Quick Test: Should I Form a Startup?

“You can do it!” – line made famous by Rob Schneider in “The Waterboy.”

Being a big fan of the entrepreneurial space, I love to encourage people to get involved in new ventures. Forming something new or making what is there bigger and better can have a profound change on the world, and being a part of that is both exciting and daunting. I talk to owners every day and for those just starting out with an idea, I have a little test that I use to see if they should be encouraged or just continue to dream. Keep in mind a true entrepreneur knows the difference between an idea and an opportunity – thank you, Jeff Timmons – and you have to determine early on which of the two describes your journey.

So here is the quick, five-step test:

  1. Do you have a viable, unique idea? A baseball mitt for ambidextrous players may be unique, but viability may be a question. You should also be able to create a logical one page summary of your idea. It is amazing what happens when you have to put something down in writing. If you doubt this, try this little exercise – write down what you would like written on your tombstone.
  2. Do you have some money? Regardless of what you want to do, it will cost money. You may be able to minimize the cost, but you need to have some available money to get started. When I went into my own consulting business, I knew the most frugal way to incorporate, register, get a website and business cards, etc. but it still took a few bucks.
  3. Would you like to do this for the rest of your life? Next to sleeping, we spend most of our time working. If this is going to be your “job,” do you really like it? And please make sure you are not running from something, like a job you hate, but to a life you will enjoy more.
  4. Can you take the heat? Being the boss is the good news and bad news. Every new hire is another family you are responsible for so you have to be ready for that role. The road is full of stories about the team and sharing responsibility, but in the end, the buck will stop at your door and some people are not built that way.
  5. Can you make money doing it? Having your own business is great, but you need profits to pay salaries and make it worthwhile. This can involve difficult decisions on resource allocations. Be ready for that eventuality.

So there it is. If you have answered yes to these questions – and I think they all have to be yes answers – then you are ready to seriously commit to forming your new venture. Harness your passion and enthusiasm and get started. Just keep in mind that “you can do it.”

Madagascar – Where Being an Entrepreneur is a Way of Life

“Necessity is the mother of invention.” – old English proverb

My wife and I recently visited Madagascar. It is a beautiful country with unbelievable landscapes, great people and of course lemurs. As I am prone to do, I saw this world through my own “colored” glasses and personally believe there are more entrepreneurs there than anyplace I have ever been. Now before you think I may have stayed in the sun too long or had too many THB’s (Three Horses Beers), please bear with me.

I am not sure about the official unemployment rate, but we spoke to dozens of people from all walks of life while we were there. Except for one, all were what we would call in the US, independent contractors. They were paid when they worked (office and factory workers, those in tourism, etc.) and not paid when they didn’t. So to survive, almost everyone has their own “business” – from performing some type of service to raising crops to clothing boutiques. Every town we visited had a plethora (thank you Three Amigos) of vendors selling everything from food to clothing to kindling wood. So I contrast this with what I see here every day and realize there are two big differences.

First, Madagascar is very poor so there are no “friends and family” to help support you as you go off to develop some new product or service. They need their venture just to survive; to pay the rent or barter to get food for their family. They are the ultimate risk takers – figuring out what they need to do to make it through the day – they are not living comfortably at home (or with friends) writing code for what hopefully will be the next killer app.

Second, they are unbelievably resourceful. Now I meet smart startup founders every day and they certainly know how to deal with limited resources. In fact, when I hold sessions and ask participants to describe an entrepreneur, one of the most common responses is they know how to get the most done with the least. But there, this concept is taken to a different level. There is little money and scarce natural resources, yet we visited “businesses” that:

  • Made aluminum pots (the same my Mom used for pasta) out of 100% recycled aluminum. They used everything from old building siding to car parts. By the way – no kilns for heat; just charcoal and the molds were formed out of silica sand.
  • Created inlaid wood pieces from recycled wood. Here the key tool was a saw; the body of which was constructed from car parts and the saw blades from the steel found in recycled steel belted radial tires.
  • Produced miniature model bicycles from 100% recycled bike parts – everything from hand brake cable to old tire spokes.

So now perhaps you can see what I admired about the entrepreneurial spirit there. Necessity for them is the mother of invention – both the need to survive and the need to make the most from what is available. Perhaps this “way of life” will inspire you to work even harder to make your venture a success because as tough as you think it may be, you are probably not as burdened as the entrepreneurs of Madagascar.

Profit is Not an Ugly Word

Leo Bloom: “Heh, heh, heh, amazing. It’s absolutely amazing. But under the right circumstances, a producer could make more money with a flop than he could with a hit.” – quote from the movie The Producers by Mel Brooks.

Some of you may recall this memorable line which was the premise of this classical movie. The plan was to raise a significant amount of money, find a play that would “flop” on opening night and keep the unused funds. An ingenious ploy; save for the fact that the play was a hit, more than 100% of the equity had been sold and the main characters ended up in prison.

So, let me begin by apologizing for the somewhat dour tone of this blog. I think of this line as I see pitches that seek to raise more and more capital with an apparent disregard for the spend or “burn rate,” with entrepreneurs chalking up their expenses to the investment needed to grow. Every entrepreneur I ever met believed they could grow faster with more dry powder. But the successful ones realized that just like one’s personal finances, at some point, you must “pay the piper” (face the music, come to Jesus, yada, yada, yada).

I would have thought we learned our collective lesson from the dot com boom / bust. Back then, despite substantial losses, valuations were sky high and investors began to focus on other “metrics” which soon took the place of the old reliable P & L. Just like the Cabbage Patch Kids, one day someone decided that these companies were in fact ugly, and shortly thereafter, most were trashed and entrepreneurs were sent home to live with their parents.

I want to be clear here; if you are running any type of business, you need a clear path to profitability. I saw a recent article with an entrepreneur calling out investors for just asking when the company would turn a profit, which the author interpreted as just stifling growth. How dare they? Well I ask, how dare you build a business model without such a pathway and put your stakeholders (especially employees) at risk with the hope that someone will be smitten with your traction or stickiness and rescue you with an acquisition deal? That’s not building a viable business; that’s the equivalent of legalized gambling.

Please do not get me wrong. I am not implying that one must be profitable to attract investors. If I believed that, I would not be so respectful of angels and VCs that make the early-stage ecosystem work. Thank goodness for them. But if you think investors do not believe that a sustainable business is nirvana, you just have not asked the right questions. That path to profitability must not only be clear but in sight.

The great entrepreneurs I know are better than that. They realize that this not a Max Bialystock shell game. They need to seek profitability and realize the clearer the path to this goal, the more likely it is their journey will be successful.

Do You Have What It Takes to Be an Entrepreneur?

“The difference between involvement and commitment is like ham and eggs. The chicken is involved; the pig is committed.” – quote attributed to Martina Navratilova

There seem to be more blogs and advice pieces today preaching of the coming evolution in entrepreneurship. It appears more graduates are trading in the traditional path of a career in a larger institution where they can learn a skill set for the opportunity to uncover some unwanted need in society and building a solution that can make them rich. For those of us who remember that famous scene in “The Graduate”,  “entrepreneurship” has replaced “plastics” as the one word of advice for a college graduate. We are also seeing more experienced people trading in that one final job in Corporate America for the chance to “be their own boss.” Entrepreneurship seems to be alive and well with role models like Bill Gates, Mark Zuckerberg and Jeff Bezos leading the way. (I guess it helps they are three of the four richest people in America.)

What is it that makes some of those who choose this route more successful than others? Many have written books, blogs and articles on what makes an entrepreneur. I have posted two blogs – “Can You Be an Entrepreneur?” (March, 2014) and “What is an Entrepreneur?” (April 2014) but it took a reminder from my sister (thanks, Ro) about the quote above to focus me on what it takes to make it as an entrepreneur. So, let me expand a bit further.

First, too many people use the word entrepreneur to describe anyone who is in business. I do not mean to disparage anyone, but the carpenter who works for a construction company and decides to start a small business and do a couple of jobs on his own when he is off is not what I consider an entrepreneur. An entrepreneurial venture should involve some risk taking; something that is disruptive and that creates value. It is not an avocation but the desire to solve a pressing problem.

I had the honor of having a front row seat to a cavalcade of successful entrepreneurs. I was fortunate enough to be involved for years in the EY Entrepreneur of the Year Program in New Jersey. Each year, we would be witness to dozens of successful stories from all walks of business. We had immigrants who came to the U.S. with no money or job or even a place to live but were committed to their vision and accomplished great things. We had a receptionist who learned her boss’s business so well that she bought it from him and made it an amazing success; and a toy manufacturer who introduced a product four times and after three failures, it became one of the best-selling products of all time. But none of them did it part time; the stories of sacrifice were emotional but inspiring. At the end of every EOY Gala, you could feel the excitement in the room; a renewed sense of commitment. A few winners announced they were inspired by what they had witnessed at previous galas and went on to accomplish great things. The common theme was one – – commitment.

So, if you have the real desire to be an entrepreneur, ask yourself if you are willing to sacrifice it all for what you believe in. Because the road to success is long and hard and those who are only involved will have a hard time making it to the end of the journey.

Leadership; You Will Know It When You See It

“I always admired a subordinate who could stand up and say ‘you said it, chief.’” – quote from a long-time entrepreneurial client

We have all had experience with leaders, and I would be the first to admit that I openly copied the leadership traits of those I admired. The above quote came from a client years ago as I was asking how he instilled the “followship” that is an important part of leadership. His backhanded comment was a reminder of the fact that without some respect (admiration and even fear), the effectiveness of a leader can be somewhat diminished.

I thought about this when I recently attended a session / presentation on leadership. A panel of successful leaders responded to questions and provided some guidance on this topic to the audience. As enlightening as it was, I was somewhat taken aback by the commonality of the message on leadership. While each took their turn at eloquently explaining what they believed a leader was, none captured more than one or two elements of what I thought made a leader. It was at that point that I realized that no definition could capture the wide range of effective leaders I have known.

What I also began to realize as I reflected on my role models was that it was an event or opportunity that allowed that person to become a leader in my eyes. It was action more than executive presence that defined them for me. While I had known most of my leaders and knew what they were capable of, it was an event that brought out their best. Two situations, both related to initial public offerings (IPO) come to mind.

If you have ever been involved in an IPO process, you know it is one of the most intense processes known to man. While not quite like sending someone to the moon, it relies on very timely coordination and execution from a diverse team to come to the right point in time where everyone can “sign off” and give the go signal. At times, that window is only open a day or two at best and if you miss it, you have to revisit the process. At the time of this decision, expectations are high as are the attendant professional fees.

In two separate cases, we were at that go or no-go point and each CEO stepped up and determined the time was not right and the deal was pulled. In one case, it was an experienced professional manager who had been through the process before, but in the other case, it was a business owner with a very unsophisticated business who saw certain parties in the process being pushed to the edge of the envelope. While he was not sure what was going on (and he had the most at risk) he sensed it was not right and stopped the presses.

Crisis, personal issues, conflicts, financial distress, loss of major customer – – I have seen various owners respond to these traumatic events, but it was the true leaders who did not let the situation control them but stepped up to show they were leaders. It was obvious to all present that they saw leadership.

So, as an owner, be prepared to show you a leader. You may in fact be a good mentor and coach to your team, but when the opportunity presents itself, be prepared to step up and do the right thing. The ultimate success of your company may depend on it.

Entrepreneurial Loneliness – Learning to Share

“It’s lonely at the top of Olympus” – quote from Emperor Nero (Dom DeLuise) – “History of the World” – by Mel Brooks

Some would say that today, we live in the age of the entrepreneur. As someone who has been in this space for over 40 years, I must say I tend to agree. When we first formed entrepreneurial services at EY, it was considered by most to be just small business. There was no Bill Gates, Jeff Bezos, Mark Zuckerberg or Steve Jobs back then. Each entrepreneur we met seemed to be possessed by this passion to set out to create something that big business wouldn’t (or couldn’t) do. They were the outliers; jousting at windmills and looking to accomplish the impossible. Looking back on all the innovation, financial success (can you say unicorn?) and social good, one can only say thank goodness for those early pioneers. It has been quite a ride and the juggernaut continues.

However, I see something a bit different in many of the entrepreneurs of today. While I still believe that deep down inside they want to change the world, they start out motivated by something a bit different; the ultimate vision of being their own boss. They raise questions like, “Why be creative for others?” and, “Why put up with all the office politics, infrastructure and chains which will keep me back?” Perhaps they just can’t find a job. But they love the image of that ultimate dream – – waking up in the morning and looking in the mirror and realizing you have nobody to answer to but yourself. Ah, nirvana.

So why the concern? To me there is an important part of the message of success that does not get delivered as forcefully as the image of the entrepreneur on a stage by himself or herself explaining their success to the world. Lost is the importance of the support cast. Where would Steve Jobs had been if Steve Wozniak had not been there? While every entrepreneur loves the fact that they answer to themselves, that same scenario conjures up visions of fear and uncertainty – – most feel personally responsible for the success or failure of their company. The immediate reaction is usually to do “whatever it takes” to make sure the business is successful. Learning to build a team and share some of that responsibility and “pain” with others does not come easy.

I am surprised that with all the business coaches and organizations that offer advice and the plethora (thank you “Three Amigos”) of guidance on team building that is prevalent in business media, I still get introduced (on more occasions than I care to admit) to successful business owners who believe they are on their own and who are feeling the strains of “being alone on Olympus.” My role with them sometimes morphs into a form of pseudo psychological therapy, but mainly it is just that of an objective observer offering advice that often reinforces what the entrepreneur believes but feels they cannot share with those close to them.

So please, as you build your business, find people to share your successes and your challenges – – key employees, advisory board members, advisors or peers. Many of those in your personal network are more than willing to help and support you on your journey. As the famous saying goes, “No man (woman) is an island,” and for an entrepreneur, no truer words were ever spoken.

Do I Let My Company CFO Into My Family Office?

“Badges; we don’t need no stinkin’ badges.” – quote from “Blazing Saddles” by Mel Brooks. (Believe it or not, this is a “misquote” from a 1948 movie.)

There is no doubt that in any business a CFO can be a very valuable asset. The ability to translate the vast array of data into understandable, user-friendly and actionable information for both internal and external stakeholders is truly a highly-valued capability. In most cases, there is an unwavering trust in the CFO and having him or her in the Family Office just seems like an extension of their fiduciary responsibility. In addition, in many cases the CFO believes they have earned the right to take on this responsibility – that in fact they “don’t need no stinkin’ badge” to assume this role.

However, the position specification for a financial/operating leader in a Family Office is much broader than what is normally found for a CFO of an operating family business. When there is an operating entity, the focus is on the mechanics of that business – pricing, people, profitability and cash flow. This is a playing field where most CFOs are very comfortable and where they have gained the bulk of their life experience. But in the Family Office, the CFO has to deal at a much more personal level with individual family members. The CFO may be seen as the older generations’ “person” and may find themselves catering more to the needs of that older generation when the real needs may be those of the next generation. The CFO may have little patience for those with limited financial experience and may not be able to provide the guidance required to all family members. The requisite tasks also become much more “treasurer” based, investment performance, dividend yields, capital markets, etc., versus operating profits. This experience may not be in their “bailiwick,” and while they may be able to provide some guidance, they actually may be somewhat lost in that environment. The need to understand taxes; estate planning and wealth management may be foreign to them and simple tasks such as paying family members’ bills or providing appropriate financial education can become a bit of a challenge.

So, if you are going to consider allowing your company CFO into your Family Office, you or an advisor should assess the overall skillset, including the interpersonal capabilities and the trust and confidence that various family members have in that individual. It is not a standard “rite of passage” that you allow your Company CFO into your Family Office. I had the honor of working with several CFOs as the NY Managing Partner of Tatum and I can tell you not all would fit in with what I envision as the CFO in a Family Office. Make sure you consider the real DNA of your CFO before making this decision. In the end, if there is a match, he or she does not need a “stinkin’ badge” to be a valuable and integral part of your Family Office.