Starting a Business? Read This First
By Anne Fisher

(FORTUNE Magazine) – Let's say you've been nursing a secret wish to launch your own high-tech startup. If the Nasdaq's recent gymnastics haven't made you doubt that your nerves (or your finances) can take the strain, High Tech Start Up: The Complete Handbook for Creating Successful New High Tech Companies (Free Press, $50) just might. Author John Nesheim, himself a software company founder, venture capitalist, and coach to internal startups at Hewlett-Packard, DEC, Lucent, and others, starts off with some daunting statistics: The chances that an idea for a business will eventually turn into a company that goes public are one in six million. Venture capitalists fund only six out of every 1,000 business plans they get each year--and end up owning 70% of the equity in the average new venture. Indeed, Nesheim writes, "the 10% of startups that succeed compensate for the other 90% of the poorer-performing companies in the venture capitalist's portfolio. In essence, the successful founders are paying for the substandard performance...of the bad investments." About 60% of all enterprises that get seed money from VCs end up in bankruptcy.

Still want to push ahead? Nesheim describes in clear, candid detail each of the 14 stages of entrepreneurship, from initial bright idea through raising capital, finding the right managers, launching the first product, and lastly (if you're very lucky) issuing stock--including what you should be doing at each stage, how long it should take, and what the main pitfalls are. For instance, in Stage Eight, incorporation, a big risk is that venture capital sources will "suddenly bow out without any warning." Eeek.

Nesheim sugarcoats nothing. In a harrowing chapter on the personal costs of starting a company, he writes, "One of the biggest single negative impacts on the wife of a startup CEO can occur when the CEO decides to mortgage the house to get the cash to survive. This is not uncommon." The author did that once, and his wife was "terrified for two years." What if you don't want to run a startup, just go work for one? Don't sign on until you've eyed the chart on pp. 168-69, which spells out when (or whether) to join a startup at each of the 14 stages. At Stage Nine, for example, do join if all key VPs are in place. Do not join "if you would be bothered by a 'flameout' affecting your career." Oh.

--Anne Fisher