17 Apr Living in the “Unreal World:” A Survival Guide for Entrepreneurs
The view from the tower
Spring of ’99 was a great time to start companies, and some wonderful businesses came out of the WAVE Program (Weinert Applied Ventures in Entrepreneurship) at the University of Wisconsin-Madison, including Marsha McVickers’ Errand Solutions and Neil Peters-Michaud’s Cascade Asset Management. As an MBA student, I was enrolled in the WAVE Program.
Our coursework included consulting projects for small technology-based businesses. Student groups would talk to management, evaluate the market, rate the technology, and attempt to assess valuation. Sometimes the work we did was helpful; sometimes it was just a student project. We were students, we were consultants, and we were fairly confident we were ready to start and run our own tech companies.
At the center of the whirlwind
Tech entrepreneurs are shaking their heads knowing just how unprepared we were. That is, they would be shaking their heads except they’re too busy to be reading this column in the first place.
The first lesson of tech entrepreneurship is (misquoted, with apologies): “Time isn’t everything, it’s the only thing.”
Starting any small business demands the entrepreneur manage cash, product, customers, administration, human resources, and the predictably unpredictable. It all requires time: setting up accounting, interacting with the Department of Workforce Development, reminding customers to pay their bills, even managing office politics.
A technology-based business operates on a completely different level. Add in the intellectual property portfolio, internal and external R&D projects, endless financing issues, and monitoring the bleeding edge of new research going on at countless institutions and competitors. This is the reason that investors look for competent teams to run tech companies, even at the seed stage.
It was inevitable that even well trained student of the WAVE program would struggle. One company found itself monitoring rapidly changing environmental regulations; another signed a marquee client only to learn the client couldn’t be served profitably. Then the financial markets tightened.
In many cases, human resource issues turned out to be the most treacherous. Approximately 80% of the early stage tech companies I have experience with have significant employment issues, ranging from problems with administrative staff all the way up to executive management.
A common problem is disparate motivation. An entrepreneur promotes her business with unwavering conviction, but not all employees will share that vision and drive. Many employees prefer, or need, short-term security and benefits over long-term upside. Emotionally, they want to know their job is clear, consistent, and generates a paycheck every two weeks.
In some cases, founding scientists have taken on managerial roles. Rock Mackie and Paul Reckwerdt of Tomotherapy are terrific successful examples, but my experience suggests these are the exceptions, not the rule. Micro-managing thought leaders, without the experience and instinct for navigating business operations and finance, can project a silent, unintentional warning signal to employees, partners, and downstream financiers.
Making the transition
There is no shortcut from the classroom or the consultants’ chair into effective tech start-up business management. Only tech entrepreneurs from the trenches can provide the combination of wisdom and data fledgling entrepreneurs need. Mentoring is hard to find in this neck of the woods, but I’ll discuss that in a later column.
With that caveat, I’ll offer some suggestions to consider if you’re trying to make this transition. I keep these issues in mind when I work with start-up tech companies. This list is obviously not comprehensive. My strongest recommendation is to find a tech entrepreneur who can share his or her own experience.
1) Don’t assume the team that works together now will work well forever. Be optimistic, but have a conversation about what options people will have if, for whatever reason, the team needs to be broken up.
2) For most tech companies, documentation is a real bugaboo. By the time you realize that you need a system to track, store, and retrieve documents, the company may already be bogged down just trying to keep up with day-to-day administration. Consider assigning a specific person to oversee the tracking and storing of documents, with some kind of index or locator updated on a regular basis. Yes, this requires upfront investment, but it pays off quickly as the company grows.
3) One of the most consistent problems I see with tech start-ups is setting expectations. Whether financial projections, milestones, or even just project deadlines, countless companies set expectations too high and then just post hoc restate them. If you want to push your sales and research teams, give them “stretch” goals, but check in with reality for the operational and sales plan that you show to outsiders. My own experience suggests that the only way to confirm that numbers are realistic is to show them to outsiders you trust, with “DRAFT” written all over them. Then prepare yourself for criticism. If you do miss a target, don’t just restate your plans. Keep a running track of your successes and failures; it should help you in setting new goals.
4) Check and double-check the references of the people you bring in. There’s no doubt that start-ups, especially in the tech sector, suffer from the problem of choosing between working with “imperfect” but available resources, and waiting indefinitely for perfect but as-yet unidentified resources. Don’t operate off a single recommendation for someone – take time to check around the “neighborhood.” And consider options for “no-fault” separations – if you learn something new 30 days in, it would be best to have an out. [See item #1]
5) Maintain focus. Most start-up companies have multiple product options and multiple target market opportunities. Go after whatever opportunities you want but go after them deliberately.
No single set of rules could possibly guide a tech entrepreneur to success. At the same time, the accumulated wealth of information from successful and unsuccessful ventures offers the opportunity for new entrepreneurs to make new mistakes, instead of repeating old ones.
Adam J. Bock is the research manager for Early Stage Research, an angel network, and a regular contributor to the Wisconsin Technology Network.