May 12, 2003
HBSAOC 19th Entrepreneurs Conference Taking The Leap: Overcome the Fear of Being an Entrepreneur Panel Discussion
Summary For first-time entrepreneurs, the prospect of starting your own business can be very intimidating. Living without a predictable salary, dipping into your savings, and having no one but yourself to blame cause more than their share of anxiety. Learn how to deal with the uncertainty from a panel of successful entrepreneurial leaders who abandoned the world of safe career paths and comfortable corporate structures.
Approach/Format
Item Introduce subject, approach, and panelists Panel discussion (targeting approx. 10-15 min/story): Taking the Leap Starting Books-on-Tape Starting a Business Questions to Ask Before Taking the Leap Q&A Session Lead Michael Wakeman Malcolm Geffen Duvall Hecht Michael Mesenbrink Bob Bellano All 20 min Time 5 min 55 min
Moderator Michael Wakeman, Marketing & Sales Executive (formerly with Toshiba Computer Systems Group and Pioneer Electronics)
Panelists Malcolm Geffen, CEO/Chairman, DSFI Inc. Duvall Hecht, CEO/Chairman/Founder, Books on Tape Michael Mesenbrink, CEO, Hope To Others Bob Bellano, Director, cFour partners
Taking The Leap Outline by Malcolm Geffen/DSFI, Inc.
Almost everyone wants to be an entrepreneur but few ever take the steps to do so. Most people have a misconception about being entrepreneurial. While they may be both capable and desirous of becoming an entrepreneur few are willing to risk the trappings of corporate life (Salary, bonus, fringe benefits, status, structure etc.) to embark on this uncertain path. Starting on this path frequently requires a taking a high-risk bet on yourself and/or an idea. The degree of risk and the loss of relative certainty and status, results in few people actually taking entrepreneurial steps/risks. Leaving the corporate field can be monumentally life changing, while returning to corporate life (in the event of moderate success or, even worse, failure) is often even more difficult Before taking the first step on this path it is helpful to have a critical and honest self-examination. Here are a few questions I have found useful in evaluating this change:
1.
Why do your want to be an entrepreneur? To make money To innovate To be financially independent To escape corporate strictures and structures To steer your own ship To develop new products/technology To grow an idea into a large company you can run To be independent and not have to answer to anyone To acquire and grow an existing company into a larger enterprise
2.
What are willing/able to do to be an entrepreneur? Take high personal risk in order to achieve this Leave many/all corporate trappings behind Reduce or eliminate fringe benefits you now take for granted Work with little or no support staff to fall back on Work without, or build from scratch, information systems you are now accustomed to having at your fingertips. Undertake a variety of tasks some menial, to get a job done Work, as a peer, on many tasks with a variety of people at differing levels whom you are not presently accustomed to being involved with. Work without being able to use many of the educational tools/systems you are used to. Work “ego-less” in the new situation.
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3.
Myths of Entrepreneurship Not always a stimulating environment Still have to answer to someone Do not necessarily get rich Often have to work much harder with little support or time off. Fringes tough to build back up Status symbols seldom return Exiting the venture not always easy and often more difficult than starting it.
4.
“But if it works it can be an exciting and rewarding life change.”
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Top Ten Lessons Learned by Malcolm Geffen/DSFI, Inc.
1.
Decide realistically what you are trying to achieve, and then develop structures, programs, budgets, and benchmarks to achieve this. This should also include an ultimate exit strategy.
2. 3. 4. 5.
If you want others to back you, you have to both believe in yourself and be willing to back yourself. Common sense and native intelligence are more valuable than brilliance. Of all financial measures to judge your business by, cash flow is the most important. People are the most important resource and asset of your business. Treat people at all levels with respect and dignity.
6.
Always have transparent, simple financial statements. Complex personal adjustments help neither the funding nor the ultimate sale of the business. Become “Ego-less.” Leave your importance, achievements and educational brilliance at the door. They contribute little to your future success, do not impress your new peers and may close doors to growth in your new situation.
7.
8. 9.
Timing, as well as the ability to recognize and seize an opportunity, is more important than luck. Greed can be a killer. If you want to create an enterprise always leave room for others to prosper as well.
10. No matter how large or successful you are you will always have to answer to someone.
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Starting B-O-T Outline by Duvall Hecht/Books on Tape, Inc.
1. It’s not about being an entrepreneur…It’s about fulfilling a vision. 2. When you think about your vision, do it in concrete terms. Generalities have no power. Specifics do. 3. Capital shortens time, but if you don’t have capital you can substitute time for it and still succeed. 4. Personification is the best form of analysis. 5. Two kinds of creativity – corporate and individual. Where do you fit? 6. Experience starting B-O-T: Mid career, married, mortgage. Obsessed with idea – it seemed so obvious. Formula: best selling books recorded full length on cassettes Rented not sold – mail order delivery and return.
How could I make a business plan when there was nothing to base it on? I kept my day job, worked at B-O-T nights and weekends, put the product “out there,” improvised and filled in as we went along. Over the next few years we developed a business plan based on experience
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7. Needless to say, I was very lucky. . . and blessed!
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Top Ten Lessons Learned by Duvall Hecht/Books on Tape, Inc.
1. Follow your own inner compass. Don’t let negatives discourage you. 2. Have faith in your idea. If it is valid, it will adapt and survive. 3. Preach to the converted. Your customer base is your best source of growth. 4. Your first hire should be an assistant to whom you can lay off details. 5. Launch your business ASAP. If it has vitality it will show signs of life, which you can then develop. 6. Feed the strength of the idea. Don’t waste time at the margins. 7. Let the market tell you, not vice versa. 8. Put in good controls and watch your cash. Lack of cash points to a problem in your concept or in its execution. It can also kill you. 9. As soon as it gets legs, run it like a pro – procedures, controls, an outside auditor, a board. You want a taut ship: if it isn’t, you know who to blame. 10. Management and leadership are everything. You can never stop imparting your vision for the company to the people who work with you. At the end of the day, the realization of that vision validates your decision to begin.
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Starting A Business Outline By Mike Mesenbrink/Hope To Others
I.
Timing….. is everything, and it is important to discuss your ideas with people that are well grounded in business and experienced in the space. 1. Think twice about starting a business in bad economic downturns 2. Understand your big picture capital requirements 3. Conceptualize when you will most likely have revenues
II.
Business Plan Development ……if you still think it is a good idea to leave your job and start something new then start to develop a business plan. 1. A business plan will help you pull everything together 2. Business plans are like an equation and both sides have to balance; revenues higher then expenses 3. Even a simple business can be misleading when you add up all of the expenses of being in business and find yourself upside down 4. A good business plan will take longer than you think 5. Develop a “value proposition” that is compelling 6. Understand the “exit strategy” for yourself and investors
III.
Personnel 1. People are what make a business; surround yourself with the best 2. Be realistic about salaries and plan on giving up equity to have good people; don’t be greedy 3. Do not start with a large team…build as you go to keep costs down 4. Be diligent with people that you bring into the organization and temper their expectations 5. Work with your team and be kind to them to build a company culture, e.g., Southwest Airlines
IV.
Capital 1. 2. 3. 4. All business start-ups require capital and it is usually difficult to raise Make sure that you have access to start-up capital from “friends and neighbors” Be realistic about valuations when raising capital and less concerned about dilution Management, the product/service and the market are the three most desired elements that “sophisticated money” will focus on
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V.
Operations 1. Be prepared to work long hours and feel like you are always behind the power curve chasing your tail 2. Tenacity usually pays off in ways not always understood in the beginning 3. Networking is important…recruit new people into the business idea…they can help by providing contacts
VI.
Business Plan Tweaking 1. The business plan will probably require modifications and that’s okay 2. Be realistic about operating margins
VII.
Cash Flow…the most important of all things 1. Remember the dot.bombs….they failed to manage cash 2. Try to build organically if possible and not rely on outside capital 3. Have a very high regard and reverence for cash and cash flow
VIII.
Keep Reinventing The Company ……Do Not Become a Dinosaur 1. In order to compete effectively we must constantly upgrade our products and services to gain market share 2. Markets are moving fast 3. Labor intensive companies must have products developed in other countries to compete on price
IX.
Exit……IPO, Merge, Sell, Run the Company 1. If successful retire or start another company
X.
Have Fun…..try to make it fun for everyone involved
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Top Ten Lessons Learned by Mike Mesenbrink/Hope To Others
1. Timing is everything, I would rather be lucky than smart!
2. Understand working without resources….there are no secretaries, and there is never enough of anything. 3. Develop a business plan even if the business seems to be “simple”. 4. Make sure there is capital in the market place to fund your activities. Discuss leaving your current high paying job carefully with your spouse so both understand the risks and rewards. 5. It always takes more time and money than initially anticipated, when forecasting increase expenses and decrease revenues. 6. Always have a veteran person in the company to help guide and keep you in safe harbors and better yet, have a board of directors if possible. People are your single biggest asset. 7. Document everything in writing such as employment agreements, compensation plans when hiring management people and staff and be organized in your ability to retrieve documents. 8. Plan on having audited financials if you plan to take the company public or sell it…more expensive but a must do. 9. Make sure that all corporate governance issues are complete and timely. Examples: all contracts, NDA’s, employment agreements, stock option agreements, corporate minutes, stock certificates, loans, equity instruments, financials, etc. 10. Be prepared for giant unplanned hurdles, e.g., wars that break out, economic recessions, personnel problems, sales that never seem to get booked, industries that collapse.
And the most important covenant of all: Have a high regard for cash and make cash flow happen as quickly as possible…business is all about cash flow.
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Questions To Ask Before Taking The Leap Outline by Bob Bellano/cFour partners
As an entrepreneur or businessman, before you leap into a new venture ask yourself: Can you do the following?
Check your ego and the need for resources and support at the door. Communicate a vision that can be translated easily into a real business. Provide technical, marketing and/or business leadership both internally and externally. Build a strong team including advisors and investors. Make changes as necessary. Be team oriented. Be a good listener, who can be decisive when need be. Be willing to take risks Be persistent and do whatever it takes to realize your goals. Will success and are you lucky. Be smart, conscientious, articulate, good communicator, engaging, personable. Recognize your strengths and weaknesses and create balance around you. Effectively deal with the trade-offs.
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Top Ten Lessons Learned by Bob Bellano/cFour Partners
1. Surround the entrepreneur/emerging company with a strong management team and advisors; investors often pass on investing in a company with perceived lack of leadership. Don’t forget that people are your single biggest asset. 2. Ensure that the entrepreneur/emerging company doesn’t allow pride and ego to get in the way of growing the company, i.e., selfishly harvesting profits, not taking on necessary investors/partners in order to keep “control,” CEO not stepping down if he is the founder and the funding agents/advisors have recommended he do so to help bring in key talent that would have appropriate experience to “take them to the next level”, also not hiring other individuals who have had domain experience and have “done it before”. Must be prepared to take reasonable risks and provide leadership. 3. Have a solid business plan with proven objectives and strong analysis/knowledge of market, customer demand, competition, and product life cycle. 4. Project or possess a “value proposition” that is compelling e.g., proprietary technological lead, cost savings to customer, etc. 5. Rely on a solid set of advisors and investors; also periodically upgrade the ad network in order to keep a higher profile than competitors and/or attract additional investor/advisor attention. 6. Don’t be unrealistic about valuations when raising capital, too concerned about dilution. Get as much as you can and conserve it. 7. Make sure that the entrepreneur/emerging company keeps their eye on their financial controls/burn rates/cash flow, and thus the company continues on a pace that is consistent with their profitability goals and/or sales strategy and customer demand. 8. Analyze the impact on cost controls, budgetary constraints, overhead costs, etc. before expanding. Don’t allow the entrepreneur/emerging company to expand too quickly; thinking if one office is doing well than two will be do so much better. 9. Properly assess the legal requirements. Oftentimes individuals/companies won’t justify the cost of a quality, “higher profile” law/CPA firm that would undoubtedly allow for a greater return in the long run by assisting with gleaning contacts, understanding the market, familiarity with product/service offering, etc. 10. Formulate a viable exit strategy with an eye on the bottom line (identifying the businesses that might be potential buyers of the company, assessing the success of a potential IPO, merger or sale, strategically formulating a “fall back” plan to allow for unforeseen turnarounds in the market that might prohibit the first choice in exit strategy, etc.).
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