In the end, it comes down to what we teach — how to become an entrepreneur or how to develop an entrepreneurial mindset. – Article on Huffington Post
New Book by Bruce Barringer, Oklahoma State University Entrepreneurship Department Chair. “Launching a Biz: The First 100 Days” Selected Editor’s Pick
I attended the Austin Technology Council CEO Summit several weeks ago and observed that there were strong feelings about some of the presenters’ positions among the attendees. Statements like ‘we focus too much on lifestyle startups and not enough on worldchanging ideas’, ‘we need exponential growth businesses’ and finally, the one that got the strongest reaction from many in the crowd, ‘there’s not a shortage of capital, there is a shortage of companies worth funding’ really struck a chord with many attendees and there was much discussion both in support and against these positions during the breaks.
Upon further reflection and conversations with other entrepreneurs at the event I realize that the statements appear true from the lens of venture investors and entrepreneurs looking to create exit-focused endeavors. For those people looking to create exit-worthy businesses these statements ARE correct and lifestyle businesses are likely not the correct focus. Understanding the position and reactions requires an understanding of the different perspectives of ‘entrepreneurship’. I frequently hear entrepreneurs lately describe themselves by how many ‘successful exits’ that they have had rather than by the number of successful businesses that they have built. Entrepreneurship and New Venture Creation are used interchangeably as is appropriate. There remains some confusion among the community about what entrepreneurship means.
According to the authors of one of the top academic textbooks on New Venture Creation, Bruce Barringer and Duane Ireland, there are three types of start-up (new venture) businesses:
Salary-substitute Firms – these firms allow the owners to be their own bosses and to develop and grow their businesses at a level commensurate with the personal lifestyle desired. Salary substitute CAN (and often do) develop into large businesses but they typically are not exit-focused. Many service and local product businesses fit into this category. Digital Marketing firms where the innovation creation is low but innovation deployment is high may be one example of a salary-substitute business.
Lifestyle Firms – these firms conform to the specific interests of their owners passions. An example of this would be a music retail business which grows into a multiple location business and is tied to the passion for music of it’s founder. Lifestyle businesses may be large and even multinational, but they are rarely innovative or designed for an exit. These businesses may be innovative in their specific areas but are not usually driving broad innovation. Some digital media ventures are lifestyle businesses (digital filmmakers, gaming, bands, etc).
Entrepreneurial Firms – these firms bring new products and services to the market and deliver innovation in one or more areas. These firms are developed to create value for their investors and customers and strive to drive growth and scale quickly. Because of the nature of their value offerings they are frequently started with an ‘exit’ in mind, whether that exit is an IPO or M&A activity.
The term Entrepreneur is a derivative of the french words Entre (between) and Prende (to take). It originally applied to the person between the investor and inventor/creator who assembled and integrated the resources necessary to transform the idea/product/service/creative into a a viable business (Barringer, Ireland, 2008). Entrepreneurship is about making ideas into businesses, not just about building businesses to exit (although that is one very popular form of entrepreneurship).
Many startup endeavors today are actually lifestyle businesses or salary substitute businesses. There is nothing wrong with those types of businesses, in fact, our economy is made up of a great number of these types of businesses. You could argue that some of the recent IPOs are lifestyle or salary-substitute businesses that have been dressed up for scale rather than true entrepreneurial ventures.
Where we run into challenges is when there is a disconnect between the investor, entrepreneur, and inventor/creator in terms of the true nature of the business being formed. There is a risk that we have had an inordinate amount of focus and emphasis on venture capital and public market approaches while not paying enough attention to the needs and nurturing of salary substitute and lifestyle businesses as valid forms of entrepreneurship. These businesses provide jobs, services, and local economic expansion. A good mix is necessary to have a healthy economy.
There is an opportunity for all three types of ventures. A healthy business environment has ecosystem, investment sources, and infrastructure to support all three of these types.
Those speakers weren’t wrong at the ATC CEO Summit. They were exactly right – for the type of new ventures that they are interested in. I’m hoping that we can start a dialogue about how to nurture and develop the other types of ventures.
I’ve been in several presentations and meetings lately where there has been an inordinate amount of discussion and focus on Conversion and the role of social media and social networking. I’ve heard phrases such as ‘it’s not about content for content’s sake, it’s about content that leads to conversion’ or ‘your goal should be conversion or the attainment of some action from the user that can be interpreted as a conversion’.
Both of these statements, while true to a large extent, oversimplify and marginalize the opportunity with social media for marketers. There are three major components to the funnel (some marketing literature highlights four or five but for simplicity I’ll focus on the major three funnel sections). These are Awareness, Consideration, and Conversion.
Social Media and Social Networking can play a major role in the Awareness part of the funnel. This section is about creating content that is appealing, worth sharing (viral), and has value for the readers/viewers/consumers, whether the value is for laugh and entertainment value, such as the DollarShaveClub.com video or an Infographic on Security from a security vendor. These are general content that are worth sharing and help bring potential customers into the top of the funnel. Measuring this may be as simple as measuring views, clicks, or tracking as a campaign component through Google Analytics.
Consideration is also an important component of the funnel. Creating content specifically for users that have already ‘opted in’ through Facebook Pages, Twitter connections, or other methods allows the marketer to tune the message to a much more focused ‘sales’ message with the intent of deeper interest. This content may be things like offering webinars, whitepapers, or Hangout events on Google. The goal of these would be to move customers into the true conversion phase. Connecting with the users individually at the end of this process is critical to really driving conversion. Tracking things such as the collection of contact information, a request for more information, or a user opt-in for additional contact are all ways of measuring whether the consideration methods are working optimally.
The final phase is the conversion phase and this is the ‘rubber meets the road’ phase. This is the conversion of a prospect to a sale, the conversion of a casual reader to a committed follower, the conversion of a passive user to an active user, etc.
When people talk about focusing on conversion the risk is missing the optimization and opportunity offered by providing content and interacting with the community to drive awareness and encourage consideration.
I have a simple test that I occasionally use to figure out if an executive is a reasonable leader. It’s one that is useful sometimes (organizational situations may make this a difficult test to pass). That test is; do any former employees follow the executive to his/her new company. Now this test is really a single attribute test – it highlights whether employees will follow someone to a different company (hence the ‘leader’ title). It DOESN’T test for the reasons behind the employee moves, quality of the leadership, or the direction of the migration (did the employee follow the leader or did the leader pay the employee to follow).
Regardless, employees following executives to new opportunities is an indicator of leadership and team commitment. I’ve thought about this from time to time as I’ve experienced different executives and have really paid attention to the ones that have teams around them that are willing to move to new roles with the leadership. Why is it that some executives join a firm and people from the old firm send in resumes right away and other executives join a firm and there is no trace of their former employee base anywhere around? I also wonder about companies that hire executives with a track record of bringing people with them to manage existing teams. Sometimes this works well and sometimes it can be an organizational disaster.
My view is that this comes down to two different attributes; leader with broad group interest vs. self-focused leader and team building need vs. existing team leadership need. These are important attributes to understand because they will help illuminate what opportunities and risks new executives may bring to your emerging organization.
In some cases, organizations have teams in place that needs executive management and there is a desire NOT to bring on an executive that has a ‘ready-to-go’ team ready to follow. Bringing on an exec with strong former team loyalties and structures may be inviting massive churn into your organization as the executive brings on ‘their team’ and moves out existing employees.
In other cases, an executive may be needed to build a new capability or organization and an executive that has a rolodex of experienced people willing to follow him/her would speed up the team development and reduce organization ramp time.
Sometimes a team exists with solid performers but there is not the experience, strategic planning/vision capability, industry relationships, or management capacity and a strong executive is needed. In that case, an executive that has a good track record of management but not a ‘ready team’ may be preferred.
Many times executives are hired based on their personal accomplishments rather than the organizational leadership and development skills that they have. It’s important when hiring executives for startups and emerging businesses that consideration is given to the type of leader being hired. It’s important for both the health of the business and for the likely outcome of the executive hire.