They Are Better Prepared
As Managers
As Industry Insiders
With Market Research In Hand
Wild-eyed dreamers? Never. On a hunch? Not on your life. Outsiders? No way. These well-trained, well-heeled, and well-prepared late bloomers are no novices. They'll be ready to go solo. Because more will emigrate midcareer from previous professions and larger organizations, they'll come with the skills and assets to construct a business.
As Managers. They may be newcomers to entrepreneurship, but they're likely to be old management hands. "I saw a lot of entrepreneurs who did not have the experience, background, connections, or capital I had," says Ed Bettinardi, the former vice-president of Manville Corp. "And I thought, Why can't I do this?" After 30 years, he had salted away a stash of savings and experience. He had held positions that ranged from corporate planning to systems management. After doing consulting for several small companies -- "watching a lot of them borrow money, then piss it away" -- he found his own rough gem of an idea: a reading device for the visually impaired. "When I looked at the combination of experience and capital I had, it was a natural thing to do." And he had a warehouse of expertise to call on: he knew how to research the market, cost the product, source parts, woo suppliers, handle regulators, and analyze risk. Most important, he knew how to sell. Someone with less savvy might have spent twice as much to launch the company.
As Industry Insiders. Founders in this decade will pack an oversupply of one quality that has long characterized companies that grow and survive: industry experience. In a tougher marketplace with a low tolerance for error, they'll need more of it. And with large corporations continuing to hemorrhage managers, the new converts to entrepreneurship will be coming to their ventures smart. Industry insiders, such as veterinarian Kitson Logue, have a clear advantage. He'd spent a decade in the animal industry, including several years in marketing for the leader in premium pet foods, before launching Stewart Pet Products. The experience gave him the eyes to spot a neglected niche in the biscuit market. When he decided to introduce a dietary product through veterinarians, he knew the market, the channels, and the potential competitors by first name. "I had the credibility of being a vet. I understood the professional markets and how they buy. I knew all the players in the industry. I could list the distributors by name." He knew whom to call to check a potential customer's paying habits. He even knew the consultant a rival had hired to spy on him. "It came with being in the business awhile."
With Market Research in Hand. Whether they've previously worked in an industry or not, the founders of the '90s will complete their homework before entering it. Some, like Susan Michaels, may be inspired to start businesses they knew as dissatisfied customers. It won't be some vision thing that will propel this crowd into business. It will be cold research. "I knew television. I did my hair and asked questions for a living; what did I know?" Michaels confesses. To compensate, she worked on a business plan for 18 months. It ultimately helped her secure a line of credit against personal assets. In the process, she undertook an exhaustive analysis of the market in Seattle for renting formal wear. There were 20,000 weddings, and 600 galas a year, attended by 300 to 1,000 people. She interviewed corporate event planners, studied the cruise market, counted proms, surveyed the distribution, height, and weight of local women. She devised an equation to determine sizes and quantities of dresses to carry. She ran the numbers until she figured out how to turn a profit on the second rental of each dress. "I was not going to go on gut instinct."
Similarly, Ed Bettinardi conducted research with dozens of focus groups before putting his prototype into production. He visited hundreds of visually impaired people and called on their physicians and support groups. "Few people appreciate how much you need to know about a customer," he says.
They'll Seek Alternative Seed Money
From Savings
From Partners
Talk to entrepreneurs trying to finance a start-up these days, and you'll almost believe in a conspiracy theory -- in cahoots to choke off capital for fledgling companies are the recession, the banking crisis, the decline of venture capital, and the downturn in real estate, not to mention a daunting capital-gains rate inhibiting the self-made millionaires who bankrolled so many start-ups in the '80s. Even high-flying technology starts, accustomed to a healthy diet of venture capital, are going hungry.
Of course, most start-ups, lacking cash flow or credit history, have never done much more than fantasize about bank loans. But the collapse of the real estate markets (particularly on the coasts) has made dreams of bank financing even more remote. Bad real estate loans have siphoned off the capital that a few bold bankers might have lent to start-ups. Even worse, the downturn has devalued many founders' key cache of personal equity: their homes. A second mortgage -- often the best last resort of a capital-starved founder -- may no longer cover the cash needs of the first few months.
From Savings. Moribund capital markets make it plain: when it comes to seed capital, more founders will be bringing more of their own. Who'll have it? Not many. But once again corporate managers with blue-chip salaries stand a better chance of bankrolling their companies. "I've funded this whole thing myself," reports Bettinardi. "Prudent investing and saving -- that's where I found the equity."
