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Making Ideas Work

10/12/2010 --

Entrepalooza 2010 guides entrepreneurs on building a company and a life.

ANN ARBOR, Mich. — Economic booms come and bubbles go, but entrepreneurs venture on, turning brainstorms into businesses.

Their journey isn't easy. Helping provide a roadmap is the annual Entrepalooza Symposium presented by the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies, the Center for Venture Capital & Private Equity Finance, and the Michigan Entrepreneur & Venture Club.

Entrepalooza 2010: The Impact of Entrepreneurship, hosted at Ross Sept. 16-17, delivered a robust mix of inspiration, practical advice, strategy, and shared experience from industry veterans.

Two keynote speakers covered the yin and the yang of entrepreneurship. Vishen Lakhiani, BSE EECS '99, co-founder of MindValley, focused on inspiration – how to build a life as well as a career. Jeff Williams, MBA '92, president and CEO of Accuri Cytometers, explained how to execute a successful business exit.

Work/Life Balance
Lakhiani, by his own admission, was an average student (at best) who lacked good timing and failed in his first foray into business. Soon after he moved to Silicon Valley, the tech bubble burst. After landing a job where he finally learned marketing ("I realized why my previous ventures failed") Lakhiani started a small Internet business that eventually grew into Mindvalley, a company that takes content from personal development authors and distributes it across new media.

A first, Lakhiani was content for his fledgling company to exist as a side business that paid for his food and coffee. But as the firm grew so did the responsibilities. That unnerved him a bit. "That's when I found out running a business wasn't as much fun as I thought," he said. "It stopped being a game. I had to worry about office space, taxes. All of that stuff completely stressed me out."

His stress only multiplied when Lakhiani's name erroneously appeared on a watch list of suspicious foreign nationals. He relocated to Malaysia and held the business together even though it stagnated for a while. But then something shifted. In the last four years, MindValley nearly doubled its revenue annually. The company shares 20 percent of its profits every month with employees, who get to allocate points to colleagues they think are the most deserving. Those points go into profit-sharing formula.

So what changed? Lakhiani said MindValley improved after he acquired a new personal outlook. He focused on setting goals — however unrealistic — and finding balance in his personal life.

"Many entrepreneurs get wrapped up in building a career and many times they forget to build a life," he said.

Lakhiani is a believer in finding a state of flow: having some big ideas for the future, but not basing present happiness on whether or not you reach them. Goals should be about asking "what and why" not "how and when," he says. That is what drives inspiration.

"A lot of people think ideas come out of nowhere," he said. "Ideas are generated when you have goals ... The idea that you need to set realistic goals is crap. Set unrealistic goals."

Lakhiani said MindValley was able to attract solid employees from all over the world despite a major brain drain in Malaysia. He was able to meet and spend time with people who traveled in higher circles than him, such as British industrialist and Virgin Group founder Richard Branson, by setting what some considered unrealistic goals.

He held himself up as an example of breaking the "success equals hard work" rule. Too many entrepreneurs have poor health, failed marriages, and other personal issues, he said.

"I tell my employees, 'If you work more than 40 hours a week then you're probably too stupid to work for me,'" he said. "You need to have balance in your life."

Exit Strategy
Fellow entrepreneur Williams, meanwhile, talked about a balance from a different perspective. His presentation, "The Art of the Exit," focused on the balance between building a solid company but keeping an eye toward the exit — whether it be a sale or an IPO.

First, you need to build a great company, he noted. It must have long-term revenue growth potential and significant cash flow. If you want more than $100 million for the company, it has to have a large market — at least $1 billion — and not plan to dominate a small market, Williams said.

Even an early stage, pre-revenue company has to show some sort of result — some infrastructure, a visible path to cash flow, revenue, and barriers to entry for potential competitors.

"You're not going to sell your company on a story," Williams said.

When seeking venture capital, figure out how much it'll take to get your company cash flow even, then double it, he advised. "You can't plan for the unexpected. I guarantee there will be things that will eat up a lot of cash." And running out of cash is one of the top killers of young companies.

Venture investors also like to see experience on the management team, particularly with the CEO, so the founder may have to relinquish some control. Williams suggested seeking three or more investors and getting in early on the life of a fund. It's wise to speak to investors about their expectations on the company's future valuation, and repeat this discussion a twice a year.

Williams made it clear he's not a fan of the IPO. While they raise a lot of capital and lend prestige to the company, IPOs are difficult and siphon time and attention from the management team. It's also not as easy to sell you own shares, even after the lockup period ends.

Williams thinks venture-funded companies should be sold to a strategic buyer as opposed to doing an IPO, given the state of the markets. He cautioned against unrealistic sale price expectations. Most companies are sold for one to five times annual revenue. It's rare for a venture-funded life science company to sell for more than $150 million, he noted, and too often entrepreneurs have an inflated view of their company's worth. He shared the story of one entrepreneur who refused a $110 million offer, thinking he should get $200 million. Two years later, the company sold for $22 million.

And it usually works better to be known without overtly running a sale process. Get out to trade shows and meet people without talking about a sale. "It's a lot nicer if somebody approaches you first," Williams said.

In Good Company
Other entrepreneurs drilled down into the specifics of launching, financing, and running a new venture with advice from people on the front lines.

One important but overlooked factor that helps a startup is picking the right people. But the right people aren't just the ones who are best qualified, said Roger Frock, MBA '59, CEO of Quest Management and former general manager of FedEx during the shipper's early days.

"We looked for people at the middle management level who shared our dream," he said. "So we had a company of entrepreneurs."

While startups often can't match the salary and benefits of larger companies, they do offer more excitement and that, in itself, can be used as an effective recruiting tool, said Sean O'Leary, BBA '91, co-founder and CEO of Genscape.

"A startup is exciting and we took advantage of that," he said. O'Leary and his team found people that shared their dream and offered them whatever perks they could beyond salary: lunches, gym memberships, and stock options. "And we got really good people early on," he said.

But O'Leary added that leaders of startups need to make the tough personnel decisions as the company grows. That's less fun, but just as important.

"Sometimes the employees who got you to Level A can't get you to Level B," he said. "Everyone's looking at you to make the decision. It's hard. Ultimately, it's the soft issues that take up 90 percent of your time as CEO. What kept me up at night more were the interpersonal issues more than cash or sales."

Trends in Alternative Investments
After an initial burst, investments in clean technology ventures have waned, due in large part to unclear regulatory policy, said industry experts. But that hasn't stopped Ryan Waddington, MBA '99, from looking for players in that sector. Waddington is founder of Huron River Ventures, an investment fund that specializes in alternative energy companies in Michigan.

He sees tremendous opportunity in solar energy — noting a steady decline in costs and technology advancements — and smart grid systems that monitor and manage electricity usage.

"Investor interest always waxes and wanes," he said. "There was a huge rush for a while and after that it makes it tough for someone to raise capital. That'll change as time goes on."

He did acknowledge that the uncertainty over future U.S. carbon emissions regulation has left investors cautious for now. Once policy implications become clear, Waddington predicts a big influx of venture capital in clean technology.

"Investors like consistent regulatory policy," he said. "Please tell me what you're doing and we'll go from there."

Next Big Thing
Entrepalooza also showcased student ventures with the 90-second pitch competition. The entrants had 90 seconds to pitch their businesses to a panel of judges, with the winner receiving $250 and a lunch with Accuri Cytometer's Williams.

Ventures included an exchange for baby attire dubbed "the Netflix of baby clothes;" an instant, at-home STD test; a service that provides weather, gas prices, restaurant, and traffic information to car systems; a system to help governments rebuild coral reefs; and the winner, Own, a cloud-hosted, point-of-sale system for coffee shops, presented by Ross part-time MBA student Verdi Erel Ergun.

—Terry Kosdrosky

For more information, contact:
Terry Kosdrosky, (734) 936-2502, terrykos@umich.edu