So, you want to be an So, you want to be an entrepreneur?entrepreneur?

Vince KellenMarch, 2002

What is an entrepreneur?What is an entrepreneur?

Someone who is willing to endure risk, failure and catastrophe to see a

vision realized in the marketplace

What an entrepreneur isn’tWhat an entrepreneur isn’t

Someone who seeks wealth first and the vision realized second. That’s what venture capitalists are for.

Make sure you understand this principle.

What an entrepreneur needsWhat an entrepreneur needs

Intestinal fortitude and patience The support of family and friends Knowledge of one’s self Others who can help 7X24 passion and drive. (You can’t turn it

off). This is not the same as being a workaholic.

The desire to make the world a better place Ability to attract other people to the cause

Skills neededSkills needed

Learn quickly Talk and think on your feet Adapt quickly Breadth versus depth Synthetic versus analytic skills

– Can bring different disciplines together in a new way

Money and finance skills Planning skills (in a chaotic or ill-defined

environment)

My backgroundMy background

Family-run business background– “Buck stops here”

Bought/sold other businesses Large and small company experience Bought database consultancy, sold to

USWeb (a.k.a. marchFIRST) Wireless startup CRM and marketing strategy company

The stepsThe steps

1. The vision

2. Validating the vision: customers, trusted advisors, investors

3. Funding it

4. The business plan

5. Execute, execute, execute

The visionThe vision

It takes experience and/or tremendous strategic thinking ability to develop a vision.

Often the vision is arrived at after a period of bake time.

Vision relates what customers will pay for to what can be “assembled” that is unique and defensible.

Validating the visionValidating the vision

Naïve, blind faith won’t do it (although sometimes it does).

Vet the idea on others (but don’t take comments literally). Be informed of the opposition.

Better still, sell the idea as soon as possible. Why? Because investors and friends like an idea

better after lots of customers like the idea. Seek out the smartest people you know.

Funding itFunding it

Find customers to fund it. Fund it yourself.Ask friends and family (get a

lawyer!).Seek out angel investorsFind venture capitalists

Financing roundsFinancing rounds

Early stage– Seed (or angel round)– First round

Later stage– Second round – Third round

In each subsequent round, it is more expensive for investors to buy equity

What do investors look for?What do investors look for?

Ideas that look like lots of customers will pay a lot for what you have

An idea that resonates with their thinking A solid business on an upswing (about to

get traction) that can grow to $1 billion or more

Strong partnerships (corporate or otherwise) that are sales “rainmakers”

Capable management team that can be replaced

The business planThe business plan

Most of the time is spent discussing the following:– What is the value to the customer?– How many customers are out there?– How much will they pay? – How do you know they will pay this?– How frequently will they pay?– Exactly how will they pay?– How easily can they stop paying?– What competitors can copy your idea and steal

your customers?

Nature abhors a vacuumNature abhors a vacuum

You may think you have found a hole in the market. If so, consider the following:– Is it really an opportunity or a sinkhole? Some

holes exist that will never be filled (insurance industry)

– If it is a hole, how many people are lined up on the edge of the hole, like you, with business plans in hand? It is very unlikely that you have found a true “hole”

Better, faster, cheaper based on proprietary technology is a consistent approach investors like

Ground-breaking ideasGround-breaking ideas

Investors may not see the target market with the clarity you do. They can’t. They are not entrepreneurs.

Investors are actually risk averse. They seek to take as much risk out as they possible can (this is their added value!).

Investors don’t want to change the world. Changing the world is too risky.

The business plan: other partsThe business plan: other parts

How will the product/service be marketed?

What are the distribution channels?How can the marketing and

distribution approach be scaled for quick ramp-up in sales

The management teamThe management team

How capable are the managers?Have they “been there, done that?”If not, can they be coached or

augmented with professional managers?

Can they be eased out?Can they be forced out easily?

What is the exit strategy?What is the exit strategy?

Upside exit– Go public– Get bought out– Get investment treated as a loan and get paid back at

significant premium?– How liquid is the investment?

Downside exit– Treat the investment as a loan and get it back?– Sell tangible assets and pay investors?– Sell intangible assets (brand, know-how, intellectual

assets)?– Get control over corporate management?

Entrepreneurialism inside a companyEntrepreneurialism inside a company

Is this a chimera?

Inside a large companyInside a large company

“Skilled incompetence” rulesThe ratio of internal politics versus

selling to customer is reversedDegrees of freedom are lessLevel of risk is often off the chartRatio of “I need my job” versus “I

want the idea to succeed” is reversed

Still, some benefitsStill, some benefits

Take advantage of all the differences– Define your job your way and sell that

definition internally– Don’t limit yourself to your job,

regardless of the pay– Identify value that you can grow and

deliver. Seek others who can help– Keep the “buck stops here” mentality

Other approachesOther approaches

Seek cross-boundary opportunityThink like the CEO or a majority

shareholderSeek out generative relationships

among agents, populate the world– Constantly re-interpret the ontology of

business existence. What are the nouns and verbs? How are they changing? How should we change them?