Despite popular perception, not all great entrepreneurial ideas emerge from college dorm rooms or Silicon Valley garages. Many businesses start with the weekend work of well-networked corporate professionals who are industry-savvy, says Taylor Smith, managing partner of New York-based The Spirus Group, a venture development firm. He spoke recently with Smart Answers columnist Karen E. Klein about how today's employees may become next year's entrepreneurs. Edited excerpts of their conversation follow.
With corporate layoffs reaching record levels, a lot of experts predict that there'll be a surge of new entrepreneurial activity next year. What are you telling would-be entrepreneurs who have been laid off or worry that they might be soon?
It's a difficult environment all the way around. There are some corporate professionals who went into their lines of work because of the financial upside, and they were willing to be in these all-or-nothing jobs and make a sacrifice on lifestyle. But now, with more job insecurity, they may see a changing cost-benefit analysis and they're deciding to take some of the money they've earned and see if that idea they've had in the back of their minds a long time is viable.
Other people are starting to work on a business plan in their off-time so they don't land flat-footed if there is a layoff. Sometimes a business offers the best potential for financial gain as an industry tightens and compensation levels come down.
Isn't it always difficult to know when to leave the corporate world and make that leap into starting a business?
Absolutely. I think, given what's happening now, this is a time to hold on to your job a little bit longer than you might otherwise, just to make sure you have as much visibility as you can for as long as you can. At some point, of course, you are going to have to take that leap of faith.
What can people do in terms of planning for a business venture while they are still working in a full-time job?
A lot of early venture development work can be done at the same time you stay in your job. For instance, you need to have a good sense of the competitive landscape. A lot of entrepreneurs are so enamored by their business idea that they don't spend enough time canvassing who else is out there.
There's also work to do like deciding on a business model, lining up the financing, creating a marketing strategy, and finding suppliers. All this can be done on nights and weekends, and you can make sure that the time when you've let go of one trapeze handle and catch the other one is as short as possible.
How long does that process take?
It can take from a few weeks to a couple months to put together a solid business plan (BusinessWeek.com, 1/7/08), but you do need a dedicated and focused effort to make progress. The great part is that if you clear out the underbrush, doing things like your legal incorporation, getting a Web site up and running, and getting the proper permits, once you do start your company you're ready to go. That's where it really pays to front-load some of that typical startup work before you leave your job.
What strengths does a corporate employee or manager bring to entrepreneurship?
In some cases, they have a leg up on finding a clear path to profitability and paying attention to some of the fundamental business tenets. Corporate professionals can in many cases be more conservative with funds, and they often have privileged access to industry trends because they're right in there working with industry leaders. They know what the market's needs are firsthand.
How tough is it for a startup to get funding in this economic climate?
The venture capital world is tougher to break into now than it used to be. All along the value chain you're seeing a tightening of credit, so having a clear idea of how you're going to finance a startup is pretty crucial right now.
Another one of the benefits of being a corporate professional is that some can potentially bankroll a startup themselves in the early stages—particularly if they can keep their jobs or rely on a spouse. Another possibility is using your personal network of potential investors to fund your company, but that's hard to do while you're still on the job. It's helpful to have a partner or outsource that to a group like ours.
What does your company do?
We help our clients by having a professional venture development team work on their business idea while they stay in control of the direction of the company. We help entrepreneurs evaluate their ideas objectively and get to the point where they're ready to approach VCs.
Do you become an early stakeholder in the new company?
We charge a retainer fee and take a minority equity stake in the venture, but we offer far less dilution than an entrepreneur would face when taking on partners.