The third wave of entrepreneurs (entreps)

By Bipin Parmar

Overcoming current limitations

Passion, belief, vision and enthusiasm

Team leaders

Business fundamentals

True cost of money

Domain expertise and ability to act on experienced advice

Customer facing experience

Taking advantages of deflation

Summary

Overcoming current limitations

As the last reminiscence of the dotcom bubble era fades away in the distant past, many investors and entreps who were severely wounded are now beginning to heal their wounds. Some were so traumatised by the life-changing experience that they have opted to change their careers or simply quit the scene. Others have learnt their lessons and are slowly venturing back to the startup scene. These were the second wave entrepreneurs - the so-called dot babies - and some hardly knew how to spell business, let alone create and run a business. Like the fading dotcom era, they will no doubt slowly fade away.

Out of this demise and ensuing chaos created by one of the most severe tech recessions, a whole new wave of entrepreneurs are beginning to emerge. These 'Third Wave Entrepreneurs'©, like Tim Haynes of Nujira, Stan Boland of Icera Semiconductor, Dr. David Hayes of Plasma Antennas, John Halfpenny of Splashpower, Chris Durbridge of Ignios, Jeremy Bennett of Tenison EDA, are just a few examples of many new third wave 'entreps'©. They all have one major thing in common, namely, that they have all experienced and run a business unit or a department with budgets and profit & loss responsibilities. Some are on their second or even third startup venture, taking lessons and guidance from previous experiences, challenges and successes. Others have come out of the wider corporate scene, where years of hard work have got them very little reward for the amount of effort and sacrifice endured over many years. Large companies have very little loyalty and are willing to lay off some of their most experienced staff in order to save on costs during this difficult time.

The third wave entreps recognise the limitation imposed on themselves and their colleagues of stifling corporate culture full of missed deadlines, indecisions, wasted market opportunity windows, departmental politics and the dreaded artificially imposed budgets. The combination can impose severe limits on both their personal growth and that of their key colleagues.

Some of them are willing to jump ship and create and define their own destiny, realising that the road ahead is a journey rather than a destination and it will be full of surprises, excitement and some hard knocks. But the potential reward of success could more than make up for the short-term sacrifices. They realise that there is a price to be paid in terms of personal sacrifices, lower pay, and loss of corporate luxuries like business class travel, expenses and the car.

Passion, belief, vision and enthusiasm

One thing that all third wave entreps portray is the passion behind their beliefs and vision, aiming to solve fundamental pains in the marketplace. Their vision sometimes goes well beyond the normal horizon of typical VC investors, who sometimes feel very nervous about the long-term implication of the returns on any such investments. The dilemma facing third wave entreps is to balance between their long-term vision and a realistic roadmap, which will allow potential investors a decent return over a shorter period of time. They realise that, in order to get traction with investors, they need to modify or modulate their vision slightly, but not giving up on the long-term vision all together. They do this with great enthusiasm, which becomes infectious, and rapidly spreads amongst the team members, partners, advisors and investors.

Team leaders

Third wave entreps know how to build and run successful teams. They have a knack of finding and nurturing team players. They also realise that for the team to be effective, their role is to provide them with the right environment, passion, belief and support. They also realise that, as the team grows, a different set of leaders have to be brought in to help with the team growth.

Business fundamentals

Third wave entreps don't need much help in writing business plans or corporate presentations, since they have much experience from the past that they can rely on in order to 'hit' the intended audience at the right intensity. They also recognise and have no problems in understanding the basic premises of business fundamentals. Unlike Uncle Thakur's advice, they don't have to be told that businesses are built on providing products or services which can only be done with a profit motive in mind.

It may take some years to get there, but that profit goal is the primary driver and everything else is just a by-product to this fundamental goal. They realise that company valuations are not based on some artificial percentages, but on fundamentals like revenue, margins, profits, cash flows and satisfied customers, partners and suppliers; and that revenue is only real when the cheque has been cleared through the bank.

True cost of money

They realise that in order to grow the business, a cash capital injection is required and there are many ways in which this can be done. The cheapest and the most popular is to get the cash from your prospective customer. For this you have to deliver tangible results, which is the whole purpose of the business in the first place. But most customers won't part with their money, unless the product is delivered in its final form. This opens the second, slightly more expensive way of obtaining cash, namely a bank loan, which will eat into your margins, as you will be required to pay hefty interest charges. The banks will also require some form of collateral, which for most startups is not much use as there are very little assets that can be used for this purpose. The last, which is the most expensive way, is to get venture capital funding, in return for an equity sale. Here you are dealing with a situation where the investor is unlikely to leave unless they get their exit. Third wave entreps know how to choose their VC wisely, as they have to work with them over a long period of time. Most of them have very little choice of choosing the right one; due to market failures, there is very little competition - but that is about to change soon. Third wave entreps are aware of the situation and watching very closely.

Domain expertise and ability to act on experienced advice

One thing that is more striking about third wave entreps is their ability to stick to their industry domain expertise. Many second wave entreps were in the wrong domain, and when things started going wrong or they were taken for a ride, they couldn't recognise it, as it wasn't their domain expertise. Sticking to one's domain doesn't mean inflexibility but recognition of the fact, that, if you have to venture outside your area of expertise, you had better bring in some external advice to supplement your team. The advice could be from many functional areas like corporate finance, legal, IPR, fund raising, sales, geographic or market coverage, productisation, recruitment, PR or IR. One thing third wave entreps are good at is recognising and staying away from the many cowboy advisors, who trawl the entreps networks, with the purpose of making a fast buck.

Customer facing experience

One advantage of sticking to one's domain expertise is confidence. Confidence in their ability to deliver the vision, the product or the service. This is one of the prerequisites for a potential business relationship with a partner, prospect, advisor, or an investor. The third wave recognises that domain expertise drives domain knowledge, which is the secret ingredient for confidence building; confidence allows them to build trust, and trust eventually results in relationships. For a startup, this is very key, as there are many hurdles to cross besides building good solid relationships.

Taking advantages of deflation

The third wave has no problems making use of alternative methods or suppliers which give them a cost advantage. Sometimes this is driven by necessity, but third wave entreps use this as a competitive tool in which to offer a massive cost advantage on their product or service. They do not let old prejudices like quality or reliability get in the way of exploring the offshore centres for software coding, chip design or verification. They realise the additional value that they can bring to the table by overcoming any shortcoming using their sheer effort and tenacity. They have the ability to manoeuvre out of sticky situations, using alternative routes and methods, if the previous one fails. In other words they are willing to explore and take bigger risks. They have no problems scouring the second hand, slightly used market for IT, lab gear or furniture. The third wavers are also savvy negotiators, when it comes to large investments in tools and services. They are always on the look out for bargains, delayed payments or contingency payments. They are quite willing to bruise a few internal egos to get a better deal for themselves and their companies.

Summary

The third wave entreps are experienced in tackling a difficult pain in the market, technically savvy, have a track record, and will work equally hard to build a personal equity in their business. They will attract the right talent by their sheer enthusiasm, passion and belief; they are seasoned, aggressive and committed to their venture. And they won't be easily taken for a ride or misled by inexperienced advisors or investors. They recognise that you are in business to make money, not spend other people's money.

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© Chilli Publishing Ltd 2003

04AUG2003