They didn’t teach this in business school
Some tongue-in-cheek considerations on founding and operatinga high-tech company
Some tongue-in-cheek considerations on founding and operating a high-tech company
Ronald D. Schaeffer
Editor’s note:This two-part article is an extension of a lecture that the author, known for his technical prowess and uniquely honed sense of humor, presented at last year’s inaugural meeting of the Northeast Chapter of the Laser Institute of America. For those considering opportunities to start a high-technology business or for those who delight in reading about the trials and tribulations of those who do start out on their own, this will be an amusing and enlightening read. ILS has chosen to run the article in two parts due to its length and the excess amount of usable information provided. - DAB
Successfully founding and operating a private, high-tech company involves many important considerations and, most importantly, the right people! Founders should realize that their lives are dedicated to the company for many years. Many aspects need to be considered such as funding, equipment, location, legal, and personnel. In these articles I will transfer some of the things I have learned over the years, both in working for other small companies and in starting and running PhotoMachining Inc.
Why start a business?
The first and most important thing to do, if an individual is considering starting their own company, is to look in the mirror objectively to see who stares back. Who are you-really? Why do you want to start a business? There are many reasons, some of which are: freedom, financial independence, inability to work for someone else, retirement plan, wealth, fame, power, etc. It is necessary to determine which of these, or perhaps others, are important to you. Ask the question: where do I want to be in 5, 10, 20 years? Once you can objectively answer this question, realize that whatever is important to you now is probably not going to be important to you in the future, so planning is more like a skeet shoot than a stationary bulls-eye-the target is always moving.
REMEMBER: If you want to be “The Man”, you gotta be the man all the time - not just when you want to be.
One other note of interest: most successful entrepreneurs (including this writer) have at some time in their lives been fired from a job - so start out on the right foot and get fired! Also, remember what the Chinese General Sun Tzu said in the 6th Century BC: “Leadership is a matter of intelligence, trustworthiness, humaneness, courage and sternness”-and realize that if you are the Man, you have to be the Man all the time and not just when you want to be-it is a 24/7 job.
Leadership and planning
Here are some fundamental observations that seem to be truths of leadership. First, more mistakes are made or opportunities missed by inaction rather than by action. Decision making takes courage and confidence and, even when initial decisions are wrong, the good leader must be able to adapt and overcome. Some things that should be avoided in the leader are micromanaging, being vague about expectations, and acting one way while expecting others to act another. The biggest no-no is ‘messing where you eat’; nepotism and romance in the workplace are definitely not productive. It may work for a family owned pizzeria, but a high-tech company only suffers from this type of frivolous activity. Everyone knows of situations where the boss’s wife is Director of Human Affairs or some other convenient title, and everyone knows (except the perpetrators) that it is nothing but a farce.
LEADERSHIP: ”Leadership is a matter of intelligence, trustworthiness, humaneness, courage and sternness. -SUN TZU (6th Century B.C.)
OK, after you are comfortable with yourself and your leadership skills, what else is needed to start up? Commitment! You must dedicate yourself to the company before all else, at least initially. Additionally, you must be able to articulate what it is that differentiates you from everyone else-why should a customer buy from you? Why are you so special? Aside from you, the most important other consideration is the TEAM! Investors especially are more interested in the team than the dream, so surround yourself with the best people you can find that compliment your strengths and weaknesses (yes, you have them, despite the fact that many entrepreneurs think they do not). Always make sure that you and the team maintain a win/win attitude because there is no such thing as win/lose-you both lose in the end! Finally, it is absolutely essential to have sufficient funding and a good portion of luck at start up.
A good way to start the planning is to get a software package that helps you write a business plan. This software will walk you through steps such as the Executive Summary, Vision and Mission, Objectives, Capital Requirements, Management Team, Product Strategy, Market Analysis, Competition, Marketing Plan, and Financial Plan among other things. This activity is not an end in itself, but rather an exercise to help get things organized to present to investors or others involved. You need to determine what type of business you want- single owner, partnership, corporation, etc. While it may be tempting to ‘go it alone,’ realize that: a) businesses with one founder have a much greater chance of failure than those with two or more people sharing power, b) investors are more likely to fund a company with two or more partners, c) most companies are NOT successful in their original business plan or undertaking, but a good team can adapt. Therefore, we come back to the TEAM!
People are the most expensive part of owning and operating a business. Capital equipment may cost a lot, but it is a one-time expense, whereas people get paid continuously. You need to determine who you need on board, how many people, what skill sets are needed, and where to find them. When looking for people, remember that first impressions are usually right, so don’t think you can ‘groom’ someone who does not fit your expectations. It rarely works! Set clear goals and expectations and let your people do their jobs without interference. If you have picked the right people, they will do their jobs well. However, also remember that one of the other biggest mistakes made is not ‘trimming the tree’ soon enough when problem employees are involved. If it is clear you have made a mistake, act quickly rather than waiting, as it is not fair to you, the ‘problem’ employee, or especially to the other team members to carry a non-productive person on staff. Team dynamics is crucial in a small start-up company, so make sure your Team is really a Team. A well-run team will be successful every time.
WHAT IS NEEDED TO START UP:
People to avoid are the Excusers (always have an excuse for not getting things done), the Loners (think they can work outside the team), the Dictators (those who want to tell other people what to do without doing anything themselves), the Sickos (constantly sick or ill), the Day Dreamers, the Wafflers (can’t make a decision), the Clock Watchers, the Suck Ups, the Sliders (always ‘sliding’ in late, out early, etc.), the Downers (some people are always in a down mood and it affects the entire workforce), the Whiners, and the Superstars (not that there is anything wrong with an outstanding employee-the Superstar however thinks he is above the Team-think Terrell Owens). And in the end, remember that, as Marlon Brando said in the Godfather, “Nothing personal, it is only business.”
Realize that you are not only responsible for your employees, but also their families, etc., so it is a big responsibility. In addition, team dynamics change as more people are added, so at approximately 25, 50, and 100 or more people, things change drastically in the organization. At less than 25 people, the organization can be and should be flat-no need for middle managers. At more than 25 people you start adding middle management, but you still know everybody personally. With more than 50 people, you may lose track of individuals, and with more than 100 people you have several layers of management, you don’t know everyone personally, and you are essentially a corporation, whatever your legal title.
”A verbal contract isn’t worth the paper its printed on.” -SAMUEL GOLDWIN
No matter what your interaction with other people, remember that the days of a ‘handshake deal’ are over. If you get investment money, if you make a deal on equipment, if you hire employees-always get it in writing! As Samuel Goldwin said, “A verbal contract isn’t worth the paper it is printed on!”
Intelligence and communication
Office communication is an interesting topic. It has been shown that 80 percent of the time your intentions as a manager are altered or ignored by your employees-intentionally or otherwise. If you don’t believe this, try the old elementary school game of whispering a phrase in one person’s ear, and then have them pass it down a line of 10 people and see what the last person in line whispers back to you. Also, people only tell their boss what they think the boss wants to hear! Meetings should be used effectively, but kept to a minimum. One of the most efficient conference rooms I have seen had a table four feet high and no chairs. Meetings in this company were quick and to the point. In communicating, with anyone, including employees, customers, investors, and so on, perceptions are reality, so even if you don’t care pretend that you do! Also, in the words of the famous Donald Rumsfeld concerning intelligence, “We know what we know, and we know what we don’t know, but it is what we don’t know that we don’t know that really kills us.” Always make sure you have good intelligence when making any decisions but remember that it does not matter what or how much you know if you do not take that knowledge, communicate it, and then take action with or because of it!
COMMUNICATION: Perceptions are Reality, so... Even if you don’t care, pretend you do!
Given unlimited money and time, almost anything can be accomplished. Unfortunately, most people do not have the luxury of having either. One of the first questions the entrepreneur must answer is where to get funding for the plan he has developed. Some of the usual avenues include private (family and friends or other private investors), venture or ‘angel’ money, and ‘external’ funding. Most small businesses start with at least some sort of private funding. But realize a few things; your Mother may still love you if you lose all her money, but it is easy to lose friends over money, so one must be careful about taking this avenue. If private investors are ‘acquaintances’ rather than friends it is much easier to take their money-but make sure that these people have long-term patience and hopefully a vested interest in your success other than making money. Venture Capitalists or Angels are typical avenues for high-tech funding. Usually these people want to own >60 percent of the company with 15-20 percent for the founders and 15-20 percent reserved for future key employees. As mentioned before, they are more interested in the Team than the Dream and usually give money based mostly on their perception of the strengths of the second-tier players rather than the founders. It is assumed the founders must be good or they would not be talking to you in the first place. When planning, remember that profit does not equal cash! Cash drives a company short term; profit drives a company long term.
In addition to funding the people, these funds are used to buy ‘stuff.’ It is essential that the start up use its available cash wisely. Buy only what you really need: you don’t need $800 office chairs when very serviceable used office furniture is available and will do just fine. Think about what you need and make sure that you consider all the ‘little widgets.’ From experience I can say that one of the most frustrating things about a start up is not having the right screws, nuts, wires, and all the little stuff without which makes life difficult. Consider used equipment, auctions, bartering, and other means to stock your shelves. Remember that time is money and more money is wasted on looking for little things than the cost would be to have a large stock of such items available. Real estate is another concern-not only where you are located, but the appearance of the facility and whether to rent or buy. Most companies start out renting.
Ron Schaeffer (email@example.com) is CEO of PhotoMachining Inc., Pelham, NH.