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Entrepreneur Essentials

Despite the conversion of hundreds of dot.coms to dot.bombs over the past year, Americans continue to view entrepreneurship as a career path with potential.

According to the National Commission on Entrepreneurship, 52 percent of those surveyed in 2000 perceived good opportunities to start new businesses, down only slightly from 57 percent who felt this way in 1999.

The trend toward entrepreneurship hasn't slowed much. Since 1980, Fortune 500 Companies have lost five million jobs, while the United States as a whole has added thirty-four million jobs—most of which were generated by small businesses. The increase in start-up activity combined with the recent downturn in the economy has caused investors to be far more selective in who and what they back.

Working in the trenches of many startups, I have gathered some valuable insights about what it takes to start and sustain a new venture. Taken from more than twenty-five years experience, I believe there are ten entrepreneur essentials.

001 Radiate passion and energy.

I have never seen an entrepreneurial situation, no matter how good the business plan or product, succeed without the infusion of personal passion and commitment by the people at the top of the organization. A great leader has the capacity not only to be motivated to an extraordinary degree but to share that passion, commitment, and vision with others. Venture capitalists or anyone else funding new businesses will look for passion and energy in the founders.

Passion and energy rule Wall Street. Those who can't communicate passion have a hard time getting funding. Investors care more about commitment and passion than they do about expertise or intelligence.

To succeed, entrepreneurs must avoid complacency and focus on a sense of urgency to get the job done. One of the worst things that can happen to a small business after it hits the initial "seed" round of funding is to lose its sense of crisis and urgency. Founders often get a little funding and think it's sufficient. They don't realize that a little bit of funding is setting itself up for a larger disaster if they don't make it work. Entrepreneurs have to refuse unacceptable reality and create new reality. That requires a lot of energy and time to move forward. If founders don't have passion or the ability to communicate that passion, they should find somebody to work with who does.

002 Don't allow your organization to politicize.

In other words, insist on absolute integrity in behavior and information flows. Small organizations don't have the luxury in terms of cash flow and products to get bogged down in politicization, secondary turf fights, or policy or strategic fights. These conflicts drain the critical energy required for passion to move forward. It is incredibly easy to fall into this crippling morass of backbiting and positioning fights that characterize many, if not most, business organizations.

Every time I interview new job candidates, the first question I ask is how they view themselves on a scale of one to ten as a political infighter. If they brag about their expertise and how good they are, I take it as a red flag. That means they're wasting energy.

Managers and entrepreneurs should make it clear to new hires that they will not tolerate politicization nor unproductive time spent trying to position oneself, one's career, one's strategies, or one's preferences. Many good organizations are crippled by internal politicization.

003 Focus tightly, early, and continuously.

Entrepreneurial organizations face the biggest temptations during the second round of funding. A company receives its first million, goes through the steps, has a good business plan, and then receives an additional fifteen million. Some entrepreneurs then say, "I have the resources to do what I really want to do. I can get outside that original focused business plan and rule the world." As a result, many entrepreneurs dilute their limited resources and never achieve their preliminary objectives.

If you are focused, you should be able to explain briskly and succinctly the essence of your business core competency and how you are unique, in one sentence. If you don't have a rigorous enough focus to explain this in one sentence, you are probably not going down the right path. You can't spread limited human and financial resources over multiple objectives in most start-up companies. You have to be tightly focused and have a robust core competency.

Your focus should include gaining domain experience. You must have knowledge of the industry you are trying to dominate. Experience-measured capitalists and seed capitalists will first burrow in on whether or not you and your management team have a credible amount of domain experience in the industry you are targeting. Do you know the key decision makers? Do you know the key industry leaders? Are you on a first-name basis with them? Can you call them up and ask for help? That kind of domain experience is incredibly important. Right now the only Internet plays that are being funded are plays where the management team has heavy-duty domain market experience, not just technology experience.

Look yourself in the mirror before you go to someone with a business plan and apply the one-sentence rule. Crisply and succinctly define what your core competence is, what differentiates you, and what makes you fundable to a potential investor or to potential employees whose lives will be your moral responsibility when they come on and accept your business partnership.

004 Link up with marketplace decision makers.

You must have internally cultivated product advocates and thought leaders inside the company whose interests align with product thought leaders and market buyers outside the company. This should be done in a matrix of market orientation so you have a one-on-one relationship to move products through the organization.

Companies should have clear, unambiguous ownership of every major subgroup of internal products. Organizations need an internal ethic responsible for pushing that product forward and working with thought leaders on the outside. Often companies have an amorphous responsibility matrix, where the marketing department is responsible for four or five market areas and a vice president of sales who is responsible for four or five product areas. No one really owns or has unit leadership or responsibility for different segmented market areas. Cultivate internal advocates and line them up internally in product groups.

005 Structure decisions so one bad decision won't destroy the company.

Don't gamble on one fundamental premise. I know that sounds like a very conservative thing to do, but most successful entrepreneurs are not wild characters. Most entrepreneurs are actually extraordinarily conservative individuals who want to make things work. These entrepreneurs are not going to gamble the entire company on one rash strategic or marketing initiative.

Never have sink-or-swim moments when there is no contingency plan if the first one fails. Very little in life works out the way the business model said it would initially. You need to have resources left to react if something goes wrong. The company's entire future should never be fundamentally dependent on one decision.

006 Develop a culture that encourages creative failure.

It's important to have a little bit of risk-taking in the culture. This is the opposite of taking one big ego-ridden roll of the dice. Prudent failures on individual product initiatives should be encouraged to avoid a crippling politicization of company culture that could result in no one wanting to take initiative again. It's essential to instill courage. Everyone congratulates those who devote energy and take time to execute ideas and avoid failure.

Try not to destroy the integrity of future innovations of the company by doing anything to discourage well-formulated thinkers. It's more important to allow people the opportunity to experiment in a controlled fashion.

007 Empower employees at multiple levels.

Successful corporate leaders have ego security and self-confidence. They don't have to micromanage everyone's day-to-day lifestyle and situation, which tends to be a natural human tendency. Once given responsibility for an entity, organization, or division, people realize they will be assessed and held responsible. As a result, they overcompensate, get in everyone's faces, and keep people on too short a leash.

Experience has taught me that the best thing to do is hire extraordinarily talented people—if possible, people who are better than you are at what you are hiring them for. Find people who are so skilled that you can walk away from that responsibility on a daily basis and empower them with the sense of decision making. You must be unambiguous in your sense of strategic direction. You've got to give them a clear sense of mission, direction, limits, and resources. Once those are established, don't get in the way of good people. Make sure they feel confident enough to take good risks and move ahead.

Many good people leave organizations because they don't feel they have enough latitude to express their talents due to insecure and crippling micromanagement. Don't undercut the people you've hired. Avoid making detailed office decisions. If you hired them in the first place, it must be because you thought they were pretty good. Let them flourish, and empower them to go forward.

008 Moderate your greed.

It's important to share generously with key employees who helped build the business. Blowing up wealth selfishly on topside options or ownership sends a very crippling message to employees about their relative importance and fundamental contributions to the economy. Go as deep as you possibly can with stock options. However, make sure that those stock options, which are essential portions of motivation and corporate ownership, are intimately linked to quantifiable performance and behaviors at the beginning of every year.

Don't toss around equity—it is sacred and is the ultimate motivator. I've never had to encourage my employees to work really hard. I already know that they work hard because their interests are aligned with my interests. They've got stock options. If they succeed, we all succeed. I don't worry about manipulation, mind games, or tricks. They know they're going to make out well if we all make out well.

If you set up a rigorous culture where people know that their incentive package is established fairly at the beginning of every fiscal year, the system runs itself. With quantifiable goals, you don't have to decide whether employees made or missed the objectives. I've never had to argue with people at the end of the fiscal year about whether we met goals or whether the costs-per-year went down 5 or 10 percent. It is already set up at the beginning of the year. Employees can sit down and write out their own bonus goal check and their own option check because it is all rigorously quantitative and linked to personal performance.

In an entrepreneurial environment, you must link rewards to personal behavior. Group behavior is too amorphous. If you allow group achievements to define the primary incentive goal pool, you will not get the most out of every individual. It is best if at least 50 percent of a compensation package is linked to personal quantitative goal achievement.

This system takes an extraordinary investment of time and effort by senior entrepreneurial management. It means that you and two or three of your top-level colleagues will have to sit down with each employee and go through an exhausting interlinked, cross-related, mutually supported goal matrix that reflects the operational realities of the company. That's hard work. It is difficult to make goals relevant to the operational reality of the company. But it's work that, if done well, will generate rich rewards for you, your employees, and your investors, who are very intimately concerned with the return on your investment.

009 Consistently communicate your vision and mission.

It is astounding how many young employees will recite the general goal of the organization once or twice, adhere to it for six months, and then not reinforce it. It's essential that you work the organization on a handshake basis. Go from cubicle to cubicle, if necessary, and communicate precisely the objectives of the organization. People will not be as cognitive in that as you assume. They easily get out of focus. People need to be reminded on a personal basis clearly, briefly, and often of what your vision is for the entity in that period of time. Don't do it via email. Walk around and make sure that you personally communicate your sense of mission and objectives.

010 Be humble.

What do I mean by "be humble"? I mean have a correct and realistic assessment of your organization's skills and competencies. People, when they receive a little funding, get a wildly inflated view of their capabilities and their organization's capabilities and misassess how to spend those limited human and capital resources in the short window of time available.

It's important that you're humble not only with regard to your internal capabilities but that you're exceedingly humble and realistic about your assessment of your competitors' strengths. Humble in this sense is almost a synonym for realistic and pragmatic. Do a real-world, ego-shrunken assessment of who your competitors are, where they're strong, where they're well positioned, where you should hit them hard, and where you should not even confront them. Humility is the key to an objective assessment of your own and your competitors' strengths. More mistakes are made in entrepreneurial businesses by those who have not narrowly focused their business mission and who have refused to assess their strengths and their competitors' strengths correctly. It is easy to make such mistakes. The most important vision of an entrepreneurial manager is to humbly assess exactly where you are relative to competitive strengths.

I see on average three to four new business plans a week. Ninety percent of them have not taken the time to objectively assess the competitive market environment in which they exist. Somebody gets a bright idea, a new biotechnology pops up, and they obtain access to the patent that they want to license. In their burst of enthusiasm for the new intellectual property or the new technology, they don't take the time to make a competitive assessment with people in similar areas. This can lead to really tragic mistakes—misallocations of people's lives as well as misallocations of capital. Entrepreneurs need humility.

Entrepreneurs who survive learn from other people's mistakes, not just their own. These ten entrepreneurial essentials are time-tested and will help you avoid many of the pitfalls awaiting new ventures. These tips will help you create a strong business model built to outlive the downturn in the economy. Investors not only seek companies that promise great returns, but also those that come equipped with the essentials.

Entrepreneur Trends

In 2000, 78 percent of all venture capital invested in the United States went to companies in the information technology sector.

In 2000, the average amount of venture capital invested per company in the United States was $13.21 million.

The percentage of People investing in start-ups has increased to 7 percent from 5.5 percent in 1999.

Angel investors contribute about $54 billion per year in venture financing.

In the United States about 600,000 to 800,000 businesses are started each year.*

Global Entrepreneurship Monitor 2000 Executive Report *1999 Executive Report


by Gary L. Crocker
illustrations by James Steinburg

About the Author

Gary L. Crocker has started, funded, or managed numerous ventures including: Crocker Ventures, LLC., a firm that develops high-tech health care and medical technology;, a web site for corporate trainers and managers; ARUP Laboratories, an esoteric diagnostic blood and tissue testing company; Research Medical, Inc., a publicly traded manufacturer and marketer of cardiac catheters and devices used in open-heart surgery; and Theratech, Inc., a drug delivery firm.

Crocker's Research Medical, Inc., was recognized by Forbes magazine for six consecutive years, 1991-1996, as one of "America's Best 200 Small Growth Companies." In 1995 Crocker was named Utah's "High-Technology" Entrepreneur of the Year, and in 1999 he was named Utah's Entrepreneur of the Year.

Crocker earned his MBA and BS in economics from Harvard University. He gave this speech at the Marriott School's Entrepreneur Lecture Series 15 September 2000.

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