Building on Bedrock
Page 19
Today, Marlin and Associates is one of the most influential and lucrative boutique investment banks on Wall Street, now dominating M&A activity in three areas of specialization. Though the business is lucrative, Ken remains frugal—there’s still no expensive artwork on the office walls, no big expense accounts, no lavish spending of any kind. At heart, Ken Marlin is still a marine.
Contrary to popular belief, big organizations like the Marine Corps can train entrepreneurs. The armed forces taught Ken Marlin a great deal, including how to focus on clear objectives, develop domain expertise, lead and motivate others, operate with limited resources, and manage with discipline, as well as many other skills that are directly applicable to leading a startup. In fact, countries such as China and Israel consider fostering entrepreneurial ambitions in their recruits a strategic objective of their armed forces.
Many large organizations inadvertently train entrepreneurs. Pleasing a superior in a big hierarchy with a culture where initiative is recognized and rewarded is much like pleasing customers, particularly in a service business like investment banking.
Not all large organizations breed future entrepreneurs. Learning management skills in a highly regimented culture encourages instincts that impede entrepreneurial success. Highly regimented organizations are excellent at teaching the skills and instincts required to eliminate risk. But entrepreneurs cannot afford to eliminate risk entirely. While entrepreneurs do reduce risk through prototyping and experimentation, attempting something new and different always entails some risk. Highly regimented organizations school their staff to become intolerant of risk, impeding the development of entrepreneurial leadership skill sets. The clear lesson for aspiring entrepreneurs: Learn your leadership skills in a culture that embraces change and succeeds at innovation.
Where to Tech
Like “entrepreneur,” “technology” is a loaded term needing definition. Most people imagine that technology requires manipulating electrons and atoms to make humans more and more omnipotent—which is sometimes the case. Other people think of technology more broadly as anything produced under the supervision of engineers and scientists. To still others, technology is a universal force that advances what humans can do.
For the purposes of both aspiring and existing entrepreneurs, technology can be more usefully defined as a synonym for innovation—a new action, product, or piece of information that some user group feels is more useful or insightful and that offers a better way of doing what they do.
My grandmother and my father provide great examples of where entrepreneurs learn to leverage technologies to their advantage. My grandmother on my mother’s side was a British lady who did not suffer fools or discomfort lightly. Fools were what she considered most of her teachers at her proper British ladies boarding school to be, so she ran away and made her way to Hollywood, where she hoped to make it as an actress in the brand new field of moving pictures. My grandmother never made it in Hollywood beyond being an extra, which she found irritating, but not as irritating as the costumes she was made to wear. She hated putting them on, particularly because they often required that she bind her breasts—Hollywood directors at the time wanted to make young ladies in films look sexy by wearing low cut gowns and dresses. Ladies with unbound breasts beneath their dresses or ball gowns were considered too sexy to be shown on screen, so before donning their gowns actresses had to tape their chests. My grandmother considered it a barbaric practice, so she did something to eradicate it—she invented the backless bra.
It took several attempts to get all the forces at play to balance out in a design that was both comfortable and “reliable.” Even though my grandmother had never finished high school, her design was a great example of mechanical engineering using soft fabrics. In her next role as a sexy extra, she wore the backless bra she had just invented. The garment caused a sensation—all the other aspiring starlets on the set wanted one. It was a perfect demonstration of technology and innovation at work. Inundated with requests, my grandmother set up her own company to make her “Maxwell Bra” (Maxwell was her maiden name). She eventually sold the company to Maidenform.
My grandmother’s story is essentially the same as that of Sara Blakely, the inventor of Spanx, and of countless other entrepreneurs who tinkered with existing materials, tools, and techniques to create products others found useful. My grandmother’s story is also the story of Stephanie DiMarco, who used a new tool—computers—to eliminate the tedium and inconsistency of asset management accounting. Tinkering with existing materials and tools to solve a real problem for a group you know well is tech entrepreneurship at its classic best.
My father serves as a more typical example of entrepreneurship meeting new technology. He grew up in the Baltic region of what was then Russia and later Poland. A good student, he was admitted to the Berlin Technical University, at the time perhaps the best technical school in the world. During a lab assignment devoted to a new phenomenon involving the transformation of light into electricity, my father accidentally burned up the tiny photoelectric device he was experimenting on. In those days, students had to pay for whatever they broke, and my father was forced to turn over two months’ allowance in order to remain in class. He survived the rest of the school year by eating oatmeal.
My father always said that he figured that any small device that could be that valuable must be a good business. So he decided to learn as much about the technology as he could. A few years later, he fled from Germany, shortly before Kristallnacht, and made his way to New York City. He entered through Ellis Island with just the proverbial suitcase and a few dollars. Because nobody was interested in hiring a German-trained electrical engineer who couldn’t speak English, he took a job provided by a distant relative—loading tires onto trucks.
After learning English and progressing through several unsatisfying jobs, my father answered a newspaper ad for an engineer who understood the photoelectric effect—exactly what he had studied. He applied, won the job, and within days boarded a train to Los Angeles to take up his new position. Upon arrival, after his five-day trip across the country, he was informed at the train station that the company had gone bankrupt. Even back then, high-tech companies had a high mortality rate. The company had developed a machine to quickly develop photographic film, but movie companies, the biggest consumers of film at the time, were content to do it the old way and didn’t want to diddle around learning a new technology. Even today, user apathy about the benefits of technology remains a primary reason that so many technology companies fail.
The bankruptcy, however, created a unique opportunity. My father teamed up with the sales and operations managers of the defunct company. Using my father’s technical skills and the managers’ savings, they bought the bankrupt company’s equipment to inexpensively start their own business. They focused on potential customers—camera manufacturers—that the sales manager believed would be more interested than moviemakers in using photoelectric cells. The new company started making photoelectric cells that would automatically control shutter speeds. The cells that my father developed were the best available in the United States at that time, so he quickly found customers. With subsequent development by my father and many others, the cells eventually morphed into the semiconductors and other solid-state electronic devices the world has come to rely on. With profits, mortgages, and, only many years later, money from investors, my father created one of the pioneering companies in the semiconductor business.
So where should you prepare to be a high-tech entrepreneur? The same place you should develop any other skill that will eventually make people want to buy what you make: You prepare to be a high-tech entrepreneur where you can learn the technology from a master.
It makes a great difference where you learn the skills that enable you to do things better and differently than everyone else. When you start your enterprise, you can only count on being as expert as the bosses and colleagues who taught you what they knew and supervised your practice. Jordan Monkars
h learned sausage-making from his dad, a skill he augmented with recipes he learned while travelling the world. Stephanie DiMarco learned asset management accounting from experienced practitioners and was then allowed to experiment in developing asset management software directly with people who used it. Vidal learned to perform autopsies from the Los Angeles County Coroner. Sam Walton learned how to manage a retail store from Ben Franklin franchise store supervisors and trainers. Estée Lauder’s uncle made great skin creams, and her aunt was a great sales mentor. Ken Marlin learned how to put together complicated acquisitions by working on behalf of Dun & Bradstreet on a dozen deals with top lawyers and investment bankers. My father, like many high-tech entrepreneurs, developed his skill at a major research university. My grandmother learned what she needed to know about fabrics and mechanical engineering from the seamstresses and movie set designers she worked with at the movie studio. There was plenty more each of these entrepreneurs learned on the job after they started their companies, but the skills that differentiated them from their competitors were initially learned from highly skilled and savvy coaches.
But in every case, in every industry, and particularly with high tech, the entrepreneur’s technical skill matures and becomes practical through direct feedback from the people the entrepreneur aspires to entice into using the technology. For my grandmother, that took place on the movie set. For my father, it happened where he could both get access to the right equipment and team up with a knowledgeable sales manager who could introduce him to high-end camera manufacturers willing to try a leading-edge technology. Commercializing technology happens only in direct contact with some needy group; it doesn’t happen in the laboratory.
Where There’s Culture
Each year, Princeton arranges a field trip for our entrepreneurially inclined students to the startups of Silicon Valley. We don’t send them there to show them where they can learn new or better skills—their skills are already impressive—we send them there to soak up the culture of the place. Working in Silicon Valley differs from working in most other locations around the world; it focuses much more intently on achieving results quickly. Status, and therefore motivation, is based on the magnitude of your ambition for your enterprise. The culture attracts a disproportionate percentage of the world’s most ambitious software programmers, product managers, and venture investors. Such highly ambitious people feel more respected and motivated in Silicon Valley.
The culture in the Valley also pushes entrepreneurs to develop high-value and proprietary capability—their own secret sauce. The high cost of living in the area puts pressure on everyone to “shoot for the moon” and “do it fast.” Silicon Valley embraces, nurtures, and supports high-risk entrepreneurship writ large while burning out almost everyone else.
Silicon Valley culture also erects higher hurdles for success. Because salaries and rents are so steep, businesses in the area are at a cost disadvantage compared with similar businesses located elsewhere. Companies that set up in Silicon Valley suffer higher turnover of their key personal. But these higher costs and higher rates of employee turnover may not matter to companies that control valuable information and networks. They don’t require large numbers of people to operate. Instead, they need relatively few people with mastery of highly specialized skills.
Unsuccessful firms die faster in Silicon Valley than they do elsewhere. Companies judged by Silicon Valley inhabitants to have poor chances of success cannot attract either the people or money they need. Businesses whose structures require time to mature and create value are penalized if they locate in Silicon Valley, relative to their competitors in less costly locations. Unless Silicon Valley confers special advantages to your business, you are actually disadvantaged there. So the answer to “where to prepare?” may not have the same answer as “where to start?”
When it comes to software, social media companies, and companies with business models focused on exploiting network effects, Silicon Valley is what I call a vibrant entrepreneurial ecosystem (VEE). It attracts people who want to leverage their software, electronics, and technology marketing skills to make money and to work on projects they consider interesting and fun.
But Silicon Valley is not the only VEE. If you want to start a company that makes movies or other entertainment content, then Los Angeles is the place to be. That’s where you’ll be able to most easily find talent, support services, funding, and partners. New York City is a vibrant entrepreneurial ecosystem for financial startups. Wisely, Ken Marlin started his investment bank in New York, not Silicon Valley or LA, even if his business concentrated the bulk of its attention on information companies not located in New York. If you want to make a difference in international high fashion, then Milan or Paris may be the best places to start. In Shenzhen, China, electronics manufacturing expertise and support services abound.
Many vibrant entrepreneurial ecosystems are local. Streets with heavy pedestrian traffic and shopping malls provide restaurants and movie theaters with large numbers of potential customers specifically looking to enjoy themselves. Public transportation is convenient and plentiful around entertainment and shopping destinations, which makes it easy to hire low-wage employees who don’t own cars. Local entrepreneurial ecosystems often form around clusters of car dealerships, with many automotive support and service businesses located nearby, and attract customers from great distances. Similarly, marinas are where you find businesses that provide support to boat owners.
Beware of VEEs
Vibrant entrepreneurial ecosystems attract people who want to start new businesses much like the ones that have prospered there. If you are looking to start a business where a VEE confers competitive advantage, and you have the big-league credibility to steal the talent you need from competitors, then starting your company there makes sense. Moving from Boston to Silicon Valley worked for Mark Zuckerberg and Facebook because he had already attracted the experienced and well-known Sean Parker to lend him the credibility he needed to compete for money and people. Without significant credibility, like prior experience and an impressive team, starting an enterprise in a VEE is often a mistake. It’s a big challenge finding the talent or money you need among people located in a VEE because they’re all looking for those who already have what it takes to succeed in that particular big league.
Sam Walton could have started his first store in Chicago, which was a vibrant retail VEE at the time. Marshall Fields, Sears Roebuck, and many other prosperous major retailers were located there. But Sam knew better than to try to launch his business in Chicago, and his wife instinctively asked him to kill his plan to launch a store in St. Louis. He was still taken to the cleaners in Newport, Arkansas by his landlord, who hijacked Sam’s store for his son. Though Sam was a fast learner, it took him seventeen years of opening and running fifteen other Ben Franklin stores before he felt confident that he could open, run, supply, and merchandise a discount store of his own.
Successful first-time entrepreneurs do exist in Silicon Valley, but almost all of them have been executives with significant and relevant responsibilities in related businesses. They started with credibility. Similarly, most successful restaurants on highly trafficked pedestrian malls were started by restaurateurs who already had significant food service experience.
Where’s the Family?
I started iSuppli in Los Angeles, which was definitely not a vibrant ecosystem for information businesses or other businesses that served high-tech customers. Few customers for the information we were selling were located in the greater LA area. Few local investors would have been interested in investing in my venture. Nor were there the people with the highly specific expertise the company needed. I started iSuppli in LA because my wife and two sons were comfortable and settled there, and I didn’t want to uproot them, especially at a time when my entrepreneurial aspirations were creating enough turbulence in our life.
For most entrepreneurs, family is the dominant factor in their decisions about where to start their business.
Starting a business close to family and friends has major benefits because it adds emotional support during an extremely stressful time. And if you start a business similar to the business you’ve just been working for, then starting nearby can give you the advantage of already knowing where to find competent labor and support services.
Did founding iSuppli in LA hurt my chances of succeeding? I had plenty of competitors, so succeeding was not easy. At iSuppli we compensated for not being able to attract industry experts to LA by being flexible, letting the experts we hired work from their homes or in offices we set up in and around the major technology centers of the world. Our flexibility and extra efforts resulted in higher costs and more time wasted in travel. But our headquarters location didn’t prevent us from succeeding because our competitive advantage came from the uniqueness and value of our information, which allowed us to sell our datasets for large amounts of money that more than covered those extra costs.
In summary, the lessons about where to learn the skills you need are clear-cut:
Successful friends and family are every entrepreneur’s most accessible source of support and mentorship. The extra attention friends and family are willing to give you can enable you to acquire valuable skills faster and more competently than at school or a job.
You can learn valuable entrepreneurial skills in big organizations. Pleasing a superior in a big hierarchy within a culture where initiative is recognized and rewarded is much like pleasing customers, particularly in a service business like investment banking.