Up and Running:

You may have noticed from other posts on this blog that I’m a fan of Pamela Slim, author of Escape From Cubicle Nation.  That’s a great book for people looking to migrate from a corporate job to their own business, and Pam is touring recently, giving a great workshop on the same subject. I was a guest speaker at her event in Portland a couple of months ago.

Escape from Cubicle Nation by Pamela Slim Read more about this book…

So I may be biased, but I enjoyed her post You Aren’t Crazy, You’re Just an Entrepreneur on the American Express OPEN Forum. Borrowing from her mentor Martha Beck, Pam summarizes four stages of entrepreneurship:

1. Death and Rebirth: when you leave your day job and get started. “I don’t know what’s going on, and that’s okay.”
2. Dreaming and Scheming: you get comfortable, begin to brainstorm. “There are no rules, and that’s okay.”
3. The Hero’s Saga:  whittling ideas down to the one that’s viable. “This is much worse than I expected, and that’s okay.”
4. The Promised Land: you get through the growing pains and stabilize. “Everything is changing, and that’s okay.

Pam finishes that with this link to “an in-depth, multimedia overview of the change cycle that entrepreneurs go through.”

I think it’s important to recognize how different one startup is from all others. I’ve posted here on this blog about how different startups can be. So I liked reading how they break entrepreneurs into eight different types in The Cheap Revolution post “Entrepreneurial types: quick descriptions and poll.”

I couldn’t find my exact type–escaping boredom and needing the money–in the list, but I suspect that’s a mix of passion maven, expert idea generator and freedom builder.

1. Get Big Fast (Tagline: Scale)
Commentary: I’ve encountered a number of student entrepreneurs who fit this category. Their unbridled enthusiasm and optimism are a double-edged sword.

2. Freedom Builder/Industrialist (Tagline: Creating Value in Emerging Markets)
Commentary: Often approaching a new venture with a been-there, done-that attitude about business, this entrepreneur brings business acumen but sometimes encounters a culture clash as he or she moves from more traditional business settings to the fast-paced technology world.

3. Passion Mavens (Tagline: Change the World)
Commentary: These are usually loving, caring people who are filled with optimism. Oftentimes they need to fill big business gaps like defining a clear value proposition, a go-to-market strategy or a business model.

4. Spice of Lifers (Tagline: Play for Synergy)
Commentary: This entrepreneur seeks a second-career and is often willing to invest evenings and weekends to research, detail and pursue the dream. Often bound by existing time constraints, they usually realize the need for, and seek out, a team that can help them reach their goal.

5. Solopreneur (Tagline: Independence)
Commentary: Independence and balance form the cornerstone of the solopreneurs. They enjoy working with teams, but will keep their distance as a “virtual team member.” They often need help with infrastructure.

6. Expert Idea Generator (Tagline: Immortality through Ideas)
Commentary: The true inventors of the world are driven to create: create to improve, improve to help, help to be remembered. Aspiring to be the next Dean Kamen (Segway) or Thomas Edison, they can work with relentless energy. Oftentimes communication skills present opportunities for optimizing.

7. Freedom Builder/Technologist (Tagline: Believable Growth)
Commentary: These entrepreneurs have typically grown in the cocoon of a corporation until they realize that they have wings. Many times they will seek business degrees just before or immediately upon leaving the corporate world to round out their technical experience.

8. Serious Competitor (Tagline: Play to Win)
Commentary: This group represents the entrepreneur most adored by venture capitalists. They are typically very conceptual, fast on their feet and go way deep on the markets they are pursuing. They see and ride waves and–as near as I can tell–they all have a formula for “businesses that work” (but not always the same one).

Check out the list. Where do you fit in?  You can click here to take the Team and a Dream poll. Or here for more background about the types, with questions.

Do you know that many successful entrepreneurs are not risk-takers? I was taken aback by that in “7 Uncommon Traits of Successful Entrepreneurs” by John Jantsch on his Duct Tape Marketing blog. However, as I reflect on the 20-some years my wife and I built Palo Alto Software, I think he’s right. Here’s what he says, as the second item on his excellent seven-point list:

Risk Averse–This one throws people, but successful entrepreneurs are not any more wired to take risks than most, but they are wired to spot opportunities and possess the confidence that something, perhaps not what was originally envisioned, can be made of the opportunity. They are often better at letting something that’s clearly a bad idea go, limiting the ultimate risk.

I wouldn’t have thought of it this way, but you know, John has it right on that one.

And I liked this one a lot, too:

Planners–This goes hand-in-hand with risk. Successful entrepreneurs enjoy the planning process, not necessarily completing a plan, but this is what makes them averse to taking foolish risks. They often so value the plan for their life that they always hold a glimmer of the vision of the business that can serve that plan.

This is an excellent list. John does it again.

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I’m an entrepreneur, I love a podium and a microphone, but I hate cocktail parties. When I was at business school and they talked about networking, I shuddered. I wanted to go home to my wife and kids. If it takes networking to be successful, I decided, then I’d just be less successful.

Things got better. I discovered deep network, as in working with people you like, having common interests.

But I still hate cocktail parties. And standing and making small talk with people I don’t know.

So as you might imagine, this title caught my eye immediately: Toolkit–Networking for the Shy Entrepreneur. It was on The New York Times site, a piece by Paul Brown, who does a series of “toolkits” for small business.

It seems like good advice, overall. Don’t try to sell anything; just make friends. Keep your business objective in mind. And then these three tips for the cocktail party or its equivalent (he’s quoting John Berard, who runs Credible Context):

1. Break the ice by talking about what is going on around you. “Every event offers something–a display, a presentation or cause–that can be a stress-free way to make a connection.”
2. Force yourself. “Networking in person requires proximity, which can be uncomfortable to the shy person. Getting in a line–to the bar, the buffet or the book signing–is a natural way to overcome that hurdle. The wine at the bar, the food at the buffet and the author’s high school picture on the book jacket are all ways to take advantage of what’s going on.”
3. Prepare questions to ask people you are sure to encounter at the event. It doesn’t really matter what you ask, as long as it is somehow relevant. Just the act of asking will start a conversation.

I find that very useful. And as a sometimes introvert, I liked this ending, quoting John May of Business Pundit:

“Introverts are intuitive and analytical. Use that skill.” After you have been networking for a while, ask, “What is working? What isn’t? Where do you get the most bang for your buck?”

The Cocktail Party
Flickr cc photo by dcafe

Ah yes, research. You want the truth? Study the research–or so we all seem to think. But then the first thing you do, with any research, is look at how the data were compiled. And take it all with a grain of salt.

I saw a good example yesterday, in this post by Steve King of Small Business Labs. He’s looking at a really interesting new report called “The Anatomy of an Entrepreneur,” which was just published by the Kauffman Foundation. Here’s his summary:

• Company founders tend to be middle-aged and well-educated and 95 percent of their survey respondents had completed college and 47 percent held advanced degrees.
• Building wealth (75 percent), capitalizing on a business idea (64 percent) and owning a business (64 percent) were the top reasons given for starting a business.
• Most had significant industry experience prior to starting their business. Also, 70 percent were married and 60 percent had at least one child when they started their business. The average respondents were middle-aged when they started their business.

Cool. I like this. Oh, and by the way, it turns out that most entrepreneurs are second children. And I’m a second child, and I had significant business experience, I was married and had four kids, I have a grad degree, and I fit the mold pretty well.

But no, wait. Steve discovers a major caveat:

It is important to note that 77 percent survey respondents are founders of high-tech companies. And although there isn’t much company data, it is likely most of the respondents started high-growth employer businesses with significant invested capital. Because of this, the survey results do not apply to the founders of typical small businesses.

Damn! Just when I was thinking I could win some arguments, and maybe even pinpoint who’s an entrepreneur and who isn’t. Instead, it turns out that, like just about every other survey, this one gives us just one particular view of one particular group of people who decided to answer the questionnaire.

Back to the drawing board. Interesting, but there you go again. Research is interesting, nice to know, but not solid enough to draw any conclusions from.

And probably better than just a wild guess. That is, if you have enough sense to take it all with healthy skepticism.

Very interesting piece on BusinessWeek.com today, “Is Entrepreneurship Declining.” John Tozzi gets two contrary points of view from two people I’m proud to know and admire: Scott Shane and Steve King. John picks up the right links:

Scott says yes and

Steve says no.

Both pieces are well-written and well-researched. William Blake said, in The Marriage of Heaven and Hell, “anything possible to be believed is an image of truth.” I’ve always liked that quote.

Tozzie concludes:

I can’t argue with the entrepreneurship numbers. But as one of Scott’s commenters points out, you get different trend lines depending on where you start counting. I think there could be an inflection point around the beginning of this decade that reflects growth of new types of ventures. Curious to hear more thoughts on this in comments or on Twitter.

What do you think?

One of the biggest business steps you’ll ever take is adding the second person to your one-person business. Especially if that second person is a partner, co-founder or investor, the difference can be like night and day.

After that, it’s never fully your business again.

This is a lot like the little girl with the curl on her forehead (when she was good, she was very, very good, and when she was bad, she was horrid–an old English rhyme). When they work out well, teams make businesses. But opening up to that next person also means you’ll never make another decision by yourself. You’re part of the team. You’re a player.

In most cases it’s a difficult decision, but one based on fairly obvious questions: Do you want to grow the business? Are you willing to take the risk? How will you feel if you try and fail? Can you share the work, the decisions and the company?

There are rare cases of great one-person businesses. It happens. But usually growth takes people working in teams.

There’s paradox here: On one hand, you want to partner up with people different from you, whose skills fill your gaps and make the company broader. You want different skills and different backgrounds. On the other hand, it’s generally easier to get along with people similar to you. You’ll talk about “fit,” and think about things like working habits, style and compatibility.

Don’t think majority ownership eliminates potential problems, so that you stay in charge. It doesn’t. Minority owners have rights.

And don’t think making people employees instead of partners eliminates potential problems. You’ve started a community, and even though you’re signing all the checks, you’re not alone: You’re the leader of a community. Things have changed. If you don’t care about the other people, there’s no team. And once you care, you’re no longer making decisions alone.

I’m not saying that the one-person business is better. I am saying that the step of going from one to two is crucial.

If so, prove it. Get recognition for it. Publicity is good, right? Give it a try.

Go to visit Forbes.com’s America’s Most Promising Entrepreneurs. Take the survey. You may end up on the Forbes.com list, coming later, to be developed using the survey that you just took.

A survey which, by the way, was developed especially for this Forbes.com use by the Venture Alliance, whose CEO Jim Casparie has an excellent article on the same site about getting angel investment. Jim’s post there fits rather neatly with my post here on Up and Running, earlier this week, about questions to ask yourself before you start looking for angel investment.

A Twitter friend (Matt Riopelle) asked me to help his friend (call him Ralph) find investors for his business.

Offhand, even without knowing either of them, I’m sympathetic. After all, if you keep up with this blog, you’ll know it’s a topic I care about. And I’ve posted here about my recent experience as an angel investor (and if you’re wondering, no, I’m all tapped out at the moment), so I’m not surprised by the question.

I looked at Ralph’s website. It’s an interesting business, local to me, with new technology for an otherwise traditional and low technology business. New materials, a new take on old products. And they’re making a product I use.

So I’m interested in the problem.

(And if you wonder why I’m not being more specific, I don’t have anybody’s permission to mention the business, and seeking investment can be sensitive. Besides which, it’s also possibly illegal (depending on interpretations) to mention a business that’s looking for investment on a blog like this; could be taken as soliciting investment improperly. That’s why I’m not giving details.)

But first, some questions:

1. Are you really sure you want to go that way?

Sometimes I think we all (we entrepreneurs, that is) move too quickly to the investment alternative. Having investors is like having a spouse. No, it’s like having a spouse who is also a boss. Your business is not going to be yours ever again.

Oh? What? You want minority investors who give you a lot of money without attaching any strings? Fat chance. You mean you want somebody who has a lot of money (they have to have a lot of money, to make the transaction legal) and is also relatively naive? And really generous? Good luck with that.

Take a good look at your prospects. Do a business plan, not for outsiders, not formal and hard to do, just a business plan with realistic forecasts for sales and expenses. Then ask yourself whether you can get by without the investment. Can you borrow enough to make it work? Can you live with the burden of debt? Have you considered SBA-backed loans (they are moving again), which lessen the debt burden?

Don’t go down the investment path just because everybody says you should. Think about the rewards of making it work without the outside investors, so you own it all yourself. Food for thought: this post on Planning Startups Stories.

2. Do you have a business plan?

The good news is that you don’t have to have a plan you can show to investors tomorrow. You do, however, need to have a plan for yourself, covering strategy, markets, sales, profits, cash flow, all the key points. These factors are all related to each other and you can’t just wing it. You need to have real numbers.

And it’s not about showing the investors your plan. That may or may not come later. It’s about knowing what you need, and why, and what that’s going to produce.

3. Do you need enough money to interest investors?

Angel investors don’t usually want to deal with less than $100,000, and venture capitalists don’t want to deal with less than a couple of million dollars. Sure, there are exceptions, but those are general rules.

And you can’t just say you want it; you have to be able to show you can use that money to grow the business. You have to have a real plan, what you’re going to spend the money on, how it will increase your business.

If all you need is tens of thousands of dollars, then bootstrap. Maybe you have to get friends and family involved, but really, for less than six figures, it’s not worth it to professional investors.

4. Can you grow your business a lot, in a few years?

Investors who put money into small businesses are taking big risks and they deserve big returns. They don’t have to invest in entrepreneurs, they can lose their money just as easily in the stock market, and they can get safe interest with no risk. So you have to give them the hope of a big payoff.

That means big growth. Can you convince them your business can sell five times what it’s now selling in two years? Or ten or 20 times in five years? That’s what they need to make money worth the risk.

5. Do you have a convincing team?

Investors are going to want track records, people on your team who can run the production, marketing, sales, and administration of your business. They want people who have done that kind of thing before, sucessfully. If you don’t have them on your team, then the investors won’t be interested.

If you can answer yes to all of those questions, then you’ll likely be able to get investment (although not from me, but I can point you in the right direction).

Steve King of Small Business Labs has a nice post Wednesday on necessity entrepreneurs. Citing UC Santa Cruz professor Robert Fairlie, Steve says:

Fairlie is the lead author behind the  Kauffman Index of Entrepreneurial Activity and a leading entrepreneurship researcher. His work shows that self-employment increases during times of economic stress and flattens out during good economic times. This is due to necessity entrepreneurs returning to traditional employment.

So no big surprise here. People are starting businesses because they have no other choice. Several million people have lost jobs in the current recession, and unemployment is higher than it’s been in decades (where I live, in Eugene, Ore., our local paper said yesterday we’re over 14 percent.) So not only are people getting laid off, but there are a lot of people already out looking.

Sure, all of that sounds pretty bad, but Steve offers some good news, too, in his post:

The good news for necessity entrepreneurs is that the cost of starting a small business, and especially a small business based at home, is lower than ever before. Technology has become inexpensive and, in many cases, even free.

And while most necessity entrepreneurs will return to traditional jobs, our research indicates that a growing number of displaced workers find they prefer self-employment. The reasons given by these people for preferring self-employment are the same as other small business owners. They prefer working for themselves, job and work flexibility, passion for their business and work/life balance reasons.

I also think it’s good to acknowledge that a lot of startups are spurred by more than ideas, passion and entrepreneurial spirit. At some point you also ask do you have a choice? And, if you don’t, you deal with it.

Or, maybe, even enjoy it.

Words have meanings. Communication has the message, the message sent and the message received. We’re stuck with that. We don’t get to redefine words easily, for convenience. We need to respect the meaning in the other person’s head.

What am I talking about, you ask? (I know–it isn’t obvious.) I’m talking about . . .

• I worked with someone who said “public relations” when he meant what the rest of the world calls customer service. That made business discussions hard, sometimes, because we didn’t share the same definition for that phrase.
• Many people use the accounting term “goodwill” as if it were the ordinary, non-jargon English phrase “good will.” Goodwill in finance and accounting is the difference between the book value of a business and the amount paid by a business to buy that business.
• Many people have trouble distinguishing “assets” as an exact concept in accounting and finance from the general idea of assets as things that are good to have. So, for example, when they pay programmers to develop a website they want to think of that website as an asset. In general terms, it is; but in accounting terms, it isn’t. Website programming was an expense, and it doesn’t generate an asset on the books. That can be very confusing.
• And then there’s the whole problem of “value” and what things are worth. For accounting and finance, an asset is worth purchase price less depreciation. It isn’t worth what you’d sell it for or what you think people would pay for it. It isn’t even worth what it would cost to replace it. It’s worth what you paid for it, less depreciation. Period.

That bothers some people. Particularly in the business plan setting where they’re writing a plan to present the business to others, like a plan for investors, or to back a bank loan. They want to show the value of their website or the software, which has no value in the books (because development is an expense, not a purchase of assets). They want to show that the land and buildings are worth way more than what they paid for them.

In that case, what you need is patience. The extra value comes through to the books when you sell that land and those buildings, when you sell the software you developed, when you sell the website or, better yet, make sales of other stuff because the website is good. There’s a lot of value that goes into the text of the plan, but not the formal numbers, because it hasn’t been realized yet.

This problem of definitions drives some people crazy, and it makes me very uncomfortable. It’s not just trying to make trouble on my part. I seem old-fashioned and inflexible when I fall back on the more established, standard definitions of the words and phrases some people want to give their own special meaning to.

I found out later she really didn’t want to do it. Clover Earl (second from left in the picture below) so much didn’t want to that she actually went back to the registration and took her business card out of the basket. She smiled and said “No, not ready.” But there was a chance to win software instead of three minutes with the microphone, so she put it back in.

And, you guessed it, she won the microphone time instead. The elevator speech she didn’t want to give.

Which was one of the best elevator speeches I’ve seen. And I’ve seen a lot of them.

“I am so nervous,” she started, with a booming theatrical voice laced with excitement. And in that first two seconds, she had everybody in the room–a room full of entrepreneurs, investors, accountants, attorneys and students–on her side.

Then she told the story: how she and her boyfriend Tom Zell, now her husband, made her a cup of European-style drinking chocolate and she said

This is the best thing I have ever tasted–other people need to have this experience–we should start a company.

I consider myself a veteran of the elevator pitch, the quick speech. I’ve done a four-part series on my Planning Startups Stories blog about how to do it. And Clover Earl, without practice, without notes, without reading up on the whole thing, did it about as well as it could be done. She told the story of Sipping Dreams.

Which proves that when you get right down to it, this elevator pitch is about telling your story. Be authentic. Be yourself. And tell your story. There is nothing more important than that.

So they started a company. Along the way they also got married and brought Tom’s two children into it (so that family picture above is also the company picture), plus capital from Clover’s father. They mixed the chocolate up and packaged it and took it to the local stores in their cars. And built sales. As Clover tells it, they started last fall, showed the product at some local trade shows, did a Valentine’s Day flier, gave samples away, got local stores to carry it . . . now they’re nominated for an Oregon State University family business award, looking to organize channels and marketing strategy, and worried about running out of capital.

And Clover’s three minutes ended up as one of the highlights of last week’s Smart-ups meeting. And that software she wanted more than the microphone was Business Plan Pro, so we ended up meeting her afterward and giving her that, too.

So now, in Clover’s own words:

Waiting with bated breath to see what happens next!

I definitely believe the bated breath. She did the entire elevator speech with bated breath. And it worked extremely well.