Entrepreneur’s Diary

I teach a course on entrepreneurship, and I always invite numerous successful entrepreneurs to give guest lectures on the subject. One of my favorite speakers is Greg (PhD from Cornell). Greg was raising money for his start-up venture about the same time I was raising money to start my fish business. Greg is now worth millions of dollars (that is another story), but he retains a casual attitude toward his success. When Greg comes to lecture, he typically wears jeans and a knit sport shirt with a fleece jacket. Greg describes the early beginnings of his company and how he hated big-company corporate structure. You know ... having to report to so-and-so ... following this and that procedure ... properly documenting this and that. Greg started his own company so he wouldn’t have to follow all those rules and do a lockstep with corporate ways of doing things. Well, initially, this approach worked okay for Greg. But, then as his company went from 3 employees to 20, to 100, to 300, he found that he had to follow many of those same corporate rules that he hated before. He was having trouble managing under this new structure. It wasn’t as much fun as it used to be. I asked Greg if it had to be this way. He responded with a slouch to his shoulders and a roll of his eyes.

The majority of this chapter was written by my oldest brother James. He was always to me the smartest person I have ever known. It seems appropriate he would author this chapter on management. Enjoy the chapter; I think it has lots of nuggets of wisdom that you will find helpful sometime in your entrepreneurial career. And thanks, Jim, for sharing your management knowledge.

Entrepreneur’s Diary

Raising money is hard work. You have to be prepared. Anytime a potential investor senses that you have not properly prepared for a meeting, you instantly will have lost any chance of landing this person as an investor. When I was raising some stage 2 financing for Fingerlakes Aquaculture, I had a meeting with a group of potential investors in Boston, friends and acquaintances of my angel investor, Peter (I think I’ve mentioned him before). We met in the high-rent financial district. Big buildings … marble hallways … all that type of stuff. I had spent many hours refining my presentation down to about twenty minutes to cover selected details so they would ask for more information that I could tell them was covered in the full business plan and that I had copies with me for them if interested. Part of my presentation was to actually prepare some tilapia fillets from my farm so the guests could really “get a taste of what it was all about.” (This was back in 1999, when most people had no idea what a tilapia fillet tasted like or even what a tilapia was!) The meeting was to start at 11:00 a.m. I was getting ready to start my presentation, including the cooking arrangements for the fillets. The invitees (there were five in total) got there about ten to fifteen minutes early and started chatting with my angel investor Peter. It didn’t take long before they became so curious about the product and what it tasted like that I had no choice (in my opinion) but to go ahead with that segment of the presentation, even though it was supposed to be at the end of my planned presentation right about lunch time (I thought this would be perfect timing). They all loved the product. Two of the people in attendance became investors in my company. I never did get to show them my PowerPoint presentation. But if I had, it was a good one. I was prepared.

Entrepreneur’s Diary

I recently was involved in raising capital for starting an indoor shrimp farm. Just about everyone likes to eat shrimp. Interestingly, just about all of our shrimp (90%) is imported, creating a fairly obvious market opportunity. So, several years back, we put some seed money together and started working on the constraints that prevented someone from successfully raising shrimp indoors and making a profit. Well, after three years of research and demonstrating a prototype production system, we were ready for our next round of financing (we needed about $500,000). We prepared a presentation and invited a group of high-net-worth individuals. We presented in one of the high-rent office buildings in the financial district of Atlanta. You know, people do like shrimp, but they also like to have a sense of confidence about the people they are dealing with. My cousin John, a businessman in the Atlanta area, brought that credibility to the table. Our challenge was to present the opportunity to the individuals in the room in a form they could understand. We had all the necessary legal documents with us. We knew the rules and followed them. We were successful that night and raised most of the equity capital we needed. The investors all seemed to like and respect my cousin. And they all ate a lot of shrimp that night, too!

Entrepreneur’s Diary

Most games are not won because one of the players knows the rules better than the others. Most of us will soon know the rules of the entrepreneurship game (especially after you finish reading this text), but only a few of us who want to be successful entrepreneurs will become one. Why is it that some coaches seem to be consistent winners, even though the talent pool available is fairly similar? I think it is mostly doing your homework. That’s what this chapter is about – doing the necessary preparation before launching your business. This is not fun, this is work.

Understanding your market, and therein recognizing whether you have a winning product, is probably the key aspect to creating a successful company. Your market analysis will be a key part of your business plan. But how do you analyze a market that does not exist? Markets always exist; they may be untapped, but they do exist or are ready to be created. Henry Ford could not analyze the market for automobiles when he was ready to start cranking out those Model Ts, but Ford knew quite well that there were markets for horses, carriages, trains, and other forms of transportation that he was going to try to capture. You will often have to use your imagination in trying to define and analyze your market.

Entrepreneur’s Diary

Launching your business beyond the friends and family stage will require you to rewrite your business plan, probably for the umpteenth time! I will guarantee you one thing: the circle of professional acquaintances that you had thought might invest in your company … well, most won’t … and the ones who do invest, will have a lot of advice for you, and probably more than you want! Advice can be a good thing, but when one investor says, “Go right,” and the next investor says, “Go left,” you’ll likely find yourself wondering which direction is correct. But, you must do something!

I have been pretty successful in raising capital for my start-ups. My business plans were a critical component of my successful fundraising. Were they perfect? No, but these plans raised money! In fact, one of the VC investors said several times that she thought my business plan for my aquaculture tilapia start-up was one of the best business plans she had ever read. Her VC firm required a supporting partner (a proponent was required before this venture firm would make an investment) to make a personal investment in any company that is submitted to the VC group for consideration. After the initial acceptance, the tilapia business several years later ended up under new management and despite the earlier VC’s praise for the original plan, one of the first objectives of the new management team was to write a “really good” business plan. My “best she’d read” plan got tossed out the window. What does this tell you?

Entrepreneur’s Diary

I was getting pretty close to starting my fish business; I was concluding some final negotiations to secure the capital I needed to implement the business plan strategy (I needed $500,000). As you get involved in this entrepreneurship arena, you’ll quickly discover that there is a lot of parallel processing going on. You will need to juggle several activities concurrently in order to pull this business launch off successfully. My situation was that I knew I was going to need a general manager (GM) about the same day I broke ground on the fish production building. So, about three months before I thought I needed my GM, I initiated a concerted effort to find a competent GM, who would be my first paid employee. I spread the word through my contact list and a national online site for aquaculture. I also received a call from Dr. Tom Fields, a colleague at a private fish farm near Saratoga Springs, New York, with whom we (Cornell University) had done business with over the years.

Entrepreneur’s Diary

When I was trying to start my fish business, I had a very difficult time trying to raise the capital to launch the business; I needed about $500,000. The central idea of the business was to raise tilapia (no one even knew what a tilapia was back then) using indoor recirculating aquaculture system (RAS) technology, which was far removed from a tried-and-tested technology at that time. The problem was that just about every investment that had been made into starting fish farms had failed miserably. Investors often just laughed at you when you tried to initiate a conversation about investing in aquaculture. It even created a new term, “aqua-shyster.” It really helps to convince a potential investor of your business’s viability if you can take him or her to a working prototype of what you are trying to implement full scale. I could take investors to my research operation at Cornell University and show them a single tank setup, but I could not show them a working farm or even refer them to any existing farms in the United States that you could consider economically successful. My somewhat standard response became “If it were easy, everyone would be doing it already! “ Being a first mover has the often-dreaded result of being a failure, but the excitement of a huge upside! Eventually, I found the necessary investors, but it was not easy. I guess I did convince some of them.

Entrepreneur’s Diary

I remain grateful for some good early advice. I had several inventions that had been taken to financial success by others. The benefactors sometimes said thank you. This made me all the more eager to take one of my own ideas to the real world. I had convinced myself that financial success and glory eagerly awaited me.

About fifteen years ago, I launched my first major entrepreneurial effort that revolved around proprietary technology used to produce seafood indoors in an environmentally responsible manner at a competitive price. The market for such a technology had to be huge I kept reminding myself, because seafood was (and still is) a significant contributor to the U.S. trade deficit.

Entrepreneur’s Diary

Planning for my new fish farm start-up was going pretty well. After all, I had twenty years of experience at doing this. I thought I had everything under control. One of the major rules with starting a fish farm was that the backup generator be in place before you stock fish on the farm. This is because in the event of a complete power loss, you have about fifteen minutes to get the pumps working again or you’ll lose all your fish. I knew this. We were having one of our preconstruction meetings the week before we were breaking ground. Someone asked me about the backup generator. I said, “Don’t worry, these are pretty much stock items and we can get them on short notice.” Wrong! When I called our intended supplier, he informed me that these units were all custom built and the lead time was ten weeks. Fortunately for me, we wouldn’t be stocking fish for at least twelve weeks. I immediately ordered the generator. What’s the point? I should have constructed a network showing the interdependencies of all activities and events that would lead up to a successful conclusion of the project. If I had done this, I wouldn’t have had the shock I encountered. In my case, I was fortunately able to recover. Don’t rely on blind luck. Learn the basics of the two types of networks: the Critical Path Method (CPM) and PERT (Performance Evaluation Review Technique) charts. You won’t be sorry or be left up the proverbial creek without a paddle.

Project Scheduling

In project implementation the major concerns are: time, cost, and scope. In the project implementation phase, time is money. Longer completion times generally lead to higher costs. Mistakes and oversights are unnecessary costs; plus, it takes more time to correct them, compounding the situation. Not properly identifying the scope, or end objectives of the project will also impact cost and your ability to schedule events accurately in a sequential manner. Proper contingency planning can help avoid these unnecessary cost and schedule impacts. Of course, the costs avoided by careful and detailed planning cannot be quantified. Cost avoidance is a nebulous concept. Did you really save $5,000 in medical expenses by getting a flu shot? You’ll never know. You do know that the flu shot cost $20, however.

Entrepreneur’s Diary

I think that I have developed a disruptive technology for producing fish in an indoor water-recirculation system. My design dramatically reduces the costs and complexity associated with the water-reconditioning equipment used in indoor fish systems. My design uses less space, is more environmentally compatible, is more reliable, and uses much less energy than other systems that most people are using for this purpose. As far as I can tell, there is nothing that our system doesn’t do better than any other system anybody is already using. What I don’t have is a practical means of demonstrating this technology. It is tough to be the groundbreaker. How then can I proceed? The producers that are using the technology that I plan to replace aren’t willing to convert their system to my system, because it takes them out of production for a considerable time, and to them, my system is unproven and therefore introduces a risk that they don’t have now.

So how do I demonstrate my technology? I have to become my own customer. I am going to have to build a fish farm that features my technology and its benefits. Where do I begin? I have to design a large-scale facility capable of making a profit, then build it, and then operate it. Now, I have to ask myself, “What business am I in? The system technology business or the fish business?” Sometimes it is hard to tell the difference. The truth is that I was about to be in both businesses. My immediate focus, however, was on the fish business. That is where the long-term, continual profits lie and where I pitched my investment proposal to investors. Apparently, I had just recognized my opportunity. Recognizing opportunity, preferably centered around some type of disruptive technology, is what Chapter 2 is all about. But what’s a disruptive technology? I’ll try to answer that question for you in this chapter and how it applies to a start-up.