Mar 1, 2005

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.

 

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.

 1 | 2 | 3  NEXT