July 15, 2003
- Great Time to Start a
Business
by
Bill Snow
Never mind the pessimists...it's a great
time to start a business!
Let’s take a quick scan of some of the thoughts,
ideas, and observations being permeated in the media and in networking circles:
Things look bad, dark, dour, and downright awful. The economy is slow.
Unemployment is climbing. High paying IT jobs are going to India and China.
The stock market is down. IPOs are almost non-existent. The venture capital
industry is one fifth (or is it one sixth?) the size it was in 2000. VCs are not
investing. There’s too much ambiguity in the world: Al Qaida still scares me,
the Iraq situation is still going on, we now have a situation in Liberia, and to
top it off, Madonna is thinking about making another movie! By golly! It’s
never been worse! What an awful time to be an entrepreneur!
Actually, it sounds like a great time to start a business.
I admit it; I have a strong counter intuitive
streak in me. I’m often drawn to people and ideas that run contrary to what the
New York Times, MTV, and the network news tell us. This counter-intuitiveness
reared its head in early June at the MIT forum, where I watched a few VCs and
entrepreneurs discuss the state of private equity. One of the panelists
mentioned that there is no correlation between companies being started in boom
times and long-term success.
Apple and
Microsoft got their starts and rose to prominence in the late 70’s and early
80’s, hardly a go-go economic time. For every eBay, there are dozens, if not
hundreds, of failed on-line-dotcom-B2B-ASPs that were launched in the late 90’s,
widely considered to be a go-go boom time.
In other words, whether the
general economic climate is fraught with optimism or pessimism, entrepreneurs go
about their business of building businesses. I am convinced that somewhere in
the current pessimistic morass lurks another Bill Gates, Steve Jobs, or Larry
Ellison, silently going about his (or her) work in optimistically paranoid
anonymity.
Optimism vs. Pessimism
Yes, I said,
“optimistically paranoid anonymity.” Another MIT panelist essentially noted
that entrepreneurs and VCs are two sides of the same coin: they are both
optimists. Entrepreneurs tend to be paranoid optimists (“This is the greatest
thing in the world, it’ll make me a billionaire…will you sign this NDA?”), while
VCs tend to be skeptical optimists (“I hope this new deal is all that the
entrepreneur claims…but I doubt it.”)
This paranoid-skeptical continuum is
important to note, because 1) you have to avoid mixing these sundry parts and
winding up with a skeptical pessimist, and 2) both entrepreneurs and VCs are cut
from the same cloth: they are both optimists at heart. But optimism can only
get you so far. There comes a time when you have to move beyond theories and
talk about concrete steps to building a business. With this in mind, let’s look
at a few resources that should be known to every Chicago area entrepreneur.
Given my love of paradigms and accounting, I’m going to utilize the cash flow
statement to make my points.
How entrepreneurs can build businesses
using Bill’s Cash Flow Paradigm
Much like
Gus Portokalos, the father in
“My
Big Fat Greek Wedding” who bores friends and family members with his line,
“say any word, and I'll tell you how
the root of that word is Greek,”
I bore friends and family members with my line, “describe any situation, and
I’ll tell you how it relates to a cash flow statement.” Need to know why your
kids are such potty-mouthed punks, or why the dog messes in the house? I’m sure
I relate it to the cash flow statement.
For this column’s purposes,
let’s stick with entrepreneurial matters. Entrepreneurs should look at every
service provider, advice giver, hanger on, government agency, funding source,
family member, etc., and think of how each of these different parties relates to
the cash flow statement.
Investing section
I know it sounds
tantalizingly close, but the investing section does not refer to how much
someone is investing in the company. Instead, this section details how a
company is investing in itself,
that is, where is the company spending money? OK, I know I’m blurring the lines
here a little bit, because spending money on IT services, legal work,
accounting, etc., technically doesn’t show up in the investing section of the
cash flow statement, but for our purposes, let’s lump all outflows of money into
one section.
Here’s the rub: Any time
you talk to an IT sales person, a consultant, an accountant, a lawyer, and so
on, this is the section of the cash flow statement you should think about. With
the exception of the Cisco equipment reseller I invited to my last networking
event, every service provider will jump at any chance to meet people and laugh
at their lame jokes. Service providers are looking to take your money, which
means they will give you the time of day and return your phone calls.
Is this bad? Of course
not. Service providers of all stripes play an extremely important role in the
development of any company. But entrepreneurs, especially early stage
entrepreneurs, should limit the time they spend with service providers. You
can’t spend money until you have money, therefore early stage entrepreneurs
should focus on obtaining money, and that leads us to the next two sections.
Financing section
This section refers to how
money is raised, either by selling stock or issuing debt. Unfortunately, for
many entrepreneurs, this is the only section that they pay attention to. For
too many entrepreneurs, the financing section takes on a life of its own, and
becomes an end instead of a means to end. Instead of raising capital to help
build a business, many entrepreneurs only spend time chasing money. They never
actually build a business.
If you want to play VC
lottery and toss your business plan willy-nilly over every transom, here is
Yahoo’s
comprehensive listing of VC firms. I don’t recommend this path, but for
brave and foolish, there it is.
A better method of raising
capital is to focus on the resources that can help you at the right time. For
the very early stage entrepreneur (e.g., idea stage or pre-incorporation) these
resources are usually: 1) their own money, 2) friends and family. One
institution that will make “pre-seed” investments is the
Illinois Technology Enterprise Center (ITEC). The state of Illinois is in
the process of opening a number of these facilities across the state, the first
one is located in Evanston. In addition to providing funds, ITEC can help guide
early stage entrepreneurs through the labyrinth that we call capitalism.
Once a company is
established, the entrepreneur may look to angels or early stage venture funds
for the next round of financing. Some of the notables in the Chicago area
include the
Illinois Coalition,
Northern Illinois Angels,
Prairie Angels, and
Arch Development Partners.
While raising money is
important, don’t let it become your job. Much like my advice about limiting
time spent with service providers, entrepreneurs should actually limit their
time with investors. That’s right! You heard me correctly. Instead of making
raising money a full time job, entrepreneurs should make something else their
main focus. This “something else” is found on the operating section of the cash
flow statement, and in a nutshell you can call it SELLING.
Operating section
The operating section of
the cash flow statement refers to how much money the company earns (or losses)
due to the actual operations of the business. Forget about the money raised
from selling stock or issuing debt. Those are short-term solutions, and raising
money should never be confused for the main operations of a company. Can a
company fund itself strictly from its operations? This should be the A #1
lesson taught in all college classes (even English Lit classes), and this be the
A #1 goal of every entrepreneur.
To this end, the Chicago
area is fortunate to have a great resource. One of the numerous goals of the
Chicagoland Entrepreneurial Center is to help early stage companies make
connections (and sales) with Fortune 500 companies. For companies with
interesting technology that is ready to go to market, I would think a phone call
into the Entrepreneurial Center would be a must.
Basic decorum
Lastly, there are a couple of resources that all
Chicago area entrepreneurs should utilize. Basic decorum is often a sorely
missing piece of the early stage entrepreneur’s repertoire. Both the
Midwest Entrepreneurs’ Forum and
Arch Development Partners
run periodic meetings where entrepreneurs get the chance to present their
business plans to a live audience. The feedback, which is often delivered as a
well needed kick in the pants, is just the thing all entrepreneurs need to
hear.
20 years from now
Instead of whining about the current state of the economy and the lack of VC
interest, the next generation of Microsofts and Apples are out there selling.
They are solving problems and focusing more on their operating cash flow and
less on their financing cash flow. In 20 years, it will be interesting to look
back on the ambiguity and vagaries of these recent years, and marvel that such
successful companies were born from such “troubled” times. I’ll bet a number of
these companies will be here in Chicago. In fact, I’ll guarantee it.
Has your company been profiled by Bill Snow? Send
an email to introduce your company:
bill@billsnow.com
About the author
Bill Snow runs this site. If you haven't figured that out yet, I can't
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