With their first ventures behind them, company builders have an easier time enlisting investors and employees for their next endeavor. But one key ingredient takes work to find: their entrepreneurial fire. How these veterans fuel that flame offers lessons to first-timers, too
Tom Weldon could not escape the feeling: he was missing something.
It started at the copying machine, as he was collating the pages of his fledgling company's business plan. And it trailed him as he headed back to the rickety table that served as his desk -- and as everybody else's desk, for that matter. Something, he knew, was lacking. Something that would help him feel more assured that his two-month-old venture, Novoste Corp., a maker of therapeutic medical devices, would follow in the successful footsteps of his first company, which he had started in 1987 and sold five years later.
Certainly, Weldon wasn't without resources in that late fall of 1992. Investors had already ponied up $2 million, and they didn't even ask as many questions this time. And the members of his carefully selected management team -- all three of them -- were pitching in just as he had hoped. Not to mention the fact that he had spared no expense in purchasing the finest office equipment he could find -- well, among the card tables and folding chairs at the local Kmart, anyway.
Leaning against the doorway, he watched proudly as Cheryl Johnson, director of marketing and business development, tapped away on the company's sole computer, which rested atop a packing crate. Nearby, vice-president of product development Jonathan Rosen -- a Ph.D., no less -- balanced on a folding chair while talking excitedly into the company's only telephone. These two, neither of whom had been part of a start-up before, seemed so energetic, so enthusiastic. Whether analyzing spreadsheets or taking out the trash, they seemed to love every minute of it.
Weldon knew the feeling well. He had experienced it himself back when he started his first company, Novoste Puerto Rico Inc. But not now. And that feeling, it struck him, was exactly what was missing. "They were just happy to be part of it," Weldon says. "It made me think, 'I need to get that back."
He's certainly not the only second-time entrepreneur to wish that for himself. Folks like Weldon can cite many advantages when they compare their subsequent outings to their maiden voyages: a proven track record makes for eager investors and employees, and the benefits of experience lessen the personal toll that each challenge can take.
Still, such entrepreneurs often find that they don't feel the same level of passion and involvement that fired them up during their first ventures. That makes sense. This time, of course, they don't have the same do-or-die financial motivation; they've presumably amassed enough of a financial cushion from the first venture that they're not really worried about where their next latte is coming from. Also absent is that oh-so-motivating fear of failure. True, they might embarrass themselves. But they are unlikely to end up cleaning windshields at busy intersections. "In your first company you always wonder whether you're doing the right thing," says two-time entrepreneur John Overby. "With the second company you bring the authority of your experience. You're more confident, and the experience is less stressful."
As a result, although it's hard for them to admit it -- even to themselves -- encore entrepreneurs can easily drift into a dangerous state of complacency. "I was afraid I didn't have the hunger, the sense of urgency, the drive it took to succeed the first time," says Weldon. "I was no longer terrified on a daily basis. Fear creates urgency." Weldon calls it the halo effect: you think because you did it and beat the odds that you're blessed. And, he says, "that just isn't the case."
Intellectually, of course, most company builders know that. But how can they ensure that their feelings stay in sync? "In the second venture, you don't have anything to prove," advises Dennis Jaffe, a psychologist and management consultant in San Francisco. "So you need to find something to get passionate about."
The challenge, he says, is shifting from the external motivators of the first company -- proving to your father-in-law you're not really a slug, attending your 30-year high school reunion clad in head-to-toe Armani -- to internal motivators. Often that means zeroing in on particular aspects of the process itself that you enjoy. According to Jaffe, that could entail anything from helping other people grow, to focusing on social-responsibility issues, to rethinking and redesigning your role within the company. The point is, find something. "People who have trouble the second time are not finding intrinsic meaning in what they're doing," Jaffe observes.
That's why Tom Weldon, John Overby, and folks like them find that it's best to battle such issues up front. Part of what shapes their second ventures, in fact, is their own knowledge about what they did and did not like about the first effort. That insight may affect how they define the mission of their next company, as well as what shape they give to its structure.
As counterintuitive as it sounds, passion is like any other raw material needed to run a business: if you don't have any, you'd better find a supply somewhere -- inside yourself. Nothing's worse, experts warn, than having to trudge through a company start-up as if it were torture. And that's not the kind of atmosphere that is likely to produce results. "You can't fake it," says Steven Berglas, a Boston-based psychologist and management consultant. "It's like trying to fake interest in sex. If it's not there, it's not there."
The following are some of the emotional demons that entrepreneurs plant inside themselves to ensure that they love their second company as much as they loved their first:* * *
It's a chance to prove that the first time wasn't just dumb luck
"Yeah, my first company made a mint selling The Lion King merchandise. So, what's your point?"
Most successful entrepreneurs will admit that luck plays a certain part in success. (Although they'll probably add that the harder you work, the luckier you get.) But, Forrest Gump aside, what are the odds that sheer serendipity will strike more than once? "I wanted to do twice what most people can't do even once," admits Tom Weldon, 39. "Then I could say that it had more to do with my skills, the team I built, our strategy and philosophy, and the lessons we had learned. If you're successful the second time, you prove to yourself that external factors had less to do with it."
Not that anyone ever suggested to Weldon that his role in his first company's success was about as relevant as the average lottery winner's part in having the winning ticket. " I said it to me," he admits. "Most of the people who knew me then felt I had earned every dollar I got. But I look back and see how I had little control over certain things. I needed to prove to myself that I had learned enough and that I was good enough to do it a second time." Jaffe compares such a tactic, which he says is quite common, to a football coach's trying to get energized for a new season after winning the Super Bowl. "How did George Seifert of the Forty-Niners get motivated?" asks Jaffe. "People didn't think the first time he won was fair. So he had to prove it wasn't a fluke."* * *
It allows you to set your sights on developing others
"You mean there's someone else in the world besides me?"
Remember those late-night bull sessions in your senior-year dorm room, when you and your collegiate coterie promised one another that when one of you made it big, you'd pull the rest of the group along? No? Well, then, you probably didn't go to college in the 1960s. Ed Farrer did, and he hasn't forgotten that promise, although it's not his college buddies he's pulling along with him; it's his employees.
Farrer admits that in 1985, when he started his first company, M.A.I.L. (Mailing Assistance in Lafayette), a mailing service based in Dayton, he was pretty much out for himself. "With your first business you're ego-focused. But in a later business you need something to keep you getting up every morning," he explains. "For me, that's the career success of the people I employ."
So with Quik-Pak Inc., Farrer's second venture, which he started in 1987 in Lafayette, Ind., he focuses on helping his employees develop more marketable skills. "You need to look at what's going to make the company stronger, not what's going to make you stronger," he says. "And to me, that's making my people stronger."
He proudly points to a 24-year-old computer-systems analyst on his staff who has already had experience as a manager -- going through the hiring process and helping to cultivate a fellow employee. "I try to give people opportunities to translate their experiences into something that's salable," he says.
Focusing on his employees, Farrer says, fulfills a spiritual need. "I have this dear friend who is an incredible songwriter. She just wrote a new song where somebody is asking her, 'What do you get out of writing songs?' She says in the song, 'It's a way of praying.' I couldn't say it any better than that. Helping other people out is to me a way of praying. When you help other folks out in their careers, there's a spiritual return on that investment. It's something that helps make me whole."
John Overby couldn't agree more. He learned from running his first company, Advanced Input Devices Inc., in Coeur d'Alene, Idaho, that "I like growing people."
When it came time to start his second company, Advanced Hardware Architectures Inc. (AHA), in Pullman, Wash., Overby knew that creating growth opportunities would not only help his employees develop but help him stay engaged as well. Because the company manufactures and designs semiconductors, Overby must employ a highly educated workforce. The challenge, he says, is providing employees with the business skills to complement their technical skills. To do that, Overby sets up teams of highly experienced "mentors" to work with the neophytes. "We hire the right mix of experienced people and bright young people with potential, and put them on the same design teams," he says. "We try to get them to make it through the learning curve in 5 years instead of 10."
Providing other people with the chances and challenges necessary to get ahead does wonders for Overby's motivation. "The satisfaction of seeing people grow turns me on. And it's fun. If it isn't fun, I don't care about the money, I don't want to do it."* * *
It's an opportunity to take on an even greater challenge
"This time I'm going to sell real estate -- in California."
Never underestimate the motivational value of one-upmanship, even if you're the one you're one-upping. Weldon felt that focusing on creating "more value in less time" and producing "greater returns for our shareholders" the second time around would present more than enough of a challenge to keep him motivated. "With the first business you're happy if you just don't lose your investors' money," he says, "but this time you're focusing on creating liquidity opportunities at an earlier stage and producing monumental returns." Weldon stresses that that should be an internal motivator: you certainly wouldn't make such a promise to your investors. "That would be risky from a legal perspective," he warns.
According to Berglas, that's typical -- and perfectly understandable -- entrepreneurial thinking. Challenge, he says, is a basic nutrient of the entrepreneurial diet. "And challenge doesn't exist unless it increases," says Berglas. "To the expert skier, going down the bunny hill isn't really skiing. As you progress you go from the green circles to the black diamonds. Pretty soon you have people dropping you out of a plane to ski." Likewise, the second-time entrepreneur, in order to keep from getting bored, needs to up the ante. The danger, says Berglas, comes when challenges turn into threats. "An entrepreneur needs to realize the competency he can exercise is limited. What does he do for an encore in round three? Triple his previous return? Pretty soon the bar is too high." But provided the second-timer is realistic about the goals he or she sets, upping the personal ante can be an effective tactic.* * *
It's a way for you to make a difference, not just a product
"We like making the world a better place. And the margins aren't bad, either."
If you buttonholed Randy Carlock to ask him about his accomplishments, he could justifiably brag about Audio King Inc., the Minneapolis-based stereo-equipment retail store he bought in 1976 and grew to a 10-store, $25-million company by 1991. (The company has since gone public and currently stands at about $50 million in sales; Carlock serves as chairman of the board.) Or he might flaunt his success with Computer King Inc., the computer-equipment retailer he founded in 1979, which had $3 million in sales when he sold it, in 1983. But what he'd be most likely to crow about these days is his nonprofit work at the Institute for Family Business at the University of St. Thomas, in Minneapolis.
Carlock developed a family-entrepreneurship program for the institute, an activity he views as being every bit as enterprising as his other two businesses. "I'm a lot more interested in my work at the university than in thinking about starting another business," says Carlock. "I love helping other people do what I did. I've created jobs and wealth; now I want to help other people create jobs and wealth. Would I get this much pleasure out of starting another business? I don't think so."
Besides, Carlock says, many of the same skills are pressed into service whether the new company bows before the bottom line or not: identifying opportunities, building teams, maximizing scarce resources, and expressing ideas. "You're working with the same knowledge base," says Carlock, "but you measure your success in totally different ways."
Other entrepreneurs prefer to take on a broader goal within the context of a for-profit venture. It was no accident that Peter Yates chose as his second venture to start Hyper-Quest Inc., a CD-ROM publisher specializing in entertainment/educational titles. He says he has always wanted to educate children. "Right out of university, I spent five years teaching. Growing up in England, we were taught some wonderful subjects, like astronomy, archaeology, mythology, anthropology," he observes. "They just don't seem to teach any of those anymore. They are incandescently wonderful subjects that Western education all but ignores."
Ever the genteel Brit, Yates bemoans the brutish influence he says Western culture imposes on its youth. "Our culture is so full of violence and negative images for our children," he says. "They are taught to solve violent problems with violent solutions." Yates feels that Hyper-Quest's products allow him to play a part in counteracting what he calls the "more coarsening features of our civilization." Oh, and it also brings in a few bucks. "I do have a serious mercantile streak," he confesses. "If this weren't making money, I wouldn't be doing it."
Weldon, too, says that his second venture seeks to "create products that are more meaningful and offer a greater benefit to society." Whereas his first company produced catheters that allowed physicians to diagnose problems such as heart disease, this time most of his wares are therapeutic: they fix problems rather than just pinpoint them. "When the surgeon who uses the product turns and smiles at me after the procedure, that's a real feel-good opportunity," says Weldon.
Super-squishy nonsense, you say? Well, don't get Weldon wrong. "I'm not interested in being a social worker," he says, "but I get more excited by products that go beyond filling a need."* * *
This time you can do what you really want to do
"Next year's marketing budget? Yeah, well, you need to speak to the CEO about that."
Why would Peter Yates, being presumably of sound mind and able body, give away the best job at his new company? He has his reasons, as it turns out. And good ones, too.
When Yates started Compass Technology Inc., in 1989, he naturally assumed the helm as CEO. Although he claims he has always had more of an affinity for the "big picture" aspects of running a company than for the day-to-day details, he nonetheless found himself responsible for all of the above. Enter son Julian, who quickly proved himself invaluable, not only as the sales manager but as the operations chief as well. "There were many examples of things I was good at planning but wasn't very good at executing -- for instance, testing software and technical support," says Peter Yates. "I'm not a process guy. My son has always said that, usually in front of other people. The more the merrier." By the time the Yateses sold Compass Technology, in 1992, Julian -- age 29 -- was acting as the CEO, although he lacked that specific title. Technically, he was chief operating officer.
When the Yateses started to think about their next venture, Peter was clear on one issue: no way would he be CEO. For Hyper-Quest, the Yateses have divided up the responsibilities according to what they feel they are best at and by what charges them up. "There was no question I would be the 'designer' and he would be the 'executer," says Peter Yates. "I wouldn't want to do what he does. I did it with the first company. This is a much more elegant arrangement."* * *
You can get someone else to do the stuff you hate
"I'm the CVO: chief vision officer. What? No, I don't do eye exams. . . . "
Most entrepreneurs view the day when professional management steps in with about as much enthusiasm as they do a visit from a Hard Copy film crew.
Marc Rochkind, on the other hand, actually looked forward to it. He never really wanted to be the CEO, anyway. Oh, sure, he enjoyed it for a while. Especially during the go-go start-up phase. When he founded Emerging Technology Consultants Inc. (ETC), a software-development company in Boulder, Colo., in 1981, he saw how exhilarating growing a company from scratch can be. "The excitement of starting a company and being independent was a real motivator," he explains. "Then once the company is up and running, the growth and progress keep you going." But he was really a techie at heart and derived more pleasure from designing the new product's user interface than from planning the yearly budget.
In 1987 Rochkind reexperienced the thrill of the start-up process when he founded XVT Software Inc., in Boulder. But he knew he didn't want to be the one running the company: "There were so many jobs I had to do -- finances, sales, marketing, and I still was clearly the person in charge of engineering -- and I was doing a mediocre job at all of them," he says. "The company was being shortchanged." And, Rochkind adds, so was he. "I felt very frenzied. I had the constant feeling of never being able to learn enough quickly enough. I was incredibly overtaxed."
Rochkind brought in the oft-dreaded hired suit to take his place as CEO, which, he says, has meant for him a big-time reduction in stress. "I completely trust the new CEO in all matters of finance and sales. I no longer have to worry about those things at all," he says. "Now I can be totally focused on product development, which is a major change for me. I used to have to worry about everything." He says that work for him is now energizing rather than draining. "When I was trying to run the company, I thrashed about," he admits. "It was very rare I could look at anything and say that it was done. Now I feel every day as though I've done something."* * *
You can leave whenever you want
"Ten percent annual growth? See ya!"
John Overby knew exactly who was standing in the way of his company's progress, and he wasn't at all hesitant to name names. He was the culprit.
Overby stresses that that recognition on his part is hardly an admission of inadequacy. Quite the contrary, it represents an acknowledgment of what Overby sees as his true skill. "There are more people percentagewise who can take a company from $10 million to $50 million than who can take a company from zero to $10 million. I have a unique skill set, and I'm good at it." Some people say Overby's nuts; he does just the hard part. "But that's the part I like," he explains.
Overby left his first company, Advanced Input Devices, in 1988, partly because he believed no one person should run the same company for more than 10 years. Why 10? "If you think about it, you have to stick with it for 5 years to prove you can do it and to accomplish what you wanted to do," he reasons. "At 10 years you've certainly left your mark."
But it's more than just a theoretical viewpoint that compels Overby to plan his departure. He's fully willing to admit that his usefulness to any company may be finite. "Right now we have fast growth and a new technology, so, so far it's fun. As long as it keeps growing 50% a year I'll be happy. Growth of 20% a year is not exciting to me," he says. "That's when I get squirrelly."
Now at the 8-year mark of his tenure at AHA, Overby has started thinking about finding his successor. "I need to get somebody in to run the business for the next 5 to 10 years," he says, "more of a classical manager." Overby knows from his previous experience that passing the baton works best when it is planned well in advance. "We didn't spend enough time planning it the first time," he says. "It worked, but it could have worked better."
Although the actual search won't begin for at least a year, Overby plans to look first at his management team for possible candidates, but if the skills he seeks are not within the company, then the search for an outside manager will begin. Personally, he says, he has already begun the exit process. "I've been mentally preparing for it for most of the eight years we've been in business," he says.
Overby, of course, will move right on to his next venture. Not that he needs to; he claims that financially he's pretty much set for life. Yet he already has two or three ideas about what he's going to do next. "I'm probably not taking any time off in between," he confesses. "I really like working. I'd get bored." Although he's reluctant to specify exactly what he'll do, he does know it won't be in electronics. "I don't want it to be in the same field. That's not enough of a change," he explains. "I want it to be different enough to be challenging."
Which is, of course, exactly the point.