|
04.11
Career Focus: Is Now the Right Time for Engineers to
Become Entrepreneurs?
By John R. Platt
Apple. Microsoft. Google. The
list of huge companies that began as tiny
entrepreneurial startups is legendary, long and
varied. But are the same opportunities available
for today's engineers? Is it a good time to hang
out your shingle, or to work for a startup?
The answer, by all accounts, is
yes. Angel funding is readily available compared
to a few years ago. Startup founders are keeping
more ownership than they used to. Startups are
frequent acquisition targets. And the service
economy is creating more and more opportunities
for new small companies to fill needs that are
uniquely qualified to provide solutions.
Meanwhile, small businesses are
recognized as the backbone of the American
economy. President Obama recently acknowledged
the role of entrepreneurial small businesses
with the launch of
Startup America, a partnership between
government and private companies to accelerate
the growth of U.S. entrepreneurship and
improve the economy in the process.
Now Is the Right Time For
Some
There may be weak spots in the
general economy these days, but for many people,
that actually makes it a more desirable time to
strike out on their own. "It's a great time to
start a small company," says Chris Maresca,
managing partner of Concept 32, which helps
small businesses develop their business
strategies. "Here in Silicon Valley, there are
more companies being started than any time in
the last 10 years. The layoffs in a lot of
businesses have been driving people to look at
starting their own thing instead of relying on
someone else to deliver work."
Lack of corporate jobs isn't the
only reason entrepreneurs have for starting
their new companies, says Terry Wong, chair of
IEEE-USA's
Entrepreneurial Activities Committee. "Some
people have had their employment status change,
while others want to pursue an idea," he says.
"Sometimes they are striking out on their own,
but other engineers are seeking to supplement
their incomes." Wong reports he is seeing more
entrepreneurs go full-time in the last year.
"There comes a time when you have to go
full-time anyway," he says.
"Entrepreneurs know they are
entrepreneurs because they have a deep belief in
their ideas and their personal ability to make a
difference," says
Ashwin Ram,
an entrepreneur, researcher and professor at
Georgia Tech who has been involved
with three university spinoffs. "Many studies
have shown that young companies are the primary
driver of job creation in our country. Be part
of that ecosystem. Succeed or fail, you wont
regret the experience."
Jonathan Swanson, co-founder of
Thumbtack.com, an angel-funded startup, says
that this is a great time for seeking venture
capital to help fund startups. "If you have
a startup with traction and a real business
model, there has never been a better time to
start a tech company," he says. In addition to the large
number of companies offering venture capital,
and the more
founder-friendly terms often available to
startups, there are also good business
opportunities. "Unlike in the 90s, tech start
ups are actually making lots of money," he says.
Like Thumbtack, many new startups are in the
area of software, especially Software as a
Service (SaaS). "The widespread proliferation of
SaaS and open source have made it cheaper than
ever to build new products," says Ed Borden of
Connected Environments Ltd. "You can be up and
running in a fraction of the time and cost that
it would have taken just a few years ago. That
means you don't have to raise or spend as much
money, so there's less risk for everyone."
Challenges for Entrepreneurs
While software startups are
doing well, the environment is more difficult
for other technology fields, like hardware. "The
biggest problem with high tech is that it takes
longer to develop a product than most could
imagine, even in the worst case scenario," says
Tom Anastasi, author of The Successful
Entrepreneur (Glenbridge Publishing, 2010).
"And for new products, it takes longer for it to
take hold in the marketplace than they ever
would have thought." Anastasi advises being
realistic when making plans for startups.
"Optimism is great, but if people plan for a
longer-than-anticipated development and growth
cycle, they will find they can manage cash and
resources much more wisely."
Time to market is one of the
three main challenges small technology business
face, says Concept 32's Maresca. "A good idea is
no good in tech if it's going to take 15 years
to make it. It's better to have an 80 percent-ready
product in the market and iterate improved
versions," he says. It's also important to have
a narrow focus Maresca says "many companies
fail because they try to do too much" and to
understand the scale of your business. "One of
my clients had so much success that it was
taking months to roll out new clients, resulting
in lost sales. Scaling your internal processes
is just as important as scaling the technology."
Finding good employees can be a
problem, as well. Thumbtack's Swanson points out
that
the talent wars between Google and Facebook
have sometimes made it difficult to find good
engineers to work at startups.
While VC opportunities are
improving, they aren't always easy to find.
"One challenge I never expected was the
importance of connections," says John Boyd,
founder of the networking site Meeting Wave.
"Many or most VCs will say they like funding
people that they know or who were referred to
them by people they know." Boyd also feels your
location can limit you, pointing out "startups
clusters" in Silicon Valley and Boston.
"I've seen startups in other
areas of the country," says IEEE-USA's Wong.
"Certainly, Silicon Valley is the
hotbed of startup activity.
There have always been more startups there because of the large concentration of
engineers."
Advice from Those Who Have
Been There
Is it time for you to feed your
entrepreneurial spirit? Do you have what it
takes? Only you know the answer, says Jeff
Huckaby, CEO of rackAID LLC. "Let your personal
clock not external forces decide if it is the
right time to start up a business. The economy,
market trends and other external forces could
make starting your business more difficult, but
I've found the most successful startups push
through these obstacles."
Huckaby says his own
company faced "serious setbacks" in 2009 when
some of their large clients folded. "Instead of
cutting costs to the bone, we actually spent
more than we ever had on marketing, branding and
new service development."
While most experts are very
positive about the possibility of finding
venture funds, Huckaby cautions not to go
looking for millions. Instead, seek targeted
funding. "My advice is to start small," he says.
"What I find most now is that investors are
looking for solid ideas with people who can
execute them." When pitching your product or
service, Huckaby suggests "eliminating the
fluff." Instead, "clearly explain why your
product or service will deliver value to your
customers." And don't waste your initial capital
on non-essentials. "You do not need to have a
fancy office, slick presentation or other items
just a good solid idea that you can explain
well. If you can convince potential clients or
investors that your offer has true value,
then you will be successful in the current
economy."
Having a plan and executing it
effectively is the most important factor in
startup success, says Denise Beeson, who teaches
small business management classes at Santa Rosa
Jr. College and works with small businesses to
find financing. To achieve that, a core
management team that "has industry experience
and contacts" is essential, as is finding the
right marketing person to "sell" your product or
service. She also suggests hiring a CFO to
manage expenses and cash. You might also need a
person to act as the face of your company with
investors. "The role of raising money has to be
understood and aggressively handled," she says.
"Someone in the organization needs to represent
the company and oftentimes it is not the
inventor of the product."
The Value of Entrepreneurship
As Beeson's comments show,
startups offer opportunities not only for their founders,
but also for employees. According to the U.S.
Small Business Administration, businesses with
less than 500 employees employ more than one
half of all private sector employees, and pay 44
percent of the total private payroll in the
United States. According to IEEE-USA's Entrepreneurial Activities
Committee, 36 percent of IEEE members own or work for
small businesses.
The personal value might be even
more important. I spoke to a lot of
entrepreneurs in preparing this article, and all
were enthusiastic about the choices they had
made. "As an Industrial and Systems engineer
who's worked for and created startups, I can say
that no matter what the economic condition is, it
is always better to work for or create a
startup," said Shaun Fisher, most recently
co-founder of Raw Talent Guitar. "Working for a
startup guarantees you have to work harder, but
your efforts will usually result in higher value
to both yourself and your employer. If it's a
successful company it will also usually result
in higher wages and a better working
environment."
IEEE Fellow and entrepreneur
John Cioffi, whose first startup
Amati was acquired by Texas Instruments in 1998
for $395 million, agrees that the early stages
of a young company allow for greater freedoms
and creative elbow room: "Not a lot of
politics (at least until companies get to a few
hundred employees) is good and allows ideas to
flourish before some internal political fight
kills a good idea."
[Correction:
We had incorrectly identified Ashwin Ram's
employer as Georgia Tech University. The correct
name of the school is Georgia Institute of
Technology, or Georgia Tech.]
John R. Platt is a freelance
writer and entrepreneur, as well as a frequent
contributor to Today's Engineer,
Scientific American, Mother Nature
Network and other publications.
Comments may be submitted to
todaysengineer@ieee.org.
|
Comments
on this story may be
sent directly to
"You
need vision, passion, and the determination to
pursue the vision despite all odds. And there
will be odds, many of them. You have to believe
in what you do."
"The
intense criticism an entrepreneur often gets
from potential financial sources, colleagues,
enemies, competitors in larger companies,
friends and even family can require a thick skin."