Tuesday, March 27, 2012

Entrepreneurship and Entrepreneurs Part II

"A ship in harbor is safe. But that's not what ships are built for." -- William Shedd

"Ever notice how it's a penny for your thoughts, yet you put in your two cents? Someone is making a penny on the deal." -- Steven Wright

In our last post we looked a little at “what is entrepreneurship” and discussed some aspects of entrepreneurial thinking. Here we will look at some common entrepreneurial traits and behaviors and then take a look at “why” entrepreneurs do what they do.

One major trait that entrepreneurs may have in common is a higher tolerance of risk. There is a definite perception that taking the leap and starting a new business is a risky endeavor. A failed business could potentially result in serious financial problems, strained relationships, and even health problems due to the high levels of stress that can be associated with entrepreneurship. A person deciding to start a business may be walking away from a regular paycheck, a secure job, a career path, and future opportunities derived from their career path. They may be walking into a time of uncertainty and high stress.

Entrepreneurs often need to take additional risks beyond those above by putting themselves on the line, making promises and taking chances. Sometimes these actions are necessary in order to get the business moving forward. Also there is always unpredictability in business, one may never know when their number one customer may leave, or which if any of a myriad of potential problems may be waiting around the next corner. When the responsibilities for the business rest largely one one person’s shoulders, the problems for the business can potentially pose big problems for that person and their personal reputation, credit and relationships.

Many entrepreneurs will try to mitigate these risks as much as possible, perhaps by conducting extensive market research or talking to as many potential customers as they can prior to launch (“testing” the idea). They may attempt to start a business in the cheapest possible manner to mitigate financial stress. Perhaps they can seal a deal with a customer, getting their first order in before they really begin to incur any costs.

There are also others arguing that entrepreneurship isn’t nearly as risky as it is perceived, especially in today’s world where jobs are not as secure as they once were. They also cite the off quoted “90% failure rate” (or something like that) for new businesses that everyone has heard and show why that number is misleading or wrong (in fact, we’ll be writing about the misleading business failure statistics in an upcoming post as well).

Whatever the true level of risk facing the entrepreneur, honest is an important characteristic. Entrepreneurs need to be honest with themselves about the condition and capabilities of their company. They need to be honest to themselves about the real potentials of their products. It is good for them to exude optimism about the company’s future and how great their product is when talking to others but if the entrepreneur buys too much of his own salesmanship they may be headed for unexpected troubles. Finally, and quite importantly, entrepreneurs need to be honest to their spouses and the friends and family. They need to be honest up-front with those people that they will need to rely on when the stress gets very high, or the money gets very low. Hopefully all of these people are aware that such things may be headed their way in the future.

Why then, with these pressures and risks do entrepreneurs choose to start businesses? Of course, with higher risks come higher proportions of rewards. Strictly monetarily, many entrepreneurs have the potential to make far more money starting a business than they may have sticking to their prior career paths. However, money isn’t everything (right?) and entrepreneurs are often quoted saying things like “you have to be passionate about what you’re doing otherwise your business will not survive the low points”. Entrepreneurs often make it sound like the potential money alone could not inspire them enough to get through what they need to go through as they grow a business.

So what does get them through the low points? Inc. Magazine, in their March 2012 issue published the results of a survey they conducted of 2,000 business founders asking why they start businesses. The #1 reason among all groups (males in their 20s, 30s, 40+s, females in their 20s, 30s, 40+s) was – Autonomy. According to the article the only distinction was whether they were seeking independence or whether they were “fiercely” seeking independence.

The next most popular response, for 5 of the 6 groups, was Power and Influence – the desire to be a leader (female entrepreneurs over 40 preferred intellectual challenges over power and influence). Other common responses where desire to manage people, seeking variety, altruism and financial gain.

We asked David Walker, CEO and founder of Enable IPC for his thoughts -  why did he start Enable IPC and other companies. Here is his response: "I think the biggest motivating factor for me to start a new venture was to avoid becoming old and regretting that I never tried". 

This concludes our brief look at entrepreneurs. Next week we will return to our series on deciding whether or not to start a business by beginning to take a look at industries and markets. 

Thursday, March 15, 2012

Entrepreneurship and Entrepreneurs

“I have not failed. I’ve just found 10,000 ways that won’t work.” - Thomas Edison 

“My son is now an “entrepreneur.” That’s what you’re called when you don’t have a job.” - Ted Turner

We've decided to take a brief break from our series on deciding whether or not to start a business to take a look at the business starters themselves. We'll begin here with entrepreneurial thinking and "what is entrepreneurship" and then continue next week with a discussion of some common traits and behaviors and a look at "why" entrepreneurs start companies.

First of all, what is entrepreneurship? It is a difficult subject to discuss. According to the Small Business Administration over 600,000 new businesses are started per year in the U.S. alone. The process of forming an organization therefore can take many paths and the people behind the process come from a wide variety of backgrounds. It can be very difficult therefore, to find commonalities and it is probably impossible to say "this is what makes an entrepreneur"! For that reason, in discussing entrepreneurship we will be talking a lot about "tendencies" as opposed to "certainties".

In academia there is even debate about how to study entrepreneurship. Some advocate "behavioral approaches" focusing on the process whereby organizations come into existence. This removes the entrepreneur's personality characteristics from the equation and instead focuses on his/her actions and behaviors. The other approach, the "trait" approach focuses on the personality of the entrepreneur, seeking to identify key qualities and characteristics held in common among entrepreneurs in order to explain entrepreneurship[i]. The basic idea behind this debate is this - how do we define or explain entrepreneurship? Is it  what the entrepreneur does or who the entrepreneur is?

At http://enableipc.blogspot.com/, fortunately, we do not have to answer such questions. Instead, we can look at a wide range of common tendencies, behaviors and attitudes that help explain entrepreneurs and entrepreneurship without having to settle any academic debates (and therefore avoid having to read dozens of journal articles dating back to 1816). 

In a previous article "The Idea" we looked a bit at entrepreneurial thinking, specifically focusing on the "pains" in life and looking for solutions to those pains. In her article "What Makes Entrepreneurs Entrepreneurial", Saras D. Sarasvathy discusses different forms of reasoning - causal, strategic, and effectual:

Causal reasoning - (also called "managerial thinking" by Sarasvathy) a person identifies a goal and their given means, and then identifies paths from their means to their goal.

Strategic reasoning (or "creative causal reasoning") -  a person identifies their goal and their given means, and then identifies paths from their means to their goal, however, they may also identify or imagine new or other means, and new ways to reach the goal provided by these new or other means.

Effectual reasoning (also called "entrepreneurial thinking") - a person identifies their given means and then imagines multiple possible ends that may be reached by these means[ii].

The "pain" focused thinking comes into play more prior to developing a product or idea while effectual reasoning takes place more post-business-launch but what these two modes of thought share is that they are opportunistic. Entrepreneurs tend to benefit from flexibility and adaptability. 

The ability to re-imagine the company or the company's product in order to fit the present opportunity can be an entrepreneur's key to success. Target markets and target customers may need to be very fluid as entrepreneurs adapt to new information and head towards their next (or first) customers. This is exemplified in the "ready, fire, aim" approach -- study, research, decide and launch a company, then adapt that company to market realities.

An important part of entrepreneurial thinking therefore is in their view of the future.  Looking for and attempting to predict change is a way of identifying new opportunities and anticipating obstacles in the road ahead, but entrepreneurs often also try to shape the future. They believe that the future can be controlled by their actions and that "To the extent that we [entrepreneurs] can control the future, we do not need to predict it."[iii]

In our next installment we will look at some more common entrepreneurial traits and behaviors, and also discuss "why" entrepreneurs do what they do.

[i] Gartner, William B. "'Who Is an Entrepreneur?' Is the Wrong Question" American Journal of Small Business Spring 1988
[ii] Savarsthy, Savars D. "What Makes Entrepreneurs Entrepreneurial" University of Washington 2001
[iii] Savarsthy, Savars D. "What Makes Entrepreneurs Entrepreneurial" University of Washington 2001

Tuesday, March 13, 2012

Enable IPC Update - First Profitable Quarter!

Today we have announced that Enable IPC will close this fiscal year with the first profitable quarter in the company's short history! 

Enable's CEO David Walker was quoted as saying:

"The company’s revenues have increased substantially, quarter-to-quarter, beginning with the S/Cap RFID Tag® product announcement in June 2011. As the company continues its efforts to commercialize new products including RFID tags, AAO nanopore templates, ultracapacitors and lithium-ion battery cathode coating materials, we anticipate revenues to continue to grow through the next fiscal year and beyond. We are pleased with the current pace of revenue and product development and expect these exciting times for Enable IPC to continue."

Enable IPC also announced an agreement to begin S/Cap RFID Tag® sales in China, the world's second largest RFID market, and also that the S/Cap patent applications have been filed and that the product is now officialy considered "patent pending". 

The full update can be read here: http://www.enableipc.com/press/2012/PR20120313.htm

For more information on Enable IPC's products check out the following links:

RFID Tags 
The Enable product page: http://enableipc.com/rfid.htm
Our original blog article about the product's release: http://bit.ly/yrqe4n
RFID Journal (leading industry publication) S/Cap Feature: http://bit.ly/naJqhy

AAO Nanopore Templates: http://enableipc.com/aao.htm


Tuesday, March 6, 2012

Small Business and Entrepreneurship - To Startup or Not To Startup Part VI - Sensitivity and Scenario Analysis

"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery." - Charles Dickens David Copperfield

 "A nickel ain't worth a dime anymore." - Yogi Berra

After reviewing costs, sales projections, and compiling our cash flow projections over the previous 3 weeks, we turn this week to analyzing our statements using sensitivity analysis and discussing the use of different financial scenarios.

Now that we have our completed financial projections we can begin playing with the numbers to better understand our company. First we need to think about the figures we just developed and try to determine the key assumptions that were made. Do we think that everything hinges upon the sales price we used? Maybe we think it is our ability to secure a certain cost of materials, or to charge and collect a certain amount of shipping revenue?

If, for example, our figures were created with a sales price of $10.00 per unit, what happens to our cash needs (from Part V of our series, the amount of money needed to get our company to a cash flow positive state) if we can only sell our item for $9.00? We need to understand how vulnerable our company is to changes to our assumed figures. It may be that a change in sales price from $10.00 to $9.00 makes it impossible for this company to ever become profitable. It may be that the change has virtually no effect. If the change is drastic than we know our company is very sensitive to the sales price, but maybe we can find something to alleviate that sensitivity (maybe increasing shipping fees or find an additional source of revenue) or maybe the company is a no-go due to that sensitivity. Either way we would want to know prior to moving forward.

The other thing that sensitivity analysis can do is uncover hidden dangers. Perhaps we are certain about our cost of materials but find out that a slight increase in those costs could be devastating. Once we've studied our company's sensitivity to our assumptions we can make changes to our assumptions, or even modify the company's business model.

In this manner we need to play with our spreadsheet, alter the numbers in our assumptions, or alter combinations of our assumptions (e.g., what happens if we adjust our sales price and our rent?) and see the effect these have on our projections. This helps us to understand the interplay between the components making up our revenues and costs.

Now we can also create separate financial projections for different scenarios. We can make full sets of projections with different assumptions to show what could happen if we have to sell for $9.00, or if our material costs are higher than estimated. This can lead to "optimistic", "pessimistic" and "most likely" scenarios.

After conducting sensitivity anaylsis and compiling different optimistic, pessimistic and most likely scenarios you may begin to wonder just what are your actual cash needs? Well there are a few ways to answer that question. You can simply use your original financial projections and chalk the extra work up to better understanding the key characteristics of your company.

There are also a few methods others have suggested for what to do with your different scenarios. Say you have a pessimistic scenario with cash needs of $25,000, an optimistic scenario with cash needs of $10,000 and a most likely scenario with cash needs of $22,500. Which should you use as the real cash need for your company when considering whether or not to start this business?

One is to simply take the highest number, but this may be the least realistic of any approach as it does not take into account the likelihood that this would be your true need. In our example the highest cash need comes from the pessimistic scenario but how likely is this scenario to happen?

Another method is to take the average of your pessimistic, optimistic and two-times your most likely scenario. So in our example: $25,000 + $10,000 + 2x$22,500 = $80,000 / 4 = $20,000. This method factors in the pessimistic and optimistic scenarios while weighting the final number with the most likely cash need.

Another method we've heard of is to take the greater difference between either your most likely and optimistic, or your most likely and pessimistic, and then add that difference to your most likely number. So $22,500 - $10,000 = $12,500 (most likely minus optimistic); $25,000 - $22,500 = $2,500 (most likely minus pessimistic). The greater of the two is $12,500 and we add that to our most likely number $22,500 + $12,500 = $35,000. This method is designed to provide more of a safety net.

You can also simply weight each scenario based upon your understanding of the true likelihood of each scenario and come up with your figures that way.

This concludes our look into the financial aspects of deciding whether or not to start a company. Beginning next week we will start looking at our industries, markets and customers.

Thursday, March 1, 2012

Summing it Up - Part 20 in our IP and Patents Series

This is the final part in a 20-part series of articles on intellectual property protection and commercialization.

Over the past few months, we’ve posted a lot of information, consisting mostly of summaries relating to intellectual property, patents, commercialization and other related topics. None of these articles are comprehensive, and they are not meant to be – they were simply meant to help a novice acquaint his or her self with some of the processes involved in these areas.

We’ve been concentrating on three general areas:
  • Having an idea
  • Protecting the idea and
  • Turning the idea into something useful

Intellectual property is an interesting term – the words themselves seem to refer to things you own in your head. But, to expand on that, to make the idea useful, takes work, perseverance and a sometimes difficult but vital dose of honesty.

We are a country and a people built on innovation and risk. Ideas are great, but good ideas that are not implemented are useless.

And, while we have harped on the concept that, if there is no market for the idea then it might need to be abandoned, keep in mind that creativity is not black and white – true innovation rarely is planned.

Penicillin, potato chips, Teflon and Viagra have one thing in common: they were each discovered by accident.

So, despite our harping, an idea that seems nutty might just change the world for the better.

It’s a tough, unexplainable and impossible balance. No one can truly tell 100% of the time when to quit and when to continue a pursuit.

All we can do is keep in mind a quote from someone who knew a whole lot more about ideas than anyone else:

“If at first, the idea is not absurd, then there is no hope for it.” – Albert Einstein