 |
They Just Can't Stop Themselves
Once exotic, serial entrepreneurs are everywhere these days. From their tolerance for failure to their creative use of resources to their sense of when to leave, they have a lot to teach more traditional company owners.
Inc. Magazine, March 2005
By Jason Fulford
Ron Berger lives by routine. Every morning at 5:30, he climbs on his
Stairmaster for 45 minutes and reads business magazines through rimless
glasses. Then he dons a dark suit and patterned tie, eats low-carb cereal
with blueberries (or splurges on an Egg McMuffin without the muffin),
and drives his midpriced Mercedes to the office by 7:30. He leaves 11
hours later, eats a South Beach-approved dinner, and watches CNN until
his 11 o'clock bedtime.
Thus it's a surprise to discover this mild Oregonian is a consummate
risk taker, a serial entrepreneur who's started five companies, one
after another. The businesses have ranged from a camera retailer that
grew to 54 stores but then went bankrupt to a company that managed the
system by which video stores pay fees to movie studios. He took that
company public. Another one of his businesses was acquired. His current
venture, Figaro's, which Berger calls a "take-and-bake pizza"
concept, had systemwide revenue of $24 million last year.
So this measured man with his measured days flirts with failure and
financial exposure about as often as most people buy a new car. And
he's not alone. Once a novelty, serial entrepreneurs are moving into
the mainstream. Venture capitalists report that a growing number of
the people pitching them refer to themselves as serial entrepreneurs,
and if you attend an event at a chamber of commerce or a business school
these days, chances are good that many of the speakers will tout their
serial bona fides. "In the 1970s and '80s, only 10% of our entrepreneurs
were serial," says venture capitalist Gary Morgenthaler, of Morgenthaler
Ventures, which manages $2 billion in investments. Today, Morgenthaler
says that number is closer to 25% -- and he expects it to grow to 30%
or even 50% in a few years. Forty-one percent of this year's Inc. 500
CEOs say that they plan to start another company, and 69% of the alumni
of Springboard Enterprises, a top women's business incubator, describe
themselves as serial entrepreneurs.
Of course, the serial life is not for everyone. Many business owners
find fulfillment running a single enterprise. But for those who are
considering starting multiple companies, the current generation of serial
entrepreneurs can offer a blueprint. And the strategies they employ
often have relevance for anyone who owns his or her own business.
What You Learn From Company No. 1: When and How to Leave
Serial entrepreneurs come in two flavors. The vast majority,
including Ron Berger, are leapfroggers. They start a company, run it
until they get bored, leave it, and start another. The remaining
handful are jugglers (sometimes called parallel entrepreneurs) who run
several companies at once -- a trickier proposition and one that
requires superhuman delegation skills. Whatever their approach, most
serial entrepreneurs come to realize that they don't like day-to-day
management. If they did, they'd be content to be one-time
entrepreneurs. "I find I can handle the worries of a start-up more than
I can handle the worries of a more mature business," says Terri Alpert,
who owns two companies in North Branford, Conn., and plans to start a
third. Jim Amos, the former CEO of Mail Boxes Etc., who's also starting
a new business, agrees: "The requisite skills for starting a company --
vision, dreams, courage -- are seldom the ones necessary for leveraging
and growing it."
Recognizing that you dislike managing is the first epiphany for
many serial entrepreneurs -- but having the conviction to act on that
epiphany is often difficult. Successful jugglers choose to delegate
more responsibilities at this point; the leapfroggers have to wrestle
with the difficult decision of whether to leave. Many end up believing
they stayed too long at their first businesses. They tend to make a
swifter, cleaner exit the second time. Fred Gratzon, for example,
started an ice cream company in Fairfield, Iowa, in 1979. His business,
which twice provided the dessert at Reagan White House picnics,
expanded rapidly to eight locations and even won
supermarket distribution. Gratzon hired sober, serious-minded
managers to handle the expansion. "In the beginning, there was
creativity and fun and laughter," he recalls. "Then it got
superserious. It shifted from a time when I just couldn't wait to get
there in the morning to when I dreaded going in."
Still, Gratzon had a sentimental attachment to the business. And
with a mortgage and a new wife and baby, he forced himself to stay on
as chairman of the board, although he disliked the job by then. The
management, wanting a new direction anyway, asked him to leave. He
retained a stake in the company, but the board diluted the shares,
reducing his equity to less than 2%. Unprepared to do anything else, he
was forced to file for unemployment.
To get some cash, Gratzon began helping out some friends by
combining their businesses' phone bills to get them group discounts.
Based on that strategy, he launched a company called Telegroup in 1989.
He built up its telecom capabilities, and it became an international
telecom provider, hit No. 2 on the 1995 Inc. 500, and eventually passed
$300 million in sales. This time, however, Gratzon left as soon as the
big-company problems -- "some sales manager is hitting on some
secretary, all those garbage issues" -- emerged. He resigned as
executive chairman in 1998 and has been playing around with several new
business ideas, including manufacturing boogie boards and distilling
corn into ethanol.
Even experienced leapfroggers can't always leave as quickly as
they'd like, but they usually attempt to retain as much independence as
possible. When entrepreneur Phil Damiano sold his PC accessory business
to a larger firm, Acco, he agreed, somewhat reluctantly, to stay on for
three years. Because Damiano dreaded corporate life, he negotiated a
deal that allowed him to run his division almost as if it were a
freestanding company. He controlled his budgets, benefits, everything.
The only Acco resource he used was its sales force, which he paid on
commission. His entrepreneurial yen satisfied, he stayed on until Acco
was itself acquired -- and then he and three co-workers bolted to start
a label-making firm.
What You Learn From Owning More Than One Company: Don't Fall in Love With the Product
"I'm not really passionate about this industry or that industry,"
says Red McCombs, the billionaire co-founder of Clear Channel
Communications who has owned a slew of real estate, energy, auto, and
sports concerns. What is he passionate about? "All of my businesses had
to be cash-flow businesses," says McCombs, "from the very first week."
Pete Slosberg displays the same cool-headedness, even though both
of his companies, Pete's Wicked Ale and Cocoa Pete's chocolate bars,
make products that people tend to feel strongly about. "I never want my
passion to get in the way of the business potential," says Slosberg.
When he goes about vetting an idea, he looks for industries with huge,
mass-market players (Budweiser, Hershey's) and a few increasingly
popular premium brands (Samuel Adams, Scharffen Berger). Then he sets
about drawing mass-market customers to his high-end offering. The
particular product is less important, he says, than the growth
potential.
Similarly, when Terri Alpert, the Connecticut entrepreneur, started
her first company, she devised her business model before devising the
business. In thinking about the company she wanted to build, she
realized she wasn't comfortable with holding accounts receivable, so
she decided she'd sell to consumers, receiving payment in advance of
shipping. And because she had limited start-up capital and intended to
work out of her home for a while, she figured that she would have to
turn inventory quickly and minimize delivery costs. That meant that her
suppliers needed to be nearby. She also wanted to sell a lightweight
item.
When her husband struggled while shopping for a chef's knife, she
had her moment of inspiration. Several cutlery suppliers happened to be
located within the same UPS shipping zone as her house and, with more
consumers outfitting their kitchens with chef-quality goods, Alpert
hoped there would be strong demand. She launched Professional Cutlery
Direct, a mail-order knife company, in 1993.
By 2001, the business had thrice made the Inc. 500 and was grossing
$11 million a year. But Alpert had a problem. Kitchenware retailers
with greater reach were introducing new products as aggressively as she
was, and Alpert felt her business losing momentum. She had created
demand for nice knives, but it was easy for bigger
rivals to follow her into the business and gobble up market share.
When Alpert set about starting her second business, she looked for
products that were more difficult to source, so her business would have
higher barriers to entry. This time, she settled on one-of-a-kind
artisanal items, like French combs, Italian mirrors, and sea-glass
necklaces, that her merchandisers found at trade shows and craft fairs,
both here and in Europe. In its first year in business, the second
company, Uno Alla Volta, brought in $4 million, even as revenue at the
cutlery business slid to $9 million. As for Alpert, she's excited about
her new products -- but far more so about her refined business model.
What You Learn by the Third Company: How to Leverage Your Resources Creatively
Most serial entrepreneurs are bootstrappers. They like to keep
costs low until the viability of a new business is proven. Both times
Slosberg started a company, for example, he held down expenses by using
other manufacturers' extra factory capacity to produce the goods, while
he focused on sales and marketing. Similarly, jugglers or parallel
entrepreneurs often use the assets of one business to help launch the
next. Terri Alpert used her knife company's warehouse, shipping
supplies, and employees to get her artisanal crafts business going.
Vicki Perdue and her husband, Jay, managed to use the same
machinery to serve two companies that manufacture goods for completely
different industries. The Perdues, who were college sweethearts, became
traveling musicians after graduation, playing pop songs at country
clubs and nightclubs. Settling in Amarillo, Texas, they built a
recording studio and sank $250,000 into debt. They took odd jobs
building houses and teaching so that they could climb out of the hole,
while continuing to work on the studio. Then Jay created innovative
rockwool soundproofing for the recording studio, launching Perdue
Acoustics, which has soundproofed auditoriums for NASA and Universal
Studios. It had sales of $2.2 million in 2004.
Several years ago, Jay -- who has filed 29 patent disclosure
documents, including one for a wind generator and another for an
electric-powered car -- dreamed up a bike with pontoons to make it
float. He figured out that he could use the machinery that made
fiberglass soundproofing diffusers to make the pontoons, too. Later,
the Perdues bought a plastic-molding machine to replace the fiberglass
equipment and make material for both businesses. Last year, the couple
started selling their floating bike, Pedal-Paddle, which retails at
$995, to bicycle shops, boat dealers, camps, and marinas. Vicki handles
the financials for both Perdue Acoustics and Pedal-Paddle, maintaining
separate bank accounts for each venture. The Perdues have hired a
full-time Pedal-Paddle manager-salesman, who works on salary plus
commission, and they ask their acoustics salespeople to pitch
Pedal-Paddle, too.
What You Learn by the Fourth or Fifth Company: It's Okay to Fail
Frank Giotto's tolerance for failure is impressive. Before he
launched his three current, and successful, companies, the youthful
Giotto ran at least five other businesses into the ground. One
delivered pickles and olives to grocery stockrooms, another sold pizza
to supermarket deli counters, and yet another designed a sludge pump
for municipalities so they could clear muddy water from streets. "We
never sold one pump," Giotto says. A foosball parlor also failed. Then
there was the business that offered guided tours of scenic Utica, N.Y.,
first in a school bus and then in a horse-drawn wagon. "I was the
driver," says Giotto. "We'd start at the brewery, do the art museum,
and couldn't include the zoo because it was too far. It was terrible."
But Giotto didn't let the failures get him down. He took a job at a
fiber-optics company, learned the industry, and eventually started his
own fiber-optic cable business called Fiber Instrument Sales (FIS). He
subsequently spun off a company that manufactures fiber-optic products,
and another that sells force-guided relays used by Otis Elevator, among
others.
Ron Berger, whose camera store business, his first company, went
bankrupt, also got over that failure. Less than six months after the
chain of 54 stores went under, Berger was out raising money for a chain
of video-rental stores he named National Video. He decided to expand by
selling franchises, but when he set out to prepare the franchising
circular, he had to include page after page detailing his bankruptcy
filing and litigation. In his pitch to prospective franchisees, he
tried to spin his past failure as a positive. He knew it was a tough
sell, however, so he initially set the franchise fee at just $10. "What
mattered was, here was a guy who would never allow himself to get in
that situation again," he says. By the time Berger sold the parent
company for $3 million in 1988, it had almost 750 franchised locations.
Even when it comes to raising serious venture capital, a past
failure is not the black mark it once was. "Sometimes people who have
failed or been moderately successful learn more than people who run
right out of the gate," says Roger Novak, of Novak Biddle, a Bethesda,
Md., VC firm that has $350 million under management.
"You do your research and take that plunge," adds Kent Sutherland,
an Arkansas businessman who was informally mentored by Wal-Mart founder
Sam Walton. Until last year, Sutherland owned four businesses in and
around the town of Sherwood: an insurance company, a group of
ministorage sites, a mortgage company, and a car wash. The car wash
struggled, however, because the machinery kept breaking and repairs
always took too long, Sutherland thought. So he sold the company. "If
you fail, you fail," he says. It's just that simple.
What You Learn by the Sixth or Seventh Company: Don't Hire People Like Yourself
Perhaps surprisingly, serial entrepreneurs are often able to
persuade people to come work for them even though they have a track
record of moving on quickly. One reason, of course, is that they tend
to be great salespeople and to exude passion. And some managers may not
mind their boss's propensity for starting companies because it all but
assures them of greater independence.
"One guy throwing out 12 times more ideas than you need is
enough, and that's me,"
says company builder Frank Giotto.
Frank Giotto, for example, is CEO of each of his three
companies, but he delegates day-to-day operations and spends most of
his time inventing new products. All the offices are on the same block
in Oriskany, N.Y., and Giotto wanders through them daily. Two of the
companies share a factory, whose square footage he divides between them
come tax time. The two fiber-optics firms actually compete for
customers, but Giotto feels that this makes them sharper. What he looks
for in employees are methodical, single-minded types who will serve as
a counterweight to his tendencies. "One guy throwing out 12 times more
ideas than you need is enough, and that's me," he says.
To get his team to support his endless entrepreneurial notions, he
carefully manages the flow of information. Every week, Giotto holds
group updates with all of the managers and salespeople from all the
companies, and biweekly meetings with top lieutenants on financials and
strategy. He presents big new ideas in a series of conversations,
broken down into many small logical steps. "Because I make sure my
steps are measured," he says, "I think people are willing to follow me
because it's not so entrepreneurial that it's risky." Giotto has also
provided an incentive for loyalty: Through an employee-stock ownership
plan, workers at his main company, FIS, own roughly a third of the
firm, worth about $9 million.
What You Finally Learn: It Does Get Easier
When Scott Painter went looking for funding for a custom-built car
company in 2003, he had a relatively easy time raising $25 million.
"Everybody knew who I was," he says. "I was Google-able, so it was a
very easy thing to put together. That's the benefit of having some
success as an entrepreneur."
Painter had previously founded several companies and had achieved
some acclaim in the dot-com boom with one brainchild, the El Segundo,
Calif.-based company CarsDirect.com. So when he started the custom-car
company, things fell into place quickly. And even though that venture
failed, he's back now, fundraising for another Web business. He reports
that he's again getting good access to investors. "It's sort of fun to
build a company when you don't have to deal with any of the initial
obstacles," Painter adds.
A successful serial past can also enable you to move from one
industry to another smoothly. Rene Fritz, a Vancouver, Wash.,
businessman whose first four companies were in the sawmill industry,
was able to branch into a variety of different fields, from human
resources to industrial titanium. Along the way, he figured out how to
get investors to back someone who was brand-new to a market. When he
was raising money for the titanium venture, Fritz put together a
five-minute video featuring his five-person management team explaining
why they had quit their jobs (and in most cases, taken pay cuts) to
join him. Focusing on the team paid off. He raised $5 million.
What You Never Learn: When to Stop
Ultimately, what serial entrepreneurs share is a mindset: They're
willing to just try. "Starting a company is a very imaginative,
innovative, energy-driven, fun process," says Dick Kouri,
entrepreneur-in-residence at the University of North Carolina's
business school and a 12-time company founder. Serial entrepreneurs
"can't wait to do it again," he says, and the process quickly becomes
addictive -- almost a compulsion.
Kent Sutherland, for example, sees business opportunities all
around him. His ministorage business grew out of hours spent staring at
a narrow 82- by 1,000-foot lot across the highway from his office,
contemplating what that land might be used for. And Sutherland is
evaluating several new businesses right now. "I'm 48 years old," he
says, "and I'll be working till I die, constantly looking for different
means of growing my business or starting another."
Other serial entrepreneurs, perhaps less self-aware, claim they've
finally had enough. Ron Berger, for example, swears that Figaro's is
his last venture. Well, except that bakeries are interesting, and he
could do a lot with ice cream. And Frank Giotto insists that three
companies are all he wants. On the other hand, he did start a
restaurant last year (it folded); and he also recently took a 25% stake
in a Chinese cable manufacturer. But other than that, no more, he says
firmly. "I don't see myself really..." and he pauses, maybe thinking of
a real estate venture or an electronics company or a snazzier foosball
parlor, and the rush that comes with creating those. "Well -- ahhh --
who knows," he laughs. "If you threw in your fishing line and caught a
fish every time, you wouldn't go fishing. Because there wouldn't be a
challenge." In the adrenaline-fueled world of building companies,
fortunately, another challenge is always sure to present itself.
Back
|
