Want to Start a Company? 5 Things to Consider First
BY Peter Cohan
Think you're ready to start up? Put yourself to the test. Check out the five crucial keys to knowing you'd be a great entrepreneur.
Andy Palmer has started at least five companies by my count--and I’d guess he has invested in dozens of others. Based on that experience, I’d consider him an expert when it comes to deciding whether you have what it takes to be an entrepreneur.
After graduating from Bowdoin with a major in English, History, and Computer Science, the passionate Rugby player was injured and decided to become serious about a career. So he got an MBA from Dartmouth’s Tuck School.
From there, Palmer went on to be part of the founding team of five start-ups: Austin’s Trilogy; pcOrder.com, a Trilogy spinoff for buying PCs and software online, that was spun back in; Bowstreet, a “portal-based tool provider,” that IBM acquired in 2006, Infinity Pharmaceuticals, a cancer drug developer that went public 2000; and Vertica Systems, a database company that Hewlett Packard bought in 2011.
Now Palmer spends half his time on life sciences and half on tech start-ups. He has invested an average of $75,000 in some 30 ventures; is a founding board member for six companies; and works on more altruistic projects--such as collaborating with MIT’s Broad Institute to help develop a genomics information system.
Here are five thoughts Palmer offered on what he would tell a young person considering whether to become an entrepreneur.
1. Know how good you really are.
Palmer pointed out that potential entrepreneurs must know where they are on the “bell curve.” As he said, “Some people like Steve Jobs or Bill Gates are destined to be entrepreneurs and nothing will stop them. Others are one standard deviation out of the bell curve. They could be entrepreneurs under the right circumstances. But most people are just average when it comes to their entrepreneurial potential.”
This self-assessment has important implications. If you are destined to be an entrepreneur, there is no need to ask anyone else’s opinion. You will start companies. If you are one standard deviation out, then you need to find the right circumstances--meaning you must pick the right opportunity to target and figure out which key entrepreneurial talent you bring to the party and partner to find your missing piece.
2. Be willing to team up.
This brings us to Palmer’s idea that the idea of the hero entrepreneur--Larry Ellison against the world--is outmoded. He looks at Google as a model which is run by a troika of Larry Page, Sergey Brin, and Eric Schmidt. Each of them have different strengths and they are willing to work together to apply those strengths to helping the company grow and adapt to change.
For most technology start-ups, there are two skills needed at the beginning, business (which includes sales, marketing, and handling capital raising and accounting) and technology development. If you are excellent at one or the other of these skills, you should find a partner who excels at the other skill.
For example, when Palmer started Vertica, he was in charge of the business side and he partnered with a database expert, Michael Stonebraker.
3. Share the right values.
How the business person know which technology person to partner with and vice versa? Palmer believes that values make all the difference. He argued, “It is a big responsibility to be developing a new product for a customer. As a business person, I want to make sure that potential customers do not get an overly optimistic view of where we are in our development process.”
Palmer wants a partner who shares his belief in the importance of setting realistic expectations. “Simply put, I want to partner with a technologist who shares the value I place on giving potential customers an intellectually honest set of expectations. It is too easy in high tech to exaggerate your accomplishments.”
4. Have unquenchable passion.
Palmer argues that an entrepreneur must know why he is starting a venture. “When it comes to figuring out where you are on the bell curve, it is essential that you ask yourself honestly why you want to start a company. If you are doing it to get rich, you should not proceed. The best reason to start a company is because you are passionate about it,” said Palmer.
This passion was something that drove him to join the start-up team at Infinity. As Palmer explained, “By the time I joined Infinity, I was feeling that the software companies I had started were not going to make the world a better place. But when I went to work for Infinity, I believed that I was helping to solve a big societal problem-curing cancer.”
5. Fit your operating style to the opportunity.
Palmer has seen two kinds of start-ups: blessed and bootstrapped. And they demand different operating styles.
A blessed start-up has access to the most capital, the best investors, the best executives, and top talent at all levels. “Before I started Vertica, I was an executive-in-residence at Kleiner Perkins. Ray Lane told me that he was expecting me to build it into a billion dollar company. If you’re in a blessed start-up like that, you have to get used to the enormous pressure to achieve excellence and react accordingly,” said Palmer.
But a bootstrapped start-up is very different. It makes “every dollar an investment that yields a five-fold return” quipped Palmer. “In one start-up we had a conference room that contained all our servers, and it was hot in there. And our other conference room had a big glass window so it was always cold. We channeled the heat from the server conference room to warm up the cold one.”
If you can pass these five tests, you may be ready to start-up. Otherwise, think again.
Strategy consultant, start-up investor, teacher, corporate speaker, pundit, and author PETER COHAN has invested in six start-ups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael Porter.