The entrepreneur doesn't sell inventions but sells manufactured products instead-a very different ball game. In the end the money comes either from business profits or from selling the operating company as an acquisition to a larger company.
Now comes the bad part. Most such businesses die young, with a total loss of the money, work, and passion which have been invested. They die because the entrepreneur is not sufficiently competent in the many arts of business other than engineering. (The statement is made that the principal source of failure is insufficient capital. This puts the cart before the horse. The entrepreneur's first responsibility is predicting capital needs and not spending any capital until there is enough. To do otherwise is incompetent.)
Some Advice:
Get an M.B.A.
Get an M.B.A. at night while you work as an engineer by day. Specifically you should learn about:
- Marketing
- Accounting
- Finance
- Marketing
- Business law
- Marketing
- Manufacturing
Have Partners
Start with partners who are expert in those business arts in which you are not. Ideally you should have one in accounting, finance, and ad-ministration, one in marketing, and one in manufacturing. With yourself in charge of engineering you have a viable core. Ideally these four people have worked together before in some larger company and know that they can cooperate under stress without quarreling.
A trouble with starting on your own without such partners is that you must then recruit managers in these fields. Good people are reluctant to join small, speculative enterprises instead of taking good jobs in big companies. If the enterprise fails, they not only are out of jobs but have bad marks on their records. Many dislike the restrictions of small scale and lack your vision of growth and success to come.
One of the benefits of starting out with a management team is the greater ease of acquiring capital. Investors in start-ups bet on the people at least as much as they bet on the product. A team with good track records is a better bet than a loner with a good track record, to say nothing of a loner with no business record at all.
This is one example of the exponential law of success and failure: each success makes it easier to achieve the next success; each failure makes it more difficult to prevent the next failure.
Become a Marketer
The four-partner start-up is an ideal rarely realized. Therefore you must be prepared to multiply your operating responsibilities. (Marketing is strategy, literature, advertising, etc. Sales is going eyeball to eyeball with customers.) It is common for the president of a small company also to be the chief salesperson and to spend much time with customers. That is one of the reasons you need good managers back at the ranch. Furthermore, this is the only reliable way you can know what the market is, how your product is regarded, what your competition is, and what the opportunities are for product improvements and new products. Salespeople are professional optimists and are tempted to lie in the hope that a little more time will turn things around.
When a manager leaves a big company, there is a transient during replacement, but there are others ready to substitute, at least temporarily. When a manager is lost in a small start-up, the effect can be disastrous.
Raising Capital
The most conspicuous obstacle to starting your own company is the need for capital. The standard sources are yourself, your family, your friends, debt, venture capitalists, and the public.
Your Business Plan
The essential first step in starting a business is writing a business plan. You should do this for your own sake before you take any other steps beyond casual conversations. A business plan is a prediction of the history of the business. It contains the following sections:
- Product plan. What will you sell, how much R&D is required, and how will the product line develop over time?
- Marketing plan. Who constitute the market, why should they buy your product, how many will they buy, how receptive are they to new ideas, what is the competition, how much will it cost to do the selling, how much will customers pay for the product, what will sales be as a function of time?
- Manufacturing plan. How will the product be made, how much tooling investment will be needed, what will it cost to make the product?
- Personnel plan. What jobs will be filled, what individuals do you already have in mind, how many of each job will be filled as a function of time?
- Financing plan. Where will the capital come from, how much, and, if there is to be progressive financing based on achievement, what will the terms be? This part of your plan is a proposal to investors.
- Cash-flow spreadsheet. Cash in and cash out, itemized, by the month for the first year and by the quarter for the next 5 years. A personal computer spreadsheet program will be a big help.
