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Wanna-be entrepreneurs
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December 20, 2000: 1:57 p.m. ET
Head of the Entrepreneur America boot camp has seen wanna-bes of all types
By Lawrence Aragon
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SAN FRANCISCO (www.redherring.com) - Rob Ryan looks more like an audience member at the Grand Ole Opry than a hotshot startup mentor and cofounder of Ascend Communications. He sports a sterling silver pelican bolo tie and a big belt buckle on a lizard-skin belt.
The good-natured Ryan, 52, doesn't have to dress the part of a Silicon Valley venture capitalist. His track record speaks for itself. His biggest hit, of course, was Ascend, which was bought by Lucent (LU: Research, Estimates) last year for $24 billion. He also helped start and fund 17 other companies, including three that have gone public or been sold: Looksmart (LOOK: Research, Estimates), Silicon Spice (sold to Broadcom (BRCM: Research, Estimates), and Softcom (sold to Hayes Microcomputing).
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 START-UP TYPES: QUICKIES
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Quickies are identified by a get-rich-quick business model that has no clear-cut application and no value proposition.
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After 17 years of starting and running startups, Ryan knows a thing or two about the subject. He doesn't balk at offering his opinion, even when it's off-color. His advice to anyone trying to raise money in today's funding environment: "You'd better walk on water, sing 'Dixie' and 'The Star-Spangled Banner,' and piss golden coins."
That's the kind of unvarnished opinion you'll get in his new book, Entrepreneur America, to be published in February by HarperCollins. The book offers "common sense about how to start a business and how to run it," he says. It's based on his 15 years as an entrepreneur and angel investor/mentor, including the past four spent at his boot camp for entrepreneurs, also called Entrepreneur America, located on his ranch in Hamilton, Montana. What follows are condensed, edited excerpts from the first chapter of Ryan's book.
Diagnosing wanna-bes
In running Entrepreneur America, I've seen all types of company founders. Geniuses, bozos, wonder kids, tricksters, you name it. Lots of people have a germ of an idea kicking around in their heads and are convinced they can turn it into a gazillion-dollar business. I call them "wanna-bes." I don't use the term to be pejorative. Often wanna-bes can transform themselves into successful entrepreneurs -- but only if they're willing to work hard.
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START-UP TYPES: SEND MONEY
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These entrepreneurs think that once they get a big VC check in the bank, everything else will fall into place. In fact, it's the other way around. You need to get everything in place ... before you can start asking for money.
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My main mission with these entrepreneurs is to slow them down and get them to start asking (and answering) fundamental questions about their business. One thing I've noticed after four years of working with startups is that there are a few distinct types of teams [that fall into one of seven categories]: Quickie; Wonderful Wacky MBA; Send Money; Dreamer; One-Stripe Zebra; Technoid; and Guts and Brains.
Quickie: Quickies are identified by a get-rich-quick business model that has no clear-cut application and no value proposition. One classic profile I've seen over a dozen times (but don't mentor) is the "Eyeballs.com Ponzi scheme."
The idea is to amass the eyeballs, go public at the earliest opportunity, manage the stock for maximum valuation, then sell the company before the six-month holding period for stocks of insiders has expired. Voila! Magic wealth for the founders, VCs and insiders.
Quickies who actually want to build a company need to focus more on growing the business and less on managing a stock. Real companies build predictable revenues and large, profitable earnings.
Wonderful Wacky MBA: I know I have budding MBA wanna-bes when the "wacky attack" starts. They dance around the conference room, whipping out tons of charts and quotes to prove that the market is humongous.
Most MBA wanna-bes are like the team I met a few years ago back East. They were led by a very enthusiastic entrepreneur whose dream was to create a Web site for alumni of major universities. The team started off with marketing charts that demonstrated things like how many alumni were floating around (millions!) and how much money they spend (zillions!). Like most wacky attacks, this one never got around to important data -- like exactly who the customer was, what he was buying, and what the value proposition was.
Send Money: Frankly, a lot of entrepreneurs start off in this category. They think that once they get a big VC check in the bank, everything else will fall into place. In fact, it's the other way around. You need to get everything in place, or at least a lot of things in place, before you can start asking for money.
For me, the Send Money alarm goes off when I ask, "What's your financial status?" and the answer is, "We're broke, but we just need $250,000 to get over the next hump." Hah! When I ask a few more questions I usually find out that they shot their business plan at every VC within range, but because they hadn't done their homework, everybody turned them down.
Dreamer: The problem with [Dreamers] is that most of the time they aren't doers. They love to sit in a room and think about their great idea or spend hours telling their bored friends all about it. But they don't know how to snap out of the Dreamer mode and turn their glorious idea into something real.
I met a group that [wanted] to create a new type of cleaner that removed carbon-based substances from the air. It was a fairly clever design for intensifying and burning off the bad stuff. The real problem with these Dreamers was the team. There was no core, no center of reality. The CEO was superficially involved in tons of other deals, the scientist's vision was clouded by the need to save the world, and the inventor just wanted to make money. The group fought, literally, which eventually disintegrated into a lawsuit.
One-Stripe Zebra: The One-Stripe Zebra is a company that's built around a single function with a very narrow market. Perhaps it's even an interesting and viable product, but it's just not a wide enough stripe to support a sustainable company.
An inventor came to me with a mechanical device to perform CPR [cardiopulmonary resuscitation]. This mechanical device worked by creating leverage to create the proper pressure and heartbeat for effective CPR. I thought it was a great product; every home should have at least one. It was a very good idea, but still a One-Stripe Zebra.
I recommended that [the inventor] talk with companies that had a natural synergy with [his product] and could afford to develop the product through clinical trials. Why invest all that time and money into building a company to do it himself? He could just sit back and collect a royalty check every month. The last time I heard from the founder, that's what he was doing.
Technoid: Technoids are smart about their technology, but not always clued in about how to run a business. One extreme example of a Technoid team I recently saw comprised over 20 "rocket scientists." They had created incredible Web sites to build community and encourage collaboration. Revenue came from charging clients who wanted the company's expertise on using the software.
The problem was that the company had no administrative team and no sales or marketing people. It had engineers, and lots of them. In fact, when I met them they were hiring an accountant, but the accountant had to be able to code.
The founder had a real control-issue problem [and wouldn't bring in a CEO to run the show]. Of course no decent CEO would accept that, and I'd never ask anyone to come on board for that kind of treatment. I found out later that this team finally did get funded from a top-tier firm, which immediately replaced the founder with a professional CEO.
Guts and Brains: These are the ones that make it, and the main reason they do is because they're smart -- but not just book-smart. They've got the guts to plunge into the real world, even though there is a lot of scary stuff out there. Sure, they'll get rejected and ignored at first, but this team keeps going.
One of the startups I got closely involved in at the ranch that fits this category is Actuality. It was founded by Gregg Favalora, a young Yale- and Harvard-trained engineer. His passion is to build three-dimensional volume-filling devices so that you can see things on his hardware device in 3D. It's sort of like the Princess Leia animated hologram in Star Wars.
Because the company was broke, Gregg could have easily slipped into Send Money mode, but he didn't. He used his savings, money from his parents and friends, and moved into a cheap basement apartment [where he subsisted on rice and beans].
Finally, after two and a half years, several VC firms and angels ponied up over $1 million, enough to build a working model of the product. Gregg embodies Guts and Brains. He'll see his vision through, and I'm proud to be a part of it.
To see what kind of entrepreneur you are, click here to take Ryan's test. 
© 1997-2000 Red Herring Communications. All Rights Reserved
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