March 22, 2004 Program Summary

Entrepreneuring on the Central Coast:
How to Survive and Thrive on a Start-up Team”

by Adele Sommers

During this highly insightful exchange, we explored, through the eyes of two seasoned entrepreneurs — Mike Baird (left), a Silicon Valley veteran who now lives locally, and Fred Dyste (right), a Central Coast native (see speaker details below) — how high-tech start-ups launch, recruit team members, find funding, adapt to change, go public, sell out, and sometimes fold up and move on.

We also learned that behind the start-up phenomenon on the Central Coast lives an assortment of adventurous souls whose personal visions compel them to embrace calculated business risks.

While not everyone seeks a CEO role, several in the audience had been, or were hoping to become, team members, consultants, or contractors for start-up companies. We discovered that all sorts of functions can be outsourced at the right time in the company's life cycle, such as when the founding partners realize that they can't do it all themselves, but before the company is stable enough to hire regular employees.

What exactly is a high-tech start-up?

Technology-fueled businesses known as high-tech start-ups differ significantly from other enterprises, Mike explained. Businesses that attract people seeking to leave or avoid corporate life also include lifestyle consultancies” (in which people offer professional consulting services) and “income substitution businesses” (in which people sell products or services on a relatively small scale).

Key differences. The points of contrast, according to Mike, include the speed of growth and the forces fueling the businesses. High-tech start-ups are typically technology-based, team-driven, and fast-growing.

How fast do start-ups grow? As fast as possible to achieve at least $20 million in sales with a minimum of 50 employees, Mike explained (perhaps roughly analogous to racing from zero to 60 mph in about 10 seconds flat). Such companies combine a solid management team; an astute knowledge of their markets and customers; innovative products, technology, and/or services; attractive financing and return on investment (ROI); and a compelling business plan to catapult them into wealth-building territory.

Caution: the effort is not trivial. As glamorous as it may sound, launching a high-tech start-up will sorely test your mettle, Mike warned. Now a semi-retired author, advisor, and consultant, Mike has successfully navigated some highly lucrative dot-com enterprises where he learned firsthand how great the risks and rewards can be. Personal, financial, health, time, and family stress haunt many CEOs and founding partners, he emphasized. Only a fraction of the start-ups that seek capital ever get funded. Hence, the number of success stories is much smaller than one would expect, he revealed.

$$$ Where money's concerned, experience talks. Contrary to what some may believe, venture capitalists (VCs) reach out to promising start-ups (not the other way around), and only by invitation, so one must have a real “in” to seek this type of funding, Mike and Fred both insisted. Further, VCs prefer to fund teams of entrepreneurs with successful track records. And even when a seasoned team converges on a great idea, any number of pitfalls can derail a lucrative-sounding venture, such as unexpected twists in the market and implementation snafus. Yet veteran VCs and CEOs alike learn when to cut their losses, dust themselves off, and ride off to the next investment. As an illustration of this characteristic, Fred's own sense of adventure continues to guide him to seek gold at the end of new rainbows, which include his latest ventures in wireless communications.

Start-ups go through phases. According to Fred, who shared his experiences from starting or contributing to several successful Central Coast enterprises, a start-up maturity cycle looks something like this:

  • Phase 1 - Sweat equity flows primarily from the founding partners.
  • Phase 2 - Consultants and contractors are recruited to fill identified gaps.
  • Phase 3 - The venture stabilizes enough to hire employees. Fred recommends outsourcing the entire employment function to a firm that specializes in this area. He's learned that it's far less expensive in the long run, avoids the time and effort required to recruit and oversee internal HR managers, and provides peace of mind and a seasoned professionalism to the process.

What role in a start-up suits you?

What are your chances of being successful as the CEO of a start-up? Are you a risk-seeking hunter or a steady, predictablefarmer? Mike asked. If the latter best describes you, you're in good company, and can make a fine living contributing to a start-up team. For example, your services may be needed fairly early in the life of the start-up if you have expertise in any of the following:

  • Writing business plans
  • Doing accounting and financial analyses
  • Writing proposals or other funding solicitations
  • Sales, marketing, and technical communication (for developing Web content, position papers, technical briefs, and the like)

But be careful to avoid red flags in your content! In putting your skills to work writing a business plan, for example, Mike cautioned that an offbeat tone can dampen a potential funder's first impressions. If a mission statement sounds “too lofty” — filled with noble goals such as reducing world hunger or donating a large percentage of profits to charity — it will turn off financial readers. Likewise, statements about equality in pay or other “distributed leadership” philosophies will sound naive, even if they embody extremely good intentions. Other problems will arise from projecting unrealistic results, an unattractive ROI, a management team that's too small (one person, for example), or a target market that's too large, such as “everyone.”

Two sides of the coin. Mike's overarching premise is that the more you know about how start-ups work, the dynamics of funding and growing start-ups, and the pressures the founding partners are facing, the more valuable you will be to them as a resource. On the flip side of the coin, Fred offered a few important cautions about working with exciting, but cash-strapped start-up ventures:

  • Avoid stock options in lieu of payment. Unless you're interested in getting in on the ground floor and trading your sweat equity for a ride on the roller coaster, stock options as compensation are probably best left alone.
  • Seek entrepreneurs who are honest and admit when they're wrong. Idealism is fine, and start-ups can't exist without it, but it's important to know that you're working with a person or group that can be candid about problems and concerns.
  • Be willing to assume some measure of risk. Understand that there will be variables beyond everyone's control. If you're flexible and can negotiate workable ways to ride out the rough spots, your services may be more in demand. One option to consider is reducing your fees for your initial work, an approach that can engender the company's loyalty and may offer you the potential for more steady business down the road. [Editor's note: Always use caution and seek professional legal advice as needed.]

What start-up principles can you apply to other ventures?

If a more low-key business venture, such as a lifestyle consultancy or an income substitution business, is more your style, what principles can you apply from the start-up world?

  • Be clear about your markets and customers. Mike counsels that you should try to identify customers who will want to “pull” your products or services, rather than “pushing” technology (or other offerings) at them. He suggests aiming for a scenario in which you can garner a 15%–30% market niche. It's best to stay out of saturated markets for relatively undifferentiated products (example: razors for men). When you start your venture, you should know at least five prospects by name who are ready to buy. Keep your procurement cycle short.
  • Build a strong management team early. Whether seeking funding via VC channels or through your local bank, Mike explained that you'll get a higher score and more credibility the more complete and experienced of a team you present. The highest ratings go to teams in which all members are experienced and on board before the funding requests begin.
  • Make your products or services sizzle. Mike recommends aiming to develop a family of easily understandable products or services using proprietary technology or other innovation. To entice your customers and keep complexity to a minimum, he advises pursuing ideas for products that have a short development time and can be sold as simply and quickly as possible.
  • Business plans make a big difference. As mentioned above, developing a properly focused, high-quality business plan will help keep your team on track and attract the appropriate funding sources. Mike offers extensive advice in his book on this subject (see resources below).
  • Financing is the name of the game. Mike advises that above all, you must never run out of money, as cash flow can make or break your business's success. The most common source of seed capital for high-tech start-ups is, by far, personal savings. However, regardless of where you get your funding, he advocates aiming for an attractive ROI and a fair valuation for your business.
  • Consider the “hub-and-spoke” model. Fred discussed an intriguing business model that can help mitigate risk in any domain. He described a satellite configuration consisting of a core (“hub”) company that provides executive services (such as leadership, financial oversight, legal functions, sales, and marketing) to several small, complementary “spoke” ventures. Such a model has the potential to help recreate the jobs that were lost locally due to the recession without putting all the eggs in a single basket. For example, growing 10 flexible companies to a size of about 20 people each equates to a 200-person firm in terms of hiring power, but distributes and minimizes the risks involved.
  • Join or attend networking groups. Connecting with local technology and professional communities helps increase your visibility and opportunities on the Central Coast. Fred recommends Softec (Central Coast Software and Technology Association) as a great way to “meet people who know people.” Since VC funding, for example, occurs via invitation only, connections through organizations such as Softec become all the more important.

Photography by Mary Meyer.


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Recommended reading:

  • Mike Baird's PowerPoint presentation is also available at http://eysu.org.
Entrepreneuring on the Central Coast:
How to Survive and Thrive on a start-up Team
Monday evening, March 22, 2004

Mike Baird is the author of Engineering Your start-up: A Guide for the High-tech Entrepreneur (Professional Publications, Inc., 2nd edition 2003); past VP of Engineering of Ask Jeeves, Inc.'s ask.com, one of most successful Internet IPOs in history; past Chief Technology Officer of Snap-on Inc., a $2 billion Fortune 500 company; and partner, Firstonline Los Altos Incubator. Mike has served as the vice president of marketing and engineering in several venture capital-funded start-ups, and has a Ph.D. in Computer Science as well as an MBA. (Also see the Links section below.)

Fred Dyste is a principal of WFC Communications, a recently launched Central Coast start-up; was the co-founder of Aspect Media Factory; and is an active member of the Softec (Central Coast Software & Technology Association) Board of Directors. He also serves on the San Luis Obispo Chamber E-Commerce Committee, is on the advisory board for Cuesta College's CIS Department, and is a member of Rotary International. Fred has been involved with six start-up or turn-around companies as a cofounder or part of the initial team, gaining experience at firms such as Qualcomm, Ziatech (an Intel Company), Wireless Mountain Labs, Digital Stock, and Blue Sky Software.


“Entrepreneuring on the Central Coast: How to Survive and Thrive on a start-up Team” focused on how local start-ups that have survived or emerged from the recession are propelling the technology resurgence on the Central Coast. This was a unique opportunity to explore, through the eyes of two entrepreneuring experts, the potential for becoming involved with a start-up, and discover the strategies that will fuel your personal success.

To best serve as a technical contributor, consultant, or employee in a dynamic start-up, you should know what makes start-ups tick and what kinds of people start them. Understanding the demands, expectations, stress, and pressures that can be put on all contributors, from information developers to CEOs, enabled attendees to discover how to not merely survive, but thrive in such an environment.

Do you have a creative business streak and want to start a different kind of enterprise? This session revealed how start-ups such as eBay became successful and how their approaches can map directly into your plans to build a smaller-scale consulting business, for example. We briefly covered the universal elements of business success and contrast smaller lifestyle businesses with venture capital-funded companies.

Finally, we focused on examples of local start-up businesses and the professional networks that can help you start or join one of these companies.

Door Prizes:
We gave away two (2) copies of Engineering Your start-up: A Guide for the High-tech Entrepreneur.


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