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You Gotta Have an Attitude
by H. Irving Grousbeck
These are extraordinary economic times. Although there has been a net loss of jobs in heavy manufacturing over the past 20 years, our economy is vibrant, and new jobs are being created each year. These positions are not the result of big companies expanding their operations; they arise largely from entrepreneurial efforts, because individuals had visions they pursued and people in the market-place were willing to buy the products and services flowing from those visions. By H. Irving Grousbeck. Yet most of us feel that we're observers, that we're on the outside of this wave of entrepreneurism. We ask ourselves: How would I become an entre- preneur if I wanted to? Are entrepreneurs born like .300 hitters in baseball, or can they be made? If you think you might want to own your own company, try matching your outlook with five attitudes we've observed in most entrepreneurs.
 1. An unending dissatisfaction with the
status quo. You're not happy with things as they are. You think that you can do
something better than it is now being done and that you can build a business around that
notion. 2. A healthy self-confidence. You are willing to be lonely, to make tough decisions, to stand on a level of the organization chart with no peers, and to have the buck stop with you. 3. What I would call "responsible competence." You feel good at what you do, you think you can do more, and you're willing to stretch. 4. A concern for detail. You are meticulous by nature or astute enough to find a partner who is. There are very few successful entrepreneurs I have seen who are broad-brush people in all aspects of their lives. They may be generalists in some respects, but in the areas that are critical to success they're meticulous. 5. And finally, perhaps most importantly, a tolerance for ambiguity. You are willing to accept an uncertain future. You're not sure that you will have a job tomorrow; you're not sure that you will have an income tomorrow. You're willing to give up the corporate environment that you know -- the peer group, the customer base, the daily routines -- and you're ready to establish your vision of a venture in the marketplace. A tolerance for ambiguity should not be confused with a love of risk, because the best entrepreneurs I know are constantly asking themselves how to shrink risk out of a situation. OK, you've matched up your attitudes with those that I've described and you pass. Maybe not a perfect match along all dimensions, but a pretty good one. The question becomes: How would you begin to become an entrepreneur? How might you go from employment to self-employment? How could you get from here to there? Let me begin by identifying one thing you should not bring to your own business -- money. Don't bring money, you say? How can capital be anything other than an advantage to a would-be entrepreneur? Well, one of the things we teach is that the functions of the entrepreneur and the capital supplier are very different. Nowhere is it written that an entrepreneur needs to supply capital. The disadvantage to an aspiring entrepreneur of having money is this: One tends to define the scope of one's venture according to the size of one's pocketbook. As for the process, there's only one basic requirement: Figure out how to buy yourself some time. If you're going to buy a company (and in my judgment, buying a company is every bit as entrepreneurial as starting one), establish a period of at least two years during which you can devote almost full time to finding and acquiring that company. If you're going to start a company, prepare to live for some period of time -- at least six months, perhaps up to two years -- while your idea is being perfected and market-tested, and the resources are being assembled to get started. You need to establish yourself apart from your pres-ent job so that you can use the morning of your energies on your new venture. Because if you're going to work full time and have family responsibilities and want to have any life outside your professional endeavors, you're only going to be able to give the evening of your energies to your new venture. New ventures demand first-class energies, first-class enthusiasm, first-class intelligence and alertness, so you need to be able to leave your pres-ent position and live for perhaps six months to two years, depending on the nature of that venture, while it's being pursued. And if you think it's six months, it's probably a year, and if you think it's a year and a half, you'll probably need three. Entrepreneurship defined At the Business School, we think of entrepreneurship not just as starting companies or buying them. Rather, we believe it is an approach to general management that begins with an opportunity orientation. Our working definition of entrepreneurship is "the pursuit of opportunity without regard to the resources currently controlled." We think that the important difference between an entrepreneur and an administrator is that the entrepreneur is opportunity-driven, whereas the administrator tends to be resource-driven. An administrator might say, "These are the resources under my trusteeship, and I should protect them." We believe that the entrepreneur is willing to rent resources, while the administrator wants to own them. We think that a dissatisfaction with the status quo is often what impels an entrepreneur, whereas an administrator, even a forward-looking one, is often thinking in terms of evolutionary developments -- of how he or she can improve the current situation at the margin. Our basic entrepreneurship course starts by identifying opportunity and then goes on to define the resources necessary to capture the opportunity, assemble those required resources, manage the operation, and distribute value. Our overarching objective in that course is to demystify the entire entrepreneurial process. Analysis is not something to be left outside at the doorstep; rather, it is a critical element in optimizing the odds of entrepreneurial success. Many students who come into our courses have shied away from even considering entrepreneurial careers because of the perceived risks. Many of them owe a lot of money when they leave school, they don't have operating experience, and they be-lieve that becoming an entrepreneur is unlikely to begin with and certainly very risky. But we ask them, "What's the worst thing that could happen if you were to become an entrepreneur?" Not by way of proselytizing them, but just to teach them to be better risk analysts. Is one of those risks that you won't eat? No, that's not a risk, not if you've provided properly for the bridge period when you're contemplating how you're going to get your venture started or what company you're going to buy. Even after the venture is up and running, there's going to be a salary there for you; it may not be a market salary but it will be a salary that allows you and your family to exist. Is one of the risks that you will forever be paying off debt if you fail because you've incurred a lot of personal obligations? No, that shouldn't happen, because, as I mentioned earlier, the entrepreneur should not be the capital supplier in most cases. Risky business Do we think that the entrepreneur who is unsuccessful will forever be branded a failure and unemployable? Absolutely not. The record is replete with failed entrepreneurs who find numerous job offers available to them. Certainly there is risk and indeed a certainty of some opportunity loss, because if they hadn't been in their failed venture, they could have been working for General Gigantic and making two years' worth of progress in that company. We think that the main risk resulting from an entrepreneurial failure is that the would-be entrepreneur may become constitutionally unemployable. He or she has almost surmounted the bar by getting into business for him or herself and has seen what it would be like to be self-employed. It becomes emotionally difficult to go back to work for another company. The risk is significant and should be contemplated very, very carefully. Many of us have thought that some day we might become entrepreneurs, yet statistically most GSB graduates have not pursued entrepreneurial careers. (According to a recent survey, 26 percent of Stanford MBAs who had been out of school between 20 and 30 years identified themselves as entrepreneurs.) Even so, every GSB graduate will at some time be consulted about entrepreneurial ventures by family members, friends, neighbors, and others. So we attempt to have those of our graduates who take our courses go into the world with at least some knowledge of what the entrepreneurial process involves and what some of the key issues are that entrepreneurs will confront. About the author: H. Irving Grousbeck, himself a successful entrepreneur, is a founder of Continental Cablevision Inc., the third-largest cable company in the United States, which was recently acquired by U.S.West. Codirector of the Center for Entrepreneurial Studies, Grousbeck has been teaching entrepreneur-ship at the GSB for the past 12 years and was named Class of 1980 Consulting Professor of Management last year. He is coauthor of New Business Ventures and the Entrepreneur (Irwin, 1994), now in its fourth edition. This article is adapted from a speech he gave to GSB alumni/ae in October. A guide through the legal labyrinth
* 'I'll put in $2 million based on three pre-money.' * 'I'm thinking two-thirds based on three pre; that will get you to five post.' * 'I'm looking for 40 percent of the company post-money and for that I'll put up the two.' Each of the above statements is a different way of expressing exactly the same proposal." The authors are well qualified to interpret VC lingo. Dauchy is not only the managing partner of the Silicon Valley branch of the legal firm Cooley Godward but is also in charge of its firm-wide venture capital practice. Bagley, senior lecturer in law and management at the Business School, teaches Legal and Regulatory Challenges in Entrepreneurship and cowrote the book in part to use as a text in that course. Bagley and Dauchy take the would-be entrepreneur from the decision to go it alone through the growth of the new venture to the initial public offering -- anticipating and explaining legal concerns throughout the process. There are chapters on deciding whether to incorporate, raising capital, and forming a board, as well as discussions of contracts, product liability, intellectual property, and human resources. "There is a need for a single definitive source that covers the main legal aspects of starting and growing a business, written in a manner that affords the reader the opportunity to efficiently learn about the relevant law, and at the same time have the benefit of practical tips based on experience," say Bagley and Dauchy. "We've designed the book to meet this market need." |
There may be nothing to prepare you for running your own company better than running your own company. For the ultimate "internship" for young entrepreneurs, consider the increasingly popular phenomenon of what Grousbeck calls "search funds." "Back in the mid-eighties," says Grousbeck, "a couple of recently graduated MBAs got a small group of backers to support them in searching for a company they could purchase and then run. The search fund model has gained a head of steam in the past five or six years, to the point where more than 25 individuals or pairs of recent MBAs have raised funds of $200,000 to $350,000 apiece soon after graduation. So far, everyone who has raised a fund has either bought a company or is still looking for one. Of the companies purchased, not one has failed -- and four of those companies have been sold at substantial profits to the investors and to the entrepreneurs." It's quite a record. And what's even more surprising is that none of the young CEOs had had any operating experience at all. "The idea," says Grousbeck, "is to make up for the lack of operating experience of the graduate by finding a company that is simple, without a big product development cycle or a big technology component or multiple locations; is profitable at the time it is acquired; is of a reasonable size -- that is, between $10 million and $35 million in sales; can be financed conservatively; and where a board of directors can be assembled that can advise the entrepreneur." In other words, he says, "Here's an existing horse going around the track with a jockey on it, and we're simply going to change jockeys and put the MBA on the horse." For the first year or more, riding the horse is about all the new boss does. "We counsel the MBA to make no radical changes in the first 12 to 18 months," says Grousbeck, "but to simply learn how the company has run successfully and keep it going. After a little bit of operating experience and familiarity with the business, then start to make changes." Says an enthusiastic Grousbeck: "It's the most direct way I know for aspiring MBA entrepreneurs to get into business for themselves. And now that there are some 25 search-funders out there, those who have gone earlier are advising those who have come along more recently. Our objective is to have the search fund model grow, flourish, and be self-supporting, as one wave helps the wave behind it." Tell me if you've heard this one before. One of the guys had a great idea for a business. His friends loved it and agreed to help him get it off the ground. Within the year they'd rounded up capital from more than 100 backers -- most of them San Francisco businessmen -- hired a CEO, and opened the doors of their new venture. The year was 1925 and their "business" was the Stanford Business School. Decades later, their startup has outlived Herbert Hoover and his friends. Along the way, it has served as an incubator for innumerable new ventures that resemble their parent in their uniquely Western blend of audacity, vision, and optimism. To build on its long history of entrepreneurship, this year the Business School established the Center for Entrepreneurial Studies. Codirected by Charles A. Holloway, the Kleiner, Perkins, Caufield and Byers Professor of Management, and H. Irving Grousbeck, the Class of 1980 Consulting Professor of Management, the center will provide a foundation of research for the current program in entrepreneurship, formalize interaction and outreach to the business community, establish an entrepreneurship resource center, and promote further course development in the subject. "We're demystifying the old stereotype of the entrepreneur as circus barker," says Grousbeck. "We're saying that this is a career track that lends itself to rational analysis." Several analyses are already under way. Faculty from organizational behavior, strategic management, and human resources management are studying various aspects of 167 growing companies under the auspices of the three-year-old Stanford Project on Emerging Companies (SPEC), codirected by James Baron and Michael Hannan. Baron and Hannan are examining how and why firms get locked into particular ways of organizing and managing their workforce. Thomas Hellmann is anal-yzing the financing histories of the companies participating in SPEC. Independent of SPEC, William Barnett also is studying growth companies, Andrea Shepard and Joel Podolny are working on networking and locational advantage, and Joanne Martin is studying women in entrepreneurship. Their research is expected to enrich present courses and quite possibly lead to others. Currently the GSB offers 12 courses in entrepreneurship as well as modules in several other courses. Additionally, Holloway and Grousbeck are developing a new base course in entrepreneurship which will be available to MBA students next fall, and GSB faculty David Brady and Daniel Kessler and visitor Greg Dees of Harvard Business School have developed a seminar on social entrepreneurship. The course, which examines entrepreneurial endeavors whose core mission is of a social nature, will be introduced next quarter. For more information on the Center for Entrepreneurial Studies, Graduate School of Business at Stanford University, contact the center's administrative director at:
(Phone) 650-723-0887
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"The
venture capitalist's offer is often communicated in an arcane shorthand that is
unfathomable to the uninitiated," writes senior lecturer 
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