As I discussed in a previous column (AW June 2012), if you want to be on the fast track, my advice is to take the entrepreneurial approach—start your own company, or become part of a founding group with significant equity participation. No big company can match the money you can potentially make as an owner. Sure, these are tough times, but recessions and cutbacks spark more startups than good times. In the automation business, what kind of company should you start? Here are some suggestions.
If you’re in sales and good at it but frustrated with your present job, you might consider starting a Sales Rep company. Sales representatives typically work on commission within a defined, exclusive territory. (Sometimes you can negotiate a commission advance, which helps.) If you work from home, it takes just a minimal investment and can generate quick results. As success develops, revenue growth comes through additional salespeople and facilities.
Since you won’t have too much time to spend learning new products, sign-up with suppliers who know you well—perhaps your previous company or a close competitor. Sign up complementary product lines that sell to the same customers; this makes you more effective for all the companies you represent. Sell to the customers you’re already familiar with, to people who already know you and respect your capabilities.
The primary value of sales rep companies is the healthy cash flow. When the original owners wish to retire, they typically arrange buyouts by productive employees who can continue to grow the business. These companies won’t achieve the higher equity value of product-based companies, though.
Hardware or software startups
This type of company develops, manufactures and sells products. It requires good teamwork and a well-developed business plan. If the founders take low salaries and share ownership, minimal capital is needed. In my experience as an angel-investor, startup funds are most often raised from what’s jokingly referred to as, “fools, friends and family.” If the company grows profitably, significant profits can be generated for the early participants—especially if the company goes public or is acquired.
The first steps are finding a team. The best results come with founders who have complementary skills: marketing/sales, engineering and operations. Initially, there’s no need for a financial manager—a competent bookkeeper is sufficient. The founding team should have the ability to execute for the first few years—that’s when most start-ups fail.
Don’t go it alone. If you’re a good engineer, find a marketing or salesperson to validate your ideas. If you’re in sales or marketing, team up with an engineer who has the capabilities and experience of designing outstanding products, not just re-hashes of what’s already available.
Talk with real customers to see if they would buy the product in sufficient quantities at the target price. Make sure there are sufficient gross profit margins to allow for continued development, promotions, sales expenses and discounts. Don’t ever sell products at low margins (loss leaders)—that’s a sure path to failure. A healthy bottom-line from the start assures the company’s continued growth and success.
Ownership should preferably be distributed among key members of the founding team, based on expected contributions. My own view is that, as the company continues to grow profitably, all key employees should share the rewards of good results. With good teamwork, a little luck and a lot of hard work, there’s a good chance that you’ll succeed far beyond your expectations! The equity value of your ownership will yield far more than any salary you could earn as a mere employee. Hey, it worked for me!
>> Jim Pinto is a technology futurist, international speaker and automation industry commentator. You can email him at [email protected] or review his prognostications and predictions on his website: www.jimpinto.com.