Is it possible for entrepreneurs to succeed at growing ventures without early-stage venture capital? Based on the fact that more than 9 out of 10 of America’s billion-dollar entrepreneurs did take off without early-stage VC, Dileep Rao says YES!
In Nothing Ventured, Everything Gained, Dileep Rao shatters the dominant myth that entrepreneurs need early-stage venture capital to build a giant business. In fact, says Rao, by avoiding or even delaying VC, billion-dollar entrepreneurs can control their companies and the wealth created by them—and retain more of that wealth. The book is based on 30 of Rao’s interviews with billion-dollar entrepreneurs (BDEs) and hundred-million-dollar entrepreneurs (HMDEs) and the analysis of the strategies of 85 BDEs. The author introduces the finance-smart skills, opportunity secrets, and strategy secrets of BDEs who took off without VC, and proves his points via stories of successful giants like Jeff Bezos, Mark Zuckerberg, and Steve Jobs.
Every entrepreneur will do well to read and benefit from Rao’s invaluable insights and expertise.
Dileep Rao, PhD, financed the growth of hundreds of businesses and real estate projects over the twenty-three years he was VP of financing and business development at a venture development and finance institution. He advises entrepreneurs, governments, Fortune 1000 corporations, and financial institutions on building big businesses with finance-smart strategies. Dr. Rao is a clinical professor of entrepreneurship at Florida International University and has taught at Stanford University, the University of Minnesota, and in executive MBA programs in Europe, Latin America, and Asia.
|Publisher:||Greenleaf Book Group, LLC|
|Edition description:||New Edition|
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Read an Excerpt
What you sell is one of the most important decisions, along with how you sell and to whom. To develop the right product, the track record of billion-dollar entrepreneurs suggests that it helps to have skills to better satisfy customers' unmet needs in emerging trends, emerging markets, or emerging technologies.
"And we have always been shameless about stealing great ideas."
— Steve Jobs in a TV documentary, Triumph of the Nerds (1996)
Finding the right opportunity is the first step in developing your venture. To take off without capital, entrepreneurs need to have the skills to bootstrap their innovation.
Sam Walton knew how to operate stores in small towns. When the big-store format emerged, he had the skills and experience to operate a big store in small towns.
Steve Ells was a trained chef and wanted to open his own high-end restaurant. To earn some money, he started Chipotle to offer organic foods in a quick-serve setting.
Mark Zuckerberg and Bill Gates were programming mavens.
Most billion-dollar entrepreneurs developed their initial product or service using their skills — and did not need capital. Very little institutional venture capital is provided at the seed stage. In 2016, this amount was about $2 billion (according to pwcmoneytree.com), which is about 4 percent of the total U.S. VC funding. Only 1,428 deals were made, which is about 0.2 percent of U.S. startups. This suggests that most entrepreneurs will need to develop their opportunity without VC. They need to bootstrap or use limited funds available from friends, family, and angels. Even if angel funding is obtained, there is no assurance of getting institutional VC, so bootstrap innovation is advised.
Following are some billion-dollar entrepreneurial skills to bootstrap the opportunity for more advantage with less.
Identify and Satisfy Unmet Needs
Recognizing and satisfying unmet needs to offer higher value has been the hallmark of entrepreneurs. By understanding your market's unmet needs, you can sell customers the right products and services. Ever since the first entrepreneur appeared, the second entrepreneur asked, "How can I do it better or cheaper?" Better or cheaper is an unmet need. Customers want to save money or have more needs satisfied. But the key difference among high-performance entrepreneurs was that they had the skills to develop a solution with a long-term advantage. This helped to increase sales and margins, which is especially useful in the emerging stages of a company and industry. And customers are likely to buy faster with shorter sales cycles and at higher prices.
Kevin Plank built Under Armour by developing garments to make football players and all athletes more competitive. He focused on college football teams since he was familiar with many of them, having been a college football player himself. He focused on showing these players how his garments improved performance, which was important to them if they were to be drafted by the NFL.
Glen Taylor (Taylor Corporation) started to catch brides' attention by developing a catalog of wedding invitations that was of similar quality to those from the leading companies. But Taylor found that brides wanted to reflect their personalities on their special day. Previously, the company's (and industry's) response had been to tell them "You can get what we have." Taylor, however, noticed that brides were not asking about price when wanting to satisfy their unique wishes. He decided to try to satisfy these customers by selling customized products at a higher price.
He was the first to offer cards based on the hot songs, movies, and other themes of the day. He offered additional colors that were in sync with the market and the industry. He helped brides coordinate all the colors in their wedding, including the paper products, invitations, bridal dresses, and more. Brides loved the idea and paid more for it. He could not keep up with demand. By satisfying the unmet needs of his customers, Taylor increased the size of his typical order by 5 percent and his profits by over 60 percent. His company took off. (For more about Taylor, see the last chapter.)
Some entrepreneurs use their unique skills to develop their product or service to launch their business in emerging technologies. Established companies usually are not dominant in these emerging technologies, and the new ventures can gain a strong foothold before the dominant companies are aware of the opportunity — and the threat.
After World War II, as an electrical engineering student at the University of Minnesota's Institute of Technology, Earl Bakken (founder of Medtronic) would stop by the university's medical school and hospital to visit friends. He would repair their equipment on-site and realized that there was a business opportunity. So he and his brother-in-law started Medtronic to repair medical equipment on-site.
Medtronic's early days were agonizing and arduous. The venture's highest annual net income in the first decade was $10,400. To grow, Medtronic worked with physicians to develop custom-designed equipment for specific treatments. One of these physicians, Dr. C. Walton Lillehei, was using medical devices for the heart, but the devices would fail during power interruptions and thus adversely affect patients' lives. So Lillehei asked Bakken to develop a device that would work through power failures. Bakken experimented with various options and, in four weeks, came up with a solution based on a circuit in Popular Electronics for an electronic metronome. This pacemaker was attached to a child's heart the next day, heralding the dawn of the modern-day electronic medical device industry.
Emerging industries are usually based on changing markets, technologies, or demographics. They create new opportunities for entrepreneurs and offer an advantage to those who are willing to jump into a new industry.
Bob Noyce and Gordon Moore founded Intel at the dawn of the semiconductor age. Noyce was a co-inventor of the integrated circuit.
Bill Gates and Paul Allen knew how to write computer code for personal computers, which was a key skill in the emerging PC industry. The two had been working on PCs throughout high school.
Steve Jobs knew how to develop and market PCs and formed a partnership with Steve Wozniak, who had the technology skills. Wozniak developed the first few products sold by Apple.
Herbert Boyer and VC Robert Swanson founded Genentech at the dawn of the biotechnology trend. Boyer was a pioneer in recombinant DNA technology.
These successful entrepreneurs had functional skills in emerging industries, enabling them to become pioneers in their fields. Table 1 shows some major industries that have emerged in the last 50 years. This suggests that a key factor for highly successful entrepreneurs is to acquire technology skills in emerging industries or technologies — on their own or with partners.
Improving an Emerging Industry
Many billion-dollar entrepreneurs got their start in emerging industries because they had skills in the industry. But they were not the first movers. When the industry emerged, they examined the leading products and improved upon them. They compared the benefits offered by the existing products with the unmet needs of the emerging market. This gave them a foothold, which they used to dominate the market. This suggests that first movers don't always win. Imitators and improvers can do better if the first movers haven't guessed right. In fact, first movers dominate only about 11 percent of the time.
Larry Page and Sergey Brin used their expertise in programming to cofound Google when the Internet was just emerging.
Mark Zuckerberg was a programming expert when the online linking industry emerged. He wrote the code for a linking site and improved on the existing business model by focusing on college students who wanted to meet others at their university, and Facebook took flight.
Taking Advantage of Emerging Trends
Emerging trends offer a boost for entrepreneurs. Emerging trends offer the prospect of entering when an industry is still forming. An emerging trend can be especially beneficial if large corporations find it difficult to jump on the trend without major disruptions to their existing business.
Richard Burke founded UnitedHealthcare (UNH) in the 1970s, when legislation was passed to promote health maintenance organizations (HMOs). There were already a few HMOs around the country, such as Kaiser and Group Health, which offered access to a limited number of staff physicians and had limited market appeal. The new concept involved building off private-practice doctors to provide medical care in new managed-care entities. Two key features of the new federal law — the HMO Act of 1973 — were that it overrode the state laws that had historically inhibited organizations of this type from operating, and it required employers with 25 or more employees to offer at least one managed-care option. By capitalizing on this law and forming alliances with local medical associations, Burke developed UNH into the dominating company in medicine.
Amazon.com is a classic example of a young company that recognized an emerging trend. It has taken full advantage of the limits of store-based retailing in a web-based world. By understanding the emerging trend of online retail and using the strengths of the Internet, Jeff Bezos has been able to build one of the world's great disrupters, by focusing on excelling at the infrastructure of the Internet, along with selling products and services.
* * *
Many entrepreneurs are under the impression that they can obtain a unique advantage from their opportunity — but few do. Most products or services can be duplicated by others.
To find an advantage, entrepreneurs need to know how to develop products that better satisfy unmet needs, especially in emerging industries, emerging trends, or emerging markets.CHAPTER 2
In addition to technology skills, most billion-dollar entrepreneurs started out with sales skills and financial management skills. They were, in essence, technologist-accountants who knew how to sell. They knew how to convert skeptics and nonbelievers in a new venture into believers and customers. They were missionaries who could get converts for their new business.
"Business without sales is like Hamlet without the prince."
— Source Unknown
Missionary sales are crucial for a new venture. At startup, no one knows who you are — and no one cares. For initial sales with attractive prices and high margins, entrepreneurs should understand customers' unmet needs, make them happier than competitors can, and gain a competitive advantage to keep them happier in the long term.
Consider a group of 28 Minnesota billion-dollar and hundredmillion-dollar entrepreneurs and the skills they started with (see Table 2).
At the outset, the billion-dollar and hundred-million-dollar entrepreneurs were strongest in sales/marketing (82%) and in financial management (64%), enabling them to sell more with less. These entrepreneurs knew how to sell to offer maximum value for customer happiness, for higher margins and at the least cost, and to dominate with higher cash flow. And they used accounting skills to control their cash and cash flow and do more with less. They were accountants who knew how to sell.
Following are some billion-dollar entrepreneurial skills for missionary sales with attractive margins.
Target the Right Customers
If you spend too much money to find customers — or worse, you spend too much time and money to find the right customers — you could fail before you have a chance at success. The key is to know who your customers are and how to reach them most effectively and efficiently.
Don Kotula, the founder of Northern Tool, placed small ads in magazines that his core market read. These magazines included Popular Mechanics, Popular Science, Farm World (and other agricultural magazines), and a variety of publications for the construction industry. He tracked the orders and continued to use only the magazines that produced results. He also found that there was seasonality to his sales, so he adjusted and did not waste money in the low months. He developed his own mailing lists from his ads and got customers' addresses from their checks. He would encourage his customers to refer their friends to receive a catalog, and most of them were happy to do so. This helped Kotula to expand his mailing list without a high cost.
Make Customers Happy
Happy customers stick to you. Happy customers pay more. And happy customers tell others how happy they are with you.
Horst Rechelbacher, Aveda Corporation's founder, liked to make people happy. As a young man working in hair salons, he realized he worked better when he did not do styles to satisfy himself but to please the customers. He found that customers were the ultimate teachers and that people could tell you what they liked after they saw it, felt it, touched it, heard it, or smelled it (he believed in using the senses for selling). If he did something for himself without his customers' approval, his problems and complaints increased. So he would show them photos of various styles, hair lengths, or colors that he was thinking of, and he obtained their feedback to find out what they liked and did not like before cutting and styling their hair. With these skills, he was winning hairstyling competitions in Austria and Europe starting at the age of 14. That was the foundation for Aveda.
Find the Hook for Missionary Sales
The keys to obtaining a competitive advantage and increasing sales are quite simple: Get close to your customers and know how to make them happier.
To generate sales for her fledgling ViroMed company, Bonnie Baskin thought she needed an angle so that customers, who were pathologists, would work with her. She offered a special courier service to pick up samples from the hospitals for testing. And since a virus often dies between the time of pickup at the hospital and delivery to the lab, Baskin equipped a van as a lab to keep the viruses alive. Baskin herself became the first courier so that she could meet more customers, know their needs, offer great customer service, make sure the samples were handled with care, and save money. This strategy succeeded, and customers started working with her.
Gain Credibility and Trust
Technologists often believe that all they need to do is to build a product they think is great, and it will sell itself. Unless you are incredibly lucky, that never happens. Every business needs to understand how to sell its products and the company, most efficiently. You need to seek the right potential customers and then convince them that you can solve their unmet needs. Credibility and trust are the key ingredients when it comes to missionary selling of revolutionary products. To gain credibility and trust, you will also need to find the best sales driver, and find it before you go broke.
As Medtronic, the developer of cardiac pacemakers, started to market its products, they tried a variety of sales drivers such as distributors, reps, internal sales personnel, and trade shows. Since the pacemaker was a revolutionary technology, physicians did not always know what the product was or what it could do, so they did not know how their needs could be met. At the outset, Earl Bakken and his partner found that it was not easy to convince the conservative medical establishment to use their pacemakers. Physicians would even try to avoid them at surgical conferences. However, when leading physicians presented their groundbreaking advances with Medtronic pacemakers at surgical conferences, other physicians would start to use their products. Medtronic started to receive worldwide attention and orders. Physicians listened to leaders in their own profession, but not to entrepreneurs trying to "sell" them a product.
Find and Use the Best Sales Driver
One of the most difficult tasks is to find the right way to sell. Finding the right sales driver can help make sales faster and with less investment. Not finding the right sales driver could mean failure. But each venture needs to find the best way for itself. This means that entrepreneurs need to have the skills to find the best sales driver. A great sales driver helps customers understand the product or service, and the benefits.
Dick Schulze, founder of Best Buy, decided to become a sales rep in consumer electronics because his dad was also a sales rep (in industrial electronics). Schulze was representing leading-edge consumer electronics companies such as Sony at the dawn of the consumer-electronics age. As a sales rep, he learned what it takes to succeed in retail, including how various offers and pricing affected consumers, how to train and compensate sales personnel, how to merchandise and set up floor displays, and how competitors priced their products. This experience as a sales rep taught him more about the retailers' business than the retailers knew themselves. He also learned that many of the retailers were electronics hobbyists but not sophisticated retailers.(Continues…)
Excerpted from "Nothing Ventured, Everything Gained"
Copyright © 2018 Dileep Rao.
Excerpted by permission of An Inc. Original.
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Table of Contents
Part I: Skills to Succeed without Venture Capital,
1: Bootstrapping Innovation,
2: Missionary Selling,
3: Operating Frugally,
4: Revolutionary Visioning,
Part II: Innovation for More Potential per Dollar,
5: Innovation VC-Style,
6: Jump on an Emerging, High-Potential Trend,
7: Use Your Passion to Add Value,
8: Imitate and Improve for More Bang per Buck,
9: Move Fast and Better to Beat Slow and Perfect,
10: Improve Backward from the Unmet Need,
11: Seek a Platform for Long-Term Potential,
12: Improve Frequently for Happier Customers,
Part III: Strategy for More Edge per Dollar,
13: Strategy VC-Style,
14: Win with Goldilocks Goals,
15: Differentiate for Your Entry Wedge,
16: Grow with the Segment from Heaven,
17: Target the Right Strategic Group to Dominate and Grow,
18: Develop Value in Your Strategy,
19: Price for Value, Growth, and Cash Flow,
20: Prove Your Strategy: Fail Small, Win Big,
Part IV: The Complete Entrepreneur: Personal Development to Grow More with Less,
21: Becoming the Complete Entrepreneur,
About the Author,