In a market characterized by daily reports of e-businesses closing their doors and the NASDAQ continuing its tailspin, who would want to start a company now? You should, according to
In a market characterized by daily reports of e-businesses closing their doors and the NASDAQ continuing its tailspin, who would want to start a company now?
You should, according toRuthann Quindlen, a venture capitalist whose credentials include helping software giants such as Microsoft and AOL go public. Quindlen was one of several speakers at the fourth annual Wharton Entrepreneurship Conference held earlier this month in Philadelphia. Discussing such topics as growth strategies, high-tech startups, the dot.com bust and intrapreneurship, participants tried to tease out the secrets of starting a company with staying power in the new millennium’s roller-coaster market.
Quindlen – whose other credentials include general partner of IVP, author of Confessions of a Venture Capitalist, and co-founder of Ironweed Capital, a new early-stage fund for first-time entrepreneurs – elaborated further on her belief that entrepreneurs should shut their eyes to stock market trends and focus instead on their own vision. She noted that Wall Street goes through cycles of greed and fear – first embracing companies, then rejecting them – and asserted that these cycles breed investing fads and hype. “The virus has infected the venture capitalists too, who keep trying to hit those fads,” said Quindlen.
And because the fads are now so short – “E-tailing lasted 12-18 months, B2B exchanges lasted six to nine months and optical networking three months” – and companies go public in only a year or two, the VCs tend to miss their targets. But the worst casualty is the entrepreneurs, claims Quindlen, because they too have caught the “fad virus” and scramble to start businesses that the VCs will invest in. “The result is that we all created a bunch of nothing, and it’s now being reflected on Wall Street.” Quindlen also dismissed a current view prevalent among students that “entrepreneurialism is ‘so last year.’ When everyone is saying that,” she noted,” “that’s the best time for you to go out and create a great company.”
So, trends aside, “how do you create the next Sun, Oracle, Cisco, AOL – companies of long-term value to their customers, companies that changed the world?” Quindlen asked. Highlights of her advice included:
- It takes time: Microsoft existed nine years, and had $140 million in revenues, before going public.
- Less is more: Forget the power tie and the expensive marketing presentation. Focus on your idea, why customers will love it, and why you – and only you – will make it happen.
- Find markets the size of Texas: When only about 10% of Americans were online at all, and AOL had a quarter of that market, its CEO Steve Case might have considered that 10% his potential market. But he focused on a much greater target: the 90% of Americans who were not yet online.
- Find partners you can trust: “People are to a business what location is to a restaurant.”
- Ask yourself if your product is a “vitamin” product – something people might like to have – or an “aspirin” product that they must have because it fulfills a real need. (Echoes of this point could be heard at a panel on high-tech entrepreneurship: Bruce Taillon, group leader, engineering and technology, at CuraGen, a biotechnology firm, commented: “If a startup biotech solves a need – eliminates some bottleneck in a process – the company will be successful.” Added Clete Gardenhour, director of marketing at GlobeSpan: “The semiconductor business is cutthroat. We try to make it so the customer has no choice but to use our product.”)
- Take the “elevator” and “Hollywood” tests: Can you describe your company’s value proposition in a few words – say, in an elevator before the doors open? And don’t tell a VC that you don’t have any competitors; it’s unrealistic.
- Evaluate your business model: Don’t sell a dollar for 95 cents. Also, make sure your customers have more money than you do.
On the less-is-more point, Quindlen regaled the audience with a rags-to-riches story about Excite, which she had helped to fund. Now one of the most successful businesses on the Net, the company began with six Stanford graduates living together in a house in Cupertino. Said Quindlen: “They’d bootstrapped the effort out of their own pockets, and were now reduced to living on beans and rice. They didn’t even have the money to buy a hard disk with enough memory to test their product. But these guys were smart, energetic and driven.”
Startups from scratch are one way to build a business, but why go it alone? Why not try intrapreneurship and begin with a $60-billion-dollar company standing behind you with all its attendant legal and marketing support? Of course, it would have to be the right company and the right idea. Tom Gros explained how he created a revolutionary telecommunications business within Enron, one of the world’s leading electricity, natural gas, and (because of Gros and colleagues) communications companies.
At Enron, a company that Fortune has named “America’s Most Innovative Company” for five consecutive years, Gros is a vice president currently leading Commodity Logic, Enron’s post-transaction e-commerce solutions group. He told the audience how he got his intrapreneurial idea for creating the bandwidth market. “In 1998 Enron opened its New York City office, and that’s where I saw my first telecommunications contract because I had to sign for what I thought was a ridiculous amount of money for a T-1 connection. Frankly, that ticked me off. And it also ticked me off because I noticed that every evening there was a stack of FedExes going from creative teams in our building, such as publishers, to offices on the West coast. I realized that I had all this excess bandwidth we weren’t using at night for which I was paying an awful lot, and these folks were sending hard copy when it would have been much more profitable to send soft. And from that came the notion of a trade.”
Gros credits the success of his enterprise partly to the corporate culture at Enron. Enron was near bankruptcy in the mid ‘80s, he explained, and to avoid bankruptcy, a small team tried to bail it out by importing Wall Street risk management strategies. Enron, says Gros, essentially built a “trading floor culture,” which emphasizes qualities like:
- being willing to pay for a revolutionary idea that has no value now but may have in the future
- knowing when to quickly shut down a bad trade
- believing in the inherent wisdom of markets, and understanding how to act in them to create value
- having a sense of urgency and of the need to move fast. (“There’s no more urgent place on earth than a trading floor,” said Gros.)
Gros also spoke of the importance of what he called “controlled anarchy” to the creative process of an entrepreneurial or intrapreneurial startup. “We had no formal marketing study or revenue model (both would have been negative) and no formal budget. The senior management supported us but didn’t get in the way. Anarchy is an important creative force. Create borders around it and let it thrive. That’s how you create a revolution.” GlobeSpan’s Gardenhour agreed, taking pride in the fact that his company has no organizational chart. “GlobeSpan is an entrepreneurial company,” he said. “Structures gag progress and decisions.”
Being first to market was another competitive advantage that Gros and others cited as extremely important. Being the first mover helps a startup attract talent, said Gros, because it’s seen as the company trying to change the world. Jay Chaudhry, whose company Air2Web develops wireless Internet services, noted that “50% of your success happens before you start your company. If you can grab first mover advantage by finding the right solution at the right time, that gives you a great chance for success.”
First mover advantage, creative anarchy, the right business plan, a product people can’t do without – many factors were put forth as keys to successful entrepreneurship. And what about entrepreneurs themselves: Does it take certain personal qualities to make it work?
Maura Fox, a principal at Booz-Allen & Hamilton, asserted that entrepreneurship is a skill that can be learned and honed. Ruthann Quindlen had a somewhat different take. A true entrepreneur, she said, “has a ‘reality distortion field’ that sucks everyone in – employees, customers, and us as VCs. Those people create great companies. They’re the ones we back.”