Transcript Entrepreneuring on the Central Coast: How to Survive and Thrive on a Start-up Team This presentation and the related book are published at eysu.org March.

Entrepreneuring on the
Central Coast: How to
Survive and Thrive on a
Start-up Team
This presentation and the related book are published at eysu.org
March 22, 2004
KCBXnet (formerly SLONET) Computer Training Center, 4100 Vachell Lane, SLO
Mike Baird
mikebaird.com
firstonline.com
eysu.org
Contents of Engineering Your Start-up: A Guide for the High-tech Entrepreneur -- Copyright © 2003 by Professional Publications, Inc. All rights reserved. No part of
this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher.
Copyright © 2003, 2004 James A. Swanson and Michael L. Baird
Rev. 11/7/2015 8:05:37 AM
About the Speaker
-Mike Baird
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Past V.P. Eng. Ask Jeeves, Inc. ask.com
one of most successful Internet IPOs in history
Past CTO Snap-on Inc. $2 billion co.
Partner, Los Altos Incubator firstonline.com
PhD Computer Science, MBA
Author: Engineering Your Start-Up:
A Guide for the High-Tech
Entrepreneur (Professional Pubs.
Inc., 1992, 2nd Ed. 2003); Starting
a High-Tech Company
(IEEE Press, 1995) eysu.org
Every page of
this book is now
available for free
online at
eysu.org
How High-Tech Start-ups
Launch, Recruit Team Members,
and Grow Successful, Highly
Lucrative Enterprises
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You – the future CEO of such a business
You – a team member or supplier
Identify opportunities
Make rewarding career decisions
Understand the start-up entrepreneur
To Best Serve as a Technical
Contributor, Consultant, or
Employee in a Dynamic Startup…
Know what makes startups tick…
Know what kinds of people start them…
Understand demands, expectations, stress, and
pressures that can be put on all contributors…
from information developers to CEOs
Plan on how to not just survive, but thrive in such
an environment
Issues to Consider (1 of 4)

What are your life goals?

What is your quality of life now, and how would it change?

What are you getting into, and is this really what you want to do?

Are you prepared for very hard work, or are you more of a “quality-oflife” person?

Have you talked frankly and in some detail with friends or colleagues
who have significant start-up experience?

Will your business have a chance to succeed financially? Are you
willing to bet on yourself and one or two key employees to come out
on top?

Can you separate the excitement and glamour of a start-up from its
reality?
Issues to Consider (2 of 4)

Are you prepared to be consumed by your business?
Are you aware that it will never let up and that you will never escape
it during its formative years?

What can a start-up do to you physically and mentally?
Are you strong and healthy enough to pull off a start-up?

What are the time demands of a start-up?
Do you like to recreate on weekends, or will you work?
How much time do you want or need with your family?

Are you ready for extensive travel and “give it all you have”
performances for customers and investors?

A start-up afford few luxuries!
Issues to Consider (3 of 4)

Realistically, what is your the chance of becoming independently
wealthy through your start-up?

Can you survive without a paycheck for three to nine months, or
longer, either while your start-up is getting funded or after your startup falters?

Are there better alternatives to either launching a start-up or staying
with your current employer?

Have you considered the possibility of a start-up damaging a stable
marriage?
Issues to Consider (4 of 4)

Do you thrive on continuous change (not always improvement) or
despise it?

How old are you? When is the best time to act?

Last, and perhaps most important: Will your spouse and family be
enthusiastic about your venture?
(If not, the additional stress makes your odds much worse.)
Will you have their support?
(Their support is critical, since they will share with you the inevitable
financial and time sacrifices.)
Requirements for Successful
Entrepreneurship

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Basics for business success for the
entrepreneurial engineer
Understanding how “eBay became
successful” can help you build a
successful smaller-scale business
Contrast smaller “Lifestyle Consulting”
and Income Substitution” businesses
with venture capital-funded companies
Your Career...

Is a start-up for you? Are you a
“hunter” or a “farmer?”
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Internalizing the five fundamental
success factors for launching and
funding(or otherwise identifying) a
successful technology-fueled start-up.
Reasons Cited for Starting
One's Own Business
Self-employment
/Autonomy
9%
Income /Wealth
1%
1%
1%
2%
2%
The challenge
29%
To pursue an idea
4%
Utilize skills
Build estate for family
5%
No better alternative
Meet other's expectations
7%
Build an organization
Respect/Recognition
8%
19%
12%
Contribute to society
To live in the area
Other (specified by
respondent)
Big Career Picture
High-growth
team-driven
business
Income
substitution
business
Lifestyle
consultancy
Sales Employees
(millions)
> $20
> 50
$1 – $20 5 – 50
$0 – $1
0–4
The Income-Substitution
Wealth-Creation Spectrum
fast
Growth
rate
Wealth
Building
Income
Substitution
slow
small
Business size
large
Business Size, Risk, and Reward
P(Survival) is inversely proportional to risk
P(failure)
0.5
0.3
Low
Low
High
Retail stores
Medium
Technology-based products
(high-growth objective)
Low
Technology-based
consulting
(low growth
objective)
Low
Risk
0.7
High
High
Low
0.3
0.5
P(survival)
0.7
High
= 1.0 - p(failure)
Reward
Effort Allocated by Founders
During First Six Months
35%
31%
28%
30%
25%
25%
20%
16%
15%
10%
5%
0%
Engineering
Sales/
marketing
Manufacturing
Finance/
administration
5 Basics for Success
Beyond "The Big Idea, the Passion, the
Vision"… making it real… involves…
Management
 Markets and Customers
 Proprietary Products, Technology,
Services
 Attractive Financing and ROI
 Compelling Business Plan

Market- and Customer- Driven
Technology-Fueled Business Machine
rapid
profitability
money (ROI)
5
financial
controls
management
technology
fuel
3b
benefits
2
1
market
engine
customers
4
business plan
products
3a
First of Five Elements of StartUp Success
Markets and
Customers
Financing
Identifiable customers.
Business
Plan
Not a missionary sale.
Market–Pull.
Products or
Services
Not Technology–push.
Market niche with 15%–
30% market share possible.
Know 5 prospects by
name, ready to buy.
Management
Teams
Short procurement cycle.
Markets versus Marketing

Gillette introduces The Sensor™
razor for men
¦ Retail price: $3.75 with three blades
¦ R&D costs: $200 million
¦ First-year advertising budget: $110 million
¦ Estimated annual retail sales: $390 million

Even if you could invent a
superior razor blade, would you
want to compete in this game?
Second of Five Elements of StartUp Success
Markets and
Customers
Financing
Business
Plan
CEO
CFO
VP-Marketing & Sales
VP-Engineering (CTO)
Products or
Services
Management
Teams
Board of
Directors
Management CompletenessExperience Grid
Complete
team (2)
2
3
4
Partial
team (1)
1
2
3
No
team (0)
0
1
2
Team Size and Product Status
in Business Plan Reception
Management status
Level 4. All members
on board and
experienced.
Level 3. All members
identified; some on
board only after funding.
Level 2. Two founders;
others not identified.
Level 1. Single
entrepreneur.
Product status=>
Most desirable
4 + 1 =5
4+2=6
4+3=7
4+4=8
3+1=4
3+2=5
3+3=6
3+4=7
2+1=3
2+2=4
2+3=5
2+4=6
1+1=2
Level 1.
Idea only;
market
assumed.
1+2=3
Level 2.
Prototype
operable
but not
developed
for
production;
market
assumed.
1+3=4
Level 3.
Product
fully
developed;
few or no
users;
market
assumed.
1+4=5
Level 4.
Product
fully
developed;
satisfied
users;
market
established.
Third of Five Elements of Start-Up
Success
Markets and
Customers
Financing
Business
Plan
Products or
Services
Proprietary Technology.
Product Family.
Easily understandable.
Easily Sold.
Short Development Time.
Management
Teams
Cost versus Perceived
Differentiation Model
Perceived differentiation
versus competition
High
Market
success
likely
Market
failure
likely
Low
Low
Perceived cost
versus competition
High
Fourth of Five Elements of StartUp Success
Markets and
Customers
Financing
Form.
Content.
Business
Plan
How many pages?
How much time to Products or
write?
Services
When to write it?
What's in it?
Written for whom?
Types of plans:
Funding;
Operational
Management
Teams
Fifth of Five Elements of StartUp Success
Never run out of money.
Fair Valuation.
Attractive ROI
Markets and
Customers
Financing
Business
Plan
Products or
Services
Management
Teams
Genus, Inc. Case Study ($9.5M, 1981)
Section
name
Executive
Summary
Marketing
Analysis
Product
Analysis
Number
of pages
Comments
2
It is compelling and powerful.
15
The section is comprehensive.
4
Says what the product will do,
nothing about
how it will be developed or invented.
Technology is not being sold here.
Operations
Plan
1
The strong management team, with proven
track records, can administer operations.
Management
and key
personnel
8
Three two-page résumés for the
president/general manager, the V.P. finance,
and the V.P. engineering, plus an organization
chart says it all.
No mention is made of any
key engineers
who might design the product.
Financial Data
12
Tells investors how much money the business
is going to make, when, and what will be spent
to make it happen.
Fatal Flaws and Deal Killers

Lofty Mission Statement (e.g., reduce world
hunger, plow 10% of profits into charity…)

Missing any of the 5 basics of success w/o
acknowledging the fact
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Imputed ROI not attractive
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Fixation on "control," overt greed
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"Distributed leadership," or professed"socialist"
management philosophies
Case Study: One Business Plan
that Will Never be Funded
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Entrepreneur looking for $500,000 for
15% of the company
(Implied pre-money valuation = $2.83 million;
post-money valuation = $3.3 million)
Projected Sales of $1 million in 3 years
Management team is one person
Market is "everyone"
Getting Funded
Sources of start-up capital
 "Shopping” a plan
 Venture capital – is it for you?
 Funding the Lifestyle Consultancy
or Income Substitution business

Sources for Seed Capital
for High-Tech Companies
80%
74%
70%
Percent by number of deals
Note: "Family and friends" plays
a smaller role in high-tech
start-ups than for most other small
businesses
60%
50%
40%
30%
6%
5%
5%
3%
Family and
friends
Venture
capital funds
Public stock
offerings
7%
10%
Non-financial
corporations
20%
Private
investors
(angels)
Personal
savings
dominates!
Personal
savings
0%
VCs versus Angels
Venture funds back
Angels support ~30,000
~2,000+ deals per year
deals per year
"Shopping“ a VC plan
Unsolicited "Over the transom"
plans: % funded ~= 0
 Use VC directories only as a road
map (WAVC is good)
 Strong partners are well-connected
(work on developing, or joining, a
team)

VCs
A joke about a company founder finding a bottle
on the beach and a genie granting three wishes.
Genie: I will grant you three wishes.
Founder: Great!
Genie: There is a condition.
Founder: What's the condition?
Genie: I will also give every venture capitalist in
America double everything you wish for.
Founder: OK. My first wish is for a million dollars.
Genie: A million dollars has been deposited in your
checking account. Two-million dollars has been
deposited in the accounts of every venture capitalist in
America.
Founder: For my second wish, I want a beautiful
woman to go on vacation with me to Tahiti.
The founder was immediately whisked away to Tahiti,
where he was joined by a beautiful woman. Also there
was every venture capitalist in America, each with two
beautiful women.
After a month in Tahiti, the founder returned to the
genie.
Genie: Have you decided your third wish?
Founder: Yes. Chain me to a wall and beat me until I'm
HALF-dead.
Summary
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Commit

Educate yourself

Plan

Execute
(make the right decision for yourself)
(read, network, explore, experiment, invest time
and money, build relationships, build prototypes,
cultivate potential customers)
(what will result in success for you?)
(persist, but know when to call a loss)