There’s Still Money Out There for Entrepreneurs

In spite of broad economic challenges, speakers at the 2009 Entrepreneurship Conference at Stanford say it’s a great time to start a business.

February 01, 2009

| by Joyce Routson

Even in the face of plummeting market profiles and climbing unemployment, it’s a great time to start a business, counseled speakers at the annual Entrepreneurship Conference at Stanford GSB. Just be sure to use your GSB network connections. Oh, and have some fun.

The day-long conference, held February 25 as part of Entrepreneurship Week at Stanford, attracted some 400 students and professionals to hear more than 30 speakers invited by the student entrepreneurship club and the School’s Center for Entrepreneurial Studies.

The conference got off to an easy-going start with the humorous observations of keynote speaker Paul Orfalea, founder of Kinko’s Inc. Orfalea, who grew the copy chain to 1,200 shops worldwide, attributed his success to luck and observation rather than business prowess.

“I was very lucky I didn’t have too many skills,” he said.

A graduate of the University of Southern California (“near the bottom of my class”), Orfalea founded Kinko’s in 1970 in Santa Barbara, Calif., after noticing one copy shop in town, frequented by University of California students, always had a line out the door. He rented a space and named the business Kinko’s after his curly red hair.

Orfalea sold the business in 2004 to FedEx and retired at the age of 50. Today, he runs a foundation, invests in other businesses, and dispenses wisdom on the speaking circuit.

One of the stories he enjoys telling is how — lacking the ability to learn by reading, since he is dyslexic — he learned about business from experience. “I didn’t like the written word,” he recalled, but looking at the students lined up he could see a way to make money.

“Too many skills and too much knowledge can get in the way of important things,” he said.

Orfalea advised young entrepreneurs to strive for balance in life. “You’ll be a better leader if you’re a more balanced person. All you workaholics, drink some beer.”

Despite a sinking economy, panelists addressing “Entrepreneurship in a Difficult Economy” were bullish. Jim Goetz, a partner with venture capital firm Sequoia Capital, urged would-be entrepreneurs to follow their dreams. “If you have the passion, go ahead,” he said. “Don’t let the current environment stop you. There are plenty of folks with capital.”

But he cautioned that in order to get venture capital, startups must focus on capital efficiency and have a solid value proposition. Some of Sequoia’s significant investments today are in the medical device and healthcare services industries.

Munjal Shah, cofounder and CEO of Like.com, echoed Goetz’s advice about opportunity in a downturn. “There is opportunity,” Shah said. “Get creative and figure it out — and see me.”

In 2004 Shah founded Like.com, a visual search engine for shopping. The Stanford computer science graduate, MA ‘97, advised “being paranoid” about having enough cash, even in good times.

To weather the recession and keep the company on the path to becoming profitable, Like.com has eliminated employees even though it raised $30 million last year. “We sit on a lot of cash, but you can’t architect a business if you have to worry about cash,” he said. “You have to be cheap up front.”

Bob Walters, president and CEO of Untangle, an open-source software seller, said recessionary layoffs mean great talent is available for your business. “You can recruit the finest athletes and upgrade your team,” he said. “You want to be in the strongest position when the economy turns.”

Walters said he has had to pare down staff and accelerate web development due to the recession. The San Mateo, Calif.-based company plans to break even next year.

Raising capital is tough for an early-stage company, but how do you get started when you’ve never owned a business before? The panel discussing “Starting a Business Right Out of School” featured four Stanford GSB graduates who head their own companies, all started in the past six years.

Darin Buxbaum, MBA ‘04, knew he needed a lot of money to take his medical device company from idea through R&D, trials, and approvals, and to market. “It looked like a very black hole,” he recalled. But he said he learned to set short-term milestones. Instead of raising $3 to $5 million at the outset, he found $500,000 would let him build up enough of a track record to impress subsequent investors and get a prototype in the works.

His company, HourGlass Technologies Inc., is developing a device that can be delivered orally to reduce stomach size. The incisionless alternative to gastric bypass surgery is scheduled for market in 2012.

Buxbaum, like the other panelists, said the Business School faculty and their networks were helpful in connecting him to possible investors and other serial entrepreneurs. In addition to angel investors, he is currently seeking venture funding.

At the other end of the fundraising spectrum was Pete Flint, MBA ‘05, CEO of Trulia Real Estate Search. The three-year-old company has raised $33 million in venture capital and now has 80 employees. Flint said the Stanford network was not only valuable for introducing him to sources of income but also for people to help build the business basics. He used students to do basic coding for his website and the Business School’s Center for Entrepreneurial Studies for office space. Of fundraising, Flint said his first investors weren’t venture capitalists but rather from his network. “I met my first investor in the entrepreneurship club at the GSB,” he recalled.

Brad Stroh, MBA ‘02, CEO of Freedom Financial Network, and his partner bootstrapped the company with $1 million from their own pockets, friends, and angel investors. Today the debt-relief company has 525 employees and three offices throughout the West. He said his Stanford Business School connection was invaluable when doing the groundwork for the company. “A cold intro with you saying you’re a Stanford Business School student is a very powerful tool.”

“The GSB is one of the richest entrepreneurial environments in the world,” said Alyssa Rapp, MBA ‘05, founder and CEO of Bottlenotes.com, a personalized internet sommelier service with wine shopping, advice, clubs, and news.

Rapp said the Stanford network helped introduce her to wine industry executives who were instrumental in helping her map out the business and take the plunge. “I had a bunch of people who wanted to see me win,” she said. “If you have people with obvious success stories coaching you, your risk is somewhat mitigated.”

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