Entrepreneurship is not only an important building block for economic development, it is also essential for economic growth and job creation. Yet, successful entrepreneurship is heavily reliant on, among other things, the ability to execute a viable business plan, capacity to access resources including capital and labor, and the presence of clear and reliable legal and regulatory frameworks. However, the mere presence of favorable conditions do not guarantee commercial success. Access to capital, taxes and regulations, attracting and retaining employees, health care costs, and competition can often post insurmountable difficulties for entrepreneurs. Perhaps not surprisingly, new ventures are more likely to fail than they are to succeed. Entrepreneurship is rife with challenges, and to avoid failure, an entrepreneur must be willing to learn, adjust, and reevaluate assumptions at every step of the way.
Despite the challenging nature of building a business, examples of entrepreneurial success are all around us. Entrepreneurship is responsible for many of the world’s most innovative and well known companies. From consumer product giants Procter & Gamble and Johnson & Johnson, to banking mainstays Goldman Sachs and JP Morgan, to internet wunderkinds Google and Facebook, many of our most recognizable brands are byproducts of entrepreneurship. Yesterday’s startup is today’s conglomerate, and today’s startup is tomorrow’s newest Fortune 500 company, and so the cycle continues.
While entrepreneurship remains the exception to the norm, the creation of new businesses remains a pursuit for many individuals. Recent statistics show that in the United States, 550,000 individuals start a new business per month. Moreover, a record setting fourteen percent, or 27 million working Americans are now entrepreneurs. Globally two-thirds of adults consider entrepreneurship as a good career choice, with Millennial Entrepreneurs, also known as “Millennipreneurs”, starting more businesses, with more employees, and higher profit expectations than previous generations.
Although tech related startups remain an important engine of entrepreneurship, the thriving entrepreneurial ecosystem extends into other industries as well. Among Millennipreneuers, retail, professional services, and fashion remain the most popular sectors of entrepreneurship. In terms of growth, the largest share of high-growth companies are found, in order of ranking, in IT services, Advertising and Marketing, Business Products and Services, Health, and Software. When it comes down to success rates, startups in Finance, Insurance, and Real Estate are more likely to succeed than their peers in other industries.
As most entrepreneurs learn, running a business is a complicated matter. Managing employees, attracting and retaining talent, meeting compliance requirements, and raising capital are just a few of the issues every entrepreneur must contend with. I had the opportunity to interview Brian Snow, Co-Founder and former CEO of Pristine Environments, a smart facility and building intelligence solution company managing over 100 million square feet of client facilities. Fresh off the acquisition of Pristine Environments, Brian now spends his time advising and investing in U.S. based CleanTech and Retail Estate Services companies. We discussed his views on running a business, his advice for founders, and his thoughts on entrepreneurship.
CG: Having spent the better part of 6 years building a global commercial real estate company,what are you working on and what’s next in the space?
BS: For the past few months, I have been working closely with founders and technology entrepreneurs in over a dozen disruptive tech startups as an advisor and for the ones I am truly stoked about as an investor. In each case, these founders and their teams have developed either a cutting edge technology with defensible IP or a novel tech enabled business process that will, if executed properly, transform their industry(s). I am drawn to work with companies in spaces that I know—RE-Tech (Commercial real estate) and CleanTech. Out of this field, I see a few “unicorns” in the making! Most of my time is spent helping the founder and his team to commercialize their technology and to successful raise capital for growth. At the end of the day I am searching for my next company to build.
CG: You’ve worked with many entrepreneurs. What are some of the common mistakes that you’ve seen first–time founders make when starting out?
BS: Most founders have never raised capital before and they think that raising a “round” is what makes them successful. My perspective is don’t go too soon and think you have to raise capital. Boot strap as much as possible with your own capital; go to angels and other successful entrepreneurs before taking capital from “institutional” investors. Nurture whatever relationships you have or networking you can but don’t go too early in the VC/PE courting process – guarantee that when you think you’re ready for this type of road show, you aren’t.
CG: Successfully raising capital is often a necessary component of running a startup. How should founders go about the investor courting process?
BS: Investors come in all shapes and sizes from high net worth individuals, to Venture Capital to strategic investors. Once you have kissed enough frogs and you have enough interest in a specific round, Founders should be very selective about the type and style of investor they let into the cap table. Pay attention to who you are getting in bed with – you have to live with them going forward – find references, talk to other entrepreneurs who have worked with them. Make sure they have the capital they say they do. Verify investment track record and ensure they have the follow-on capital needed for your growth or for a speed bump you may hit along the way that requires cash to keep you on track. Once you get their money, stop trying to sell them – be honest and upfront with them about the business and leverage them as a partner and growth agent. Savvy founders stay in touch with investors and provide regular, concise updates on growth, new clients and other strategic developments.
CG: What other critical decisions should founders focus on in the early stages?
BS: Talent acquisition! It goes without saying that early stage companies need to recruit and attract a core team of rock stars that enhance the company’s valuation to a serious investor class. Founders need to create a compelling equity incentive package that recognizes that great teams build great companies—founders should even be humble enough to list these key rock stars as “co-founders.” Structure a fair vesting period after a 20% cliff that is no more than 1-2 years and allow the rest vests in monthly portions no more than 48 months, with immediate vesting upon a liquidity event/change of control. Be willing to give up a meaningful percentage of the company in the seed round to a team that you believe can get you the distance. This will be the most compelling incentive for these key “co-founders” even when they are getting better cash/equity offers to leave for other opportunities.
CG: What other pitfalls would you advise founders to avoid?
BS: In today’s tech world, we are all inundated with news feeds about VC funds and founders many times measure themselves by how much their current round is valued. Care about valuation, but don’t let it be everything. First build a great product. Period. And then worry about valuation. Be able to support your valuation with market comps and financial projections but don’t get greedy. Engineering an insane valuation early on will only make raising capital in future rounds harder.
CG: How do you think about aligning incentives between founders, management and investors and how does this process differ between startups and more established companies?
BS: Founders and early co-founders need to have skin in the game—deferred/lower comp is great, but investing cold hard cash is critical to align incentives with investors. A lot of corporate executives coming from well-established companies might find it sexy and adventurous to join a start-up—with all of their industry experience how could they not be the missing ingredient? Once they realize that a startup requires a major shift in lifestyle and that dealing with the growing pains that come with a high growth culture test their tolerance for risk. Founders need to challenge a recruit’s “risk tolerance” before bringing them onto the team. Just because you have been successful in a large corporation in the same relative industry does not make you the best fit for the wild ride ahead.
CG: Any parting words or thoughts on entrepreneurship?
BS: We are a unique breed of risk takers and its incumbent upon us to support other entrepreneurs: As a successful founder of a company you have an obligation to pay it forward! Invest your time, capital, offer access to your network and insights into your success/mistakes to other entrepreneurs that you believe have a powerful vision and a plan to build a great idea into a something worthy of your efforts. This is a small, but ever-growing community that needs to be nurtured and supported. Starting a company can be a life changing decision that requires founders to make substantial financial and lifestyle sacrifices to bring their vision to life. Living the life of a startup is a daily marathon that requires mental, physical and emotional stamina and sacrifice. Few are prepared for the journey and fewer succeed. But for those few that realize that successful entrepreneurs are one part “dreamer” and most parts “doer”—then the above insights will help guide you through some of the most complex and important decisions you will encounter as a founder.