Anatomy of a Start-Up, Part 1: The Climb Begins

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In mid-October Richard L. Thompson, 44, and Lawrence G. Braitman, 40, co-founders of Flycast Communications, a Web-based advertising firm, flew from San Francisco and Princeton, N.J., to Austin, Texas. They were scheduled to meet Arie P. Schinnar, 52, an associate professor at Wharton, who was flying in from Philadelphia to join them at a conference about business incubators. When the proceedings began, however, the men realized that attending the conference was likely to be a waste of time: One session, for example, debated how often incubators should replace their carpets. So Braitman, Schinnar, and Thompson -- together with Thompson's fiancée Rhona Rogers -- spent the next two days holding their own conference, an exercise that proved to be much more productive.

By the time they were done, a new business was born. Braitman, Schinnar, and Thompson decided to form E*Entity, a company they define as a so-called business accelerator. E*Entity plans to help entrepreneurs launch Internet ventures by providing them with services that might include seed capital, support in advertising, public relations, access to strategic partners, management talent, and possibly even offices. While Braitman, Schinnar, and Thompson are still discussing the exact mix of services, they know one thing: E*Entity will help entrepreneurs get their companies off the launching pad into the market -- and fast.

Says Thompson: "In the past, it took a year or more after conception for a company to get its first round of funding, and if it did not run into difficulties, it could go public in five to seven years. Today, if it wants to gain market leadership, it must do this in a land grab in six to nine months. Our accelerator will bridge that gap."

Entrepreneurs form companies to fill a market need, and Braitman, Schinnar, and Thompson are no different. They believe that E*Entity meets at least two needs.

First, as the Internet phenomenon has burst upon corporate America, the past couple of years have seen a tidal wave of capital flood the investment market for e-commerce start-ups. Venture funds that would have traditionally waited for a company to become established before investing in them have begun to fund businesses at very early stages of growth. As a result, e-commerce entrepreneurs who in the past might have had to turn to family and friends for seed capital can now approach venture funds, which will pony up cash if they like a start-up dot-com's business model and management.

"We now have new kinds of venture capital enterprises, which we call business accelerators, which are bridging the huge gap in valuation between start-up and market entry," says Braitman. This creates a need for companies like E*Entity, which can do their own due diligence and find promising deals for potential investors. As Schinnar adds, "We have a situation where flows of business ideas and new venture money are accelerating. The venture capital community, which is still a cottage industry, cannot handle this volume. Funds are under pressure to spend less time [looking into deals] because they have to move things along. This creates a vast opportunity for market entry and innovation."

Second, speed has become a critical competitive factor in the Internet economy. Example: Epinions, an Internet start-up in Mountain View, Calif., assembled its core management team, got $8 million in venture funding, wrote a marketing plan, hired 31 employees, and launched its web site within 12 weeks -- a story that The New York Times magazine reported in a profile titled "Instant Company."

If that pace increasingly represents reality, and if entrepreneurs who want to gain market leadership are merely months away from their closest rivals, a company like E*Entity can add value by helping make things happen faster. Thompson says he and his partners will do just that. How? By simultaneously setting in motion value creation processes -- such as finding a reputable law firm, ad agency, PR agency, and most important, a strategic partner with the right customers -- that might otherwise have happened sequentially.

While E*Entity is looking for start-up firms, it is itself a start-up firm -- and its formation offers an unusual opportunity. As the creation of two self-described "dirty-nailed entrepreneurs" and an academic with a taste for theory, it offers rich glimpses of the processes involved in bringing a new company to life. Over the coming months, E*Entity will face huge challenges as it seeks to define its vision, find customers, and create an identity in a volatile and savagely competitive market. Knowledge@Wharton and inc.com will follow E*Entity as it confronts these challenges and report on its experience.

For now, the first and biggest challenge that E*Entity faces is defining itself. Braitman, Schinnar, and Thompson have been asking themselves a host of questions: What services should E*Entity offer the entrepreneurs it wants to serve? Should it provide them with office facilities? If so, where? Should it provide other services that have greater impact and add more value? What would be most central to the needs of E*Entity's clients? "We are looking at what some of the potential companies we want to work with will need and what their desires are," says Braitman. Braitman, Schinnar, and Thompson have different perspectives on these issues, shaped in part by the different backgrounds and varied paths that have brought them together.

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