Login or signup
36
LEAD

Serial Entrepreneurs: They Just Can't Stop Themselves

Once exotic, serial entrepreneurs are everywhere these days. From their tolerance for failure to their creative use of resources to their sense of when to leave, they have a lot to teach more traditional company owners.
Advertisement

Ron Berger lives by routine. Every morning at 5:30, he climbs on his Stairmaster for 45 minutes and reads business magazines through rimless glasses. Then he dons a dark suit and patterned tie, eats low-carb cereal with blueberries (or splurges on an Egg McMuffin without the muffin), and drives his midpriced Mercedes to the office by 7:30. He leaves 11 hours later, eats a South Beach-approved dinner, and watches CNN until his 11 o'clock bedtime.

Thus it's a surprise to discover this mild Oregonian is a consummate risk taker, a serial entrepreneur who's started five companies, one after another. The businesses have ranged from a camera retailer that grew to 54 stores but then went bankrupt to a company that managed the system by which video stores pay fees to movie studios. He took that company public. Another one of his businesses was acquired. His current venture, Figaro's, which Berger calls a "take-and-bake pizza" concept, had systemwide revenue of $24 million last year.

So this measured man with his measured days flirts with failure and financial exposure about as often as most people buy a new car. And he's not alone. Once a novelty, serial entrepreneurs are moving into the mainstream. Venture capitalists report that a growing number of the people pitching them refer to themselves as serial entrepreneurs, and if you attend an event at a chamber of commerce or a business school these days, chances are good that many of the speakers will tout their serial bona fides. "In the 1970s and '80s, only 10% of our entrepreneurs were serial," says venture capitalist Gary Morgenthaler, of Morgenthaler Ventures, which manages $2 billion in investments. Today, Morgenthaler says that number is closer to 25% -- and he expects it to grow to 30% or even 50% in a few years. Forty-one percent of this year's Inc. 500 CEOs say that they plan to start another company, and 69% of the alumni of Springboard Enterprises, a top women's business incubator, describe themselves as serial entrepreneurs.

Of course, the serial life is not for everyone. Many business owners find fulfillment running a single enterprise. But for those who are considering starting multiple companies, the current generation of serial entrepreneurs can offer a blueprint. And the strategies they employ often have relevance for anyone who owns his or her own business.

What You Learn From Company No. 1: When and How to Leave

Serial entrepreneurs come in two flavors. The vast majority, including Ron Berger, are leapfroggers. They start a company, run it until they get bored, leave it, and start another. The remaining handful are jugglers (sometimes called parallel entrepreneurs) who run several companies at once -- a trickier proposition and one that requires superhuman delegation skills. Whatever their approach, most serial entrepreneurs come to realize that they don't like day-to-day management. If they did, they'd be content to be one-time entrepreneurs. "I find I can handle the worries of a start-up more than I can handle the worries of a more mature business," says Terri Alpert, who owns two companies in North Branford, Conn., and plans to start a third. Jim Amos, the former CEO of Mail Boxes Etc., who's also starting a new business, agrees: "The requisite skills for starting a company -- vision, dreams, courage -- are seldom the ones necessary for leveraging and growing it."

Recognizing that you dislike managing is the first epiphany for many serial entrepreneurs -- but having the conviction to act on that epiphany is often difficult. Successful jugglers choose to delegate more responsibilities at this point; the leapfroggers have to wrestle with the difficult decision of whether to leave. Many end up believing they stayed too long at their first businesses. They tend to make a swifter, cleaner exit the second time. Fred Gratzon, for example, started an ice cream company in Fairfield, Iowa, in 1979. His business, which twice provided the dessert at Reagan White House picnics, expanded rapidly to eight locations and even won

supermarket distribution. Gratzon hired sober, serious-minded managers to handle the expansion. "In the beginning, there was creativity and fun and laughter," he recalls. "Then it got superserious. It shifted from a time when I just couldn't wait to get there in the morning to when I dreaded going in."

Still, Gratzon had a sentimental attachment to the business. And with a mortgage and a new wife and baby, he forced himself to stay on as chairman of the board, although he disliked the job by then. The management, wanting a new direction anyway, asked him to leave. He retained a stake in the company, but the board diluted the shares, reducing his equity to less than 2%. Unprepared to do anything else, he was forced to file for unemployment.

To get some cash, Gratzon began helping out some friends by combining their businesses' phone bills to get them group discounts. Based on that strategy, he launched a company called Telegroup in 1989. He built up its telecom capabilities, and it became an international telecom provider, hit No. 2 on the 1995 Inc. 500, and eventually passed $300 million in sales. This time, however, Gratzon left as soon as the big-company problems -- "some sales manager is hitting on some secretary, all those garbage issues" -- emerged. He resigned as executive chairman in 1998 and has been playing around with several new business ideas, including manufacturing boogie boards and distilling corn into ethanol.

Even experienced leapfroggers can't always leave as quickly as they'd like, but they usually attempt to retain as much independence as possible. When entrepreneur Phil Damiano sold his PC accessory business to a larger firm, Acco, he agreed, somewhat reluctantly, to stay on for three years. Because Damiano dreaded corporate life, he negotiated a deal that allowed him to run his division almost as if it were a freestanding company. He controlled his budgets, benefits, everything. The only Acco resource he used was its sales force, which he paid on commission. His entrepreneurial yen satisfied, he stayed on until Acco was itself acquired -- and then he and three co-workers bolted to start a label-making firm.

What You Learn From Owning More Than One Company: Don't Fall in Love With the Product

"I'm not really passionate about this industry or that industry," says Red McCombs, the billionaire co-founder of Clear Channel Communications who has owned a slew of real estate, energy, auto, and sports concerns. What is he passionate about? "All of my businesses had to be cash-flow businesses," says McCombs, "from the very first week."

Pete Slosberg displays the same cool-headedness, even though both of his companies, Pete's Wicked Ale and Cocoa Pete's chocolate bars, make products that people tend to feel strongly about. "I never want my passion to get in the way of the business potential," says Slosberg. When he goes about vetting an idea, he looks for industries with huge, mass-market players (Budweiser, Hershey's) and a few increasingly popular premium brands (Samuel Adams, Scharffen Berger). Then he sets about drawing mass-market customers to his high-end offering. The particular product is less important, he says, than the growth potential.

Similarly, when Terri Alpert, the Connecticut entrepreneur, started her first company, she devised her business model before devising the business. In thinking about the company she wanted to build, she realized she wasn't comfortable with holding accounts receivable, so she decided she'd sell to consumers, receiving payment in advance of shipping. And because she had limited start-up capital and intended to work out of her home for a while, she figured that she would have to turn inventory quickly and minimize delivery costs. That meant that her suppliers needed to be nearby. She also wanted to sell a lightweight item.

When her husband struggled while shopping for a chef's knife, she had her moment of inspiration. Several cutlery suppliers happened to be located within the same UPS shipping zone as her house and, with more consumers outfitting their kitchens with chef-quality goods, Alpert hoped there would be strong demand. She launched Professional Cutlery Direct, a mail-order knife company, in 1993.

By 2001, the business had thrice made the Inc. 500 and was grossing $11 million a year. But Alpert had a problem. Kitchenware retailers with greater reach were introducing new products as aggressively as she was, and Alpert felt her business losing momentum. She had created demand for nice knives, but it was easy for bigger rivals to follow her into the business and gobble up market share. When Alpert set about starting her second business, she looked for products that were more difficult to source, so her business would have higher barriers to entry. This time, she settled on one-of-a-kind artisanal items, like French combs, Italian mirrors, and sea-glass necklaces, that her merchandisers found at trade shows and craft fairs, both here and in Europe. In its first year in business, the second company, Uno Alla Volta, brought in $4 million, even as revenue at the cutlery business slid to $9 million. As for Alpert, she's excited about her new products -- but far more so about her refined business model.

What You Learn by the Third Company: How to Leverage Your Resources Creatively

Most serial entrepreneurs are bootstrappers. They like to keep costs low until the viability of a new business is proven. Both times Slosberg started a company, for example, he held down expenses by using other manufacturers' extra factory capacity to produce the goods, while he focused on sales and marketing. Similarly, jugglers or parallel entrepreneurs often use the assets of one business to help launch the next. Terri Alpert used her knife company's warehouse, shipping supplies, and employees to get her artisanal crafts business going.

Vicki Perdue and her husband, Jay, managed to use the same machinery to serve two companies that manufacture goods for completely different industries. The Perdues, who were college sweethearts, became traveling musicians after graduation, playing pop songs at country clubs and nightclubs. Settling in Amarillo, Texas, they built a recording studio and sank $250,000 into debt. They took odd jobs building houses and teaching so that they could climb out of the hole, while continuing to work on the studio. Then Jay created innovative rockwool soundproofing for the recording studio, launching Perdue Acoustics, which has soundproofed auditoriums for NASA and Universal Studios. It had sales of $2.2 million in 2004.

Several years ago, Jay -- who has filed 29 patent disclosure documents, including one for a wind generator and another for an electric-powered car -- dreamed up a bike with pontoons to make it float. He figured out that he could use the machinery that made fiberglass soundproofing diffusers to make the pontoons, too. Later, the Perdues bought a plastic-molding machine to replace the fiberglass equipment and make material for both businesses. Last year, the couple started selling their floating bike, Pedal-Paddle, which retails at $995, to bicycle shops, boat dealers, camps, and marinas. Vicki handles the financials for both Perdue Acoustics and Pedal-Paddle, maintaining separate bank accounts for each venture. The Perdues have hired a full-time Pedal-Paddle manager-salesman, who works on salary plus commission, and they ask their acoustics salespeople to pitch Pedal-Paddle, too.

What You Learn by the Fourth or Fifth Company: It's Okay to Fail

Frank Giotto's tolerance for failure is impressive. Before he launched his three current, and successful, companies, the youthful Giotto ran at least five other businesses into the ground. One delivered pickles and olives to grocery stockrooms, another sold pizza to supermarket deli counters, and yet another designed a sludge pump for municipalities so they could clear muddy water from streets. "We never sold one pump," Giotto says. A foosball parlor also failed. Then there was the business that offered guided tours of scenic Utica, N.Y., first in a school bus and then in a horse-drawn wagon. "I was the driver," says Giotto. "We'd start at the brewery, do the art museum, and couldn't include the zoo because it was too far. It was terrible."

But Giotto didn't let the failures get him down. He took a job at a fiber-optics company, learned the industry, and eventually started his own fiber-optic cable business called Fiber Instrument Sales (FIS). He subsequently spun off a company that manufactures fiber-optic products, and another that sells force-guided relays used by Otis Elevator, among others.

Ron Berger, whose camera store business, his first company, went bankrupt, also got over that failure. Less than six months after the chain of 54 stores went under, Berger was out raising money for a chain of video-rental stores he named National Video. He decided to expand by selling franchises, but when he set out to prepare the franchising circular, he had to include page after page detailing his bankruptcy filing and litigation. In his pitch to prospective franchisees, he tried to spin his past failure as a positive. He knew it was a tough sell, however, so he initially set the franchise fee at just $10. "What mattered was, here was a guy who would never allow himself to get in that situation again," he says. By the time Berger sold the parent company for $3 million in 1988, it had almost 750 franchised locations.

Even when it comes to raising serious venture capital, a past failure is not the black mark it once was. "Sometimes people who have failed or been moderately successful learn more than people who run right out of the gate," says Roger Novak, of Novak Biddle, a Bethesda, Md., VC firm that has $350 million under management.

"You do your research and take that plunge," adds Kent Sutherland, an Arkansas businessman who was informally mentored by Wal-Mart founder Sam Walton. Until last year, Sutherland owned four businesses in and around the town of Sherwood: an insurance company, a group of ministorage sites, a mortgage company, and a car wash. The car wash struggled, however, because the machinery kept breaking and repairs always took too long, Sutherland thought. So he sold the company. "If you fail, you fail," he says. It's just that simple.

What You Learn by the Sixth or Seventh Company: Don't Hire People Like Yourself

Perhaps surprisingly, serial entrepreneurs are often able to persuade people to come work for them even though they have a track record of moving on quickly. One reason, of course, is that they tend to be great salespeople and to exude passion. And some managers may not mind their boss's propensity for starting companies because it all but assures them of greater independence.

"One guy throwing out 12 times more ideas than you need is enough, and that's me," says company builder Frank Giotto.

Frank Giotto, for example, is CEO of each of his three companies, but he delegates day-to-day operations and spends most of his time inventing new products. All the offices are on the same block in Oriskany, N.Y., and Giotto wanders through them daily. Two of the companies share a factory, whose square footage he divides between them come tax time. The two fiber-optics firms actually compete for customers, but Giotto feels that this makes them sharper. What he looks for in employees are methodical, single-minded types who will serve as a counterweight to his tendencies. "One guy throwing out 12 times more ideas than you need is enough, and that's me," he says.

To get his team to support his endless entrepreneurial notions, he carefully manages the flow of information. Every week, Giotto holds group updates with all of the managers and salespeople from all the companies, and biweekly meetings with top lieutenants on financials and strategy. He presents big new ideas in a series of conversations, broken down into many small logical steps. "Because I make sure my steps are measured," he says, "I think people are willing to follow me because it's not so entrepreneurial that it's risky." Giotto has also provided an incentive for loyalty: Through an employee-stock ownership plan, workers at his main company, FIS, own roughly a third of the firm, worth about $9 million.

What You Finally Learn: It Does Get Easier

When Scott Painter went looking for funding for a custom-built car company in 2003, he had a relatively easy time raising $25 million. "Everybody knew who I was," he says. "I was Google-able, so it was a very easy thing to put together. That's the benefit of having some success as an entrepreneur."

Painter had previously founded several companies and had achieved some acclaim in the dot-com boom with one brainchild, the El Segundo, Calif.-based company CarsDirect.com. So when he started the custom-car company, things fell into place quickly. And even though that venture failed, he's back now, fundraising for another Web business. He reports that he's again getting good access to investors. "It's sort of fun to build a company when you don't have to deal with any of the initial obstacles," Painter adds.

A successful serial past can also enable you to move from one industry to another smoothly. Rene Fritz, a Vancouver, Wash., businessman whose first four companies were in the sawmill industry, was able to branch into a variety of different fields, from human resources to industrial titanium. Along the way, he figured out how to get investors to back someone who was brand-new to a market. When he was raising money for the titanium venture, Fritz put together a five-minute video featuring his five-person management team explaining why they had quit their jobs (and in most cases, taken pay cuts) to join him. Focusing on the team paid off. He raised $5 million.

What You Never Learn: When to Stop

Ultimately, what serial entrepreneurs share is a mindset: They're willing to just try. "Starting a company is a very imaginative, innovative, energy-driven, fun process," says Dick Kouri, entrepreneur-in-residence at the University of North Carolina's business school and a 12-time company founder. Serial entrepreneurs "can't wait to do it again," he says, and the process quickly becomes addictive -- almost a compulsion.

Kent Sutherland, for example, sees business opportunities all around him. His ministorage business grew out of hours spent staring at a narrow 82- by 1,000-foot lot across the highway from his office, contemplating what that land might be used for. And Sutherland is evaluating several new businesses right now. "I'm 48 years old," he says, "and I'll be working till I die, constantly looking for different means of growing my business or starting another."

Other serial entrepreneurs, perhaps less self-aware, claim they've finally had enough. Ron Berger, for example, swears that Figaro's is his last venture. Well, except that bakeries are interesting, and he could do a lot with ice cream. And Frank Giotto insists that three companies are all he wants. On the other hand, he did start a restaurant last year (it folded); and he also recently took a 25% stake in a Chinese cable manufacturer. But other than that, no more, he says firmly. "I don't see myself really..." and he pauses, maybe thinking of a real estate venture or an electronics company or a snazzier foosball parlor, and the rush that comes with creating those. "Well -- ahhh -- who knows," he laughs. "If you threw in your fishing line and caught a fish every time, you wouldn't go fishing. Because there wouldn't be a challenge." In the adrenaline-fueled world of building companies, fortunately, another challenge is always sure to present itself.

Stephanie Clifford is a staff writer.

Last updated: Mar 1, 2005




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Comment and share features
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: