm Growth Rates Over Increasing Time Frames with funding from the Office of Advocacy.
The report followed up a study from 2005 that examined firm growth rates by size of firm and industry type. That report found that firm growth tends to be relatively more concentrated among fast and slow growth firms. The current study examined growth rates over a five-year period, using special tabulations of the Census Bureau’s Business File dataset.
This is important information given the fact that 50% of the GDP in the US is made up of small business activity.

Strategic Partnerships

Kauffman’s eVenturing has another outstanding collection of materials — this month it is related to strategic partnerships.

For entrepreneurs building growth companies, engaging strategic partners tends to be par for the course. The bottom line is the right partner can drive success for your company while the wrong partner can be stifling. This collection provides entrepreneurs insights on identifying, selecting, and negotiating with prospective partners and covers ways to manage effectively the partner relationship to maximize chances for success.

Pay particular attention to the “wrong partners can be stifling” part of this collection. Getting locked in — and by locked in I really mean locked in — with the wrong partner is more than stifling. Strategic partnerships are most often with large, established companies in your industry. They have enough resources and enough lawyers to make your life miserable if you do not do things their way. Do your homework. Get to know their culture, talk to other companies they have done strategic partnerships with in the past, and hire a really good attorney who is experienced in such matters to make sure the deal it fair.
Go in with your eyes wide open. Don’t sit down to negotiate a strategic partnership unless you are ready willing and able to walk away from the discussions if things don’t look right to you.

Entrepreneurship for the Masses?

There has been a lot written over the past month on Jeff Bezos’ plans for Amazon. As Bezos explained to Business Week when he first unveiled his plan, he wants to transform Amazon the on line store into Amazon the engine of the entrepreneurial economy.

Bezos wants Amazon to run your business, at least the messy technical and logistical parts of it, using those same technologies and operations that power his $10 billion online store. In the process, Bezos aims to transform Amazon into a kind of 21st century digital utility. It’s as if Wal-Mart Stores Inc. had decided to turn itself inside out, offering its industry-leading supply chain and logistics systems to any and all outsiders, even rival retailers. Except Amazon is starting to rent out just about everything it uses to run its own business, from rack space in its 10 million square feet of warehouses worldwide to spare computing capacity on its thousands of servers, data storage on its disk drives, and even some of the millions of lines of software code it has written to coordinate all that.

Here is how the Bezos plan was described in USA Today:

That’s the future Amazon.com CEO Jeff Bezos hopes to set in motion with the company’s new direction. If you tease out Bezos’ plan, you get to a point where a high school cheerleader sitting at home with a laptop could theoretically harness computing power, design capabilities, manufacturing and distribution from around the world, and make and market a cute little pink hot rod that would compete against General Motors.

Now that the ink has dried on Bezos’ plan, I’d like to offer my take on it. His assumptions show that he never learned one of the most important lessons of the dot.com disaster. He does not seem to understand that markets really matter. For example as Pets.com illustrated, just because you can sell dog food through the Internet it does not mean that there is a market for such a service.
Starting a successful business has two critical pieces. First you need a viable product or service that you can deliver. That is the part that Bezos is focusing on.
But second, you need a large enough market willing to spend enough to cover your costs and leave you a profit. The dot.com kids only worried about the first part and never paid much attention to generating sales and profits. Just because we can enable a “high school cheerleader sitting at home with a laptop could theoretically harness computing power, design capabilities, manufacturing and distribution from around the world, and make and market a cute little pink hot rod that would compete against General Motors” does not mean there are customers for her product.
I hope we are not setting people up for even bigger failures by making part of the process so much easier. My fear is that it will encourage more people to ignore the customer part of the equation and start businesses that are doomed to fail.

So What will be the Next “Big Thing?”

It seems that biotechnology has gone from the hottest growth sector to yesterday’s news in a blink of an eye. Offshoring seems to be the culprit. From SignOnSanDiego.com:

Increasingly, the venture capitalists who fund new life-science companies are shopping for existing drugs to refine instead of backing scientists to make discoveries. When startups are created, they’re often minimally staffed. More drug companies are farming out research work to scientists in China, India and Eastern Europe, where tasks are done more cheaply.
For California, the birthplace of biotechnology, the stakes are high. Of the estimated 260,000 Californians who work in the life-science industry, about 70 percent are employed in high-paying jobs in drug, medical-device or diagnostic-tool companies. In San Diego, an estimated 36,600 employees work at about 500 companies, according to BIOCOM, the local biotech trade association.

Many of the highly touted biotech start-ups of a few years ago just did not pan out. And many of these, just like the dot.com’s before them, had over-hyped their potential. I remember more than one investor talking about this biotech or that biotech being the next “Microsoft” investment. So as investors began to experience the reality of the risks in this industry, venture capitalists tied to that industry shifted their strategies.

In an effort to revive Wall Street interest, venture capitalists shifted to creating companies that develop late-stage products or existing drugs that can be revamped to treat other diseases.
Such companies don’t require the big staffs or laboratories lavished on San Diego’s pioneer biotechs, which often took a decade or more and spent hundreds of millions of dollars to get a novel drug to market. Instead, drug companies are stretching dollars by farming out tasks to U.S. contract research organizations or cheaper offshore companies.

America seems to be re-living the story of the hare and the tortoise over and over, never seeming to learn its lesson. Most of our economic growth is not coming from venture capital backed high potential firms. Although those deals get the headlines, their true impact on the economy is marginal. Even in the best of times, venture capitalists only pick about one real winner out of ten investments, and most only make about three investments a year. High potential deals do have their place in our economy. They can bring us breakthroughs that can shape markets of even create new industries. But they are not at the heart of this entrepreneurial economy.
Our economic growth is coming from small businesses that are prudently growing their businesses one job at a time, toward the goal of creating a sustainable venture that will build wealth over the long-term.
(Thanks to Jim Stefansic for passing this along).

Balance Seasonal Businesses

When I first got back into teaching at the University of St Thomas I met a young man named Dan, one of our students, who had mastered the art of balancing seasonal businesses. While still in college, he had set up two businesses that took advantage of Minnesota’s two seasons — winter and summer (spring and fall don’t last long enough to really call them true seasons). Summer is short, but beautiful, and with its long summer days (remember it is really far north up there) people make the most of the outdoors. On the St. Croix River, the wealthy residents had beautiful boats and yachts that they would take out every weekend. Dan had a business providing cleaning, basic servicing, and general maintenance on these boats. The owners loved Dan’s services because he took care of all of the hassles that go along with boat ownership. They could just show up and take off in their boats for a day of fun in the sun. Business was so successful that Dan had hired several part-time employees.
In the winter, which some years lasts about eight months, Dan took advantage of the inevitable snow and built a very successful commercial snow plowing business, using some of the same workers and working with some of the same people who owned the yachts he took care of in the summer.
There are countless examples of entrepreneurs who balance one seasonal business with another. For example, the summer camp owner who turns her facilities into a retreat center the rest of the year, or the home builder who becomes a home re-modeler in the winter months.
I heard a report on Wall Street Journal radio this morning about another example. It seems that many entrepreneurs with lawn service businesses are also getting into the professional Christmas decorating business. Those of you who live in America’s suburbs have seen the proliferation of ever expanding outdoor Christmas lights and decorations displays. Many suburbanites want the decor, but do not have the time or inclination to climb up on the roof to install the annual extravaganza of lights. Thus is born a new industry: professional outdoor holiday decorators. There is even a franchise available for those who want help in setting up this type of business called Christmas Decor.
The best way to approach off-setting seasonal businesses is to set up a second business that takes advantage of the skills and/or resources you already have on hand. In some cases, you can even serve the same customer base with both businesses.