Guru Advice for Start-up Companies

A large number of new companies are started by unemployed or dissatisfied people.

So, if you’re out of work, or dissatisfied with your current job, perhaps you should consider starting your own company. Being an owner in an enterprise is perhaps the biggest satisfaction that any job can provide.

Founders of technology companies are often innovative engineers or operations people. But, they seem to quickly run out of steam without a balanced management team—including marketing, sales and finance. The functions of quality, human resources and IT are important, but are typically shared till the company grows large enough to split them off.

As an early-stage “angel” investor, I’ve seen small engineering companies go off the cliff into bankruptcy, simply because the founder was spending all the money on tweaking the product, rather than selling it. The product becomes something the engineer “thinks” the customers should have, not what they’ve actually asked for. An expensive brochure describes in great detail all the wonderful features—often in language that most customers don’t even understand. Then they wonder why sales are not resulting.

That’s where marketing comes in—finding customers and filling their needs. And sales—approaching target customers and convincing them to buy the product over many other choices they may have.

When I invest in a start-up, the first thing I ask is, “Where is the team?” I look for a balance among all the functions. If there is no team, I look for an exit. If there is a team, I look for teamwork - people who complement each other and are not dominated by one function to the detriment of the others.

If the founder is an engineer, I quickly turn my attention to the marketing chief and ask, “Who needs this?” I look for a reasonable analysis of the markets and competitors. Is the market big enough or just a small, specialized niche with limited potential? There must be a sensible view of market size and growth rate. With a growth market, some attention must be given to barriers-to-entry.

And then I look for at least some financial balance. If a key founder is primarily a “bean-counter,” I worry about growth being limited by inconsequential details. Up-to-date measurements are important—the books should be kept up to date, not months behind. In a typical start-up, the financial person can be part time; a good chief financial officer can come later, when strong growth is underway. The founding team should have the ability to execute for the first few years—that’s when most start-ups fail.

Founder ownership is important, with equity preferably distributed among key members of the founding team. Having the controlling interest in the hands of just one individual makes the company vulnerable to that person’s leadership; of course, it also limits indecision and in-fighting.

Guru advice

I’m an engineer, and some 35 years ago when I started Action Instruments, I went to the top engineering gurus—engineers themselves, who were surprisingly accessible. Here’s their advice that inspired me:

John Fluke, Founder of Fluke Manufacturing (now part of Danaher): “Good people make good products, which make a good profit.”

Two engineers, Bill Hewlett and Dave Packard, started the ultimate engineering company, Hewlett-Packard, in the proverbial garage. Bill Hewlett’s advice: “Understand the numbers. Engineers forget things like margins and profit. What you measure, you can control.” Dave Packard said: “People are the keys. Without good people, you have nothing.”

Andy Grove, former Intel chief wrote: “Only the paranoid survive.” Read this book and keep it around when you’re running your own company.

Here’s my own advice: Hire intelligent, passionate people and make them owners to keep them motivated.

Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: jim@jimpinto.com. Or review his prognostications and predictions on his Web site: www.jimpinto.com

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