February 6, 2005
Entrepreneurs Offer Insights to Honors Students on Sailing Uncharted Waters

If entrepreneurship is the process of sailing uncharted waters, an entrepreneur should let passion fill the sails but be flexible about setting the course.

That was the informal consensus reached by entrepreneurs and venture capitalists at the 2005 Business Honors Program Symposium, held Feb. 4 at The University of Texas at Austin’s McCombs School of Business. Participants in the day-long program heard all about the challenges of starting a new company, but also about the benefits of entrepreneurship—not just for the entrepreneur, but for society at large.

“Entrepreneurship is the key source of new jobs and wealth in America,” said John Butler, director of the McCombs School’s Herb Kelleher Center for Entrepreneurship, who moderated the symposium. As it is in America, so it is in Austin, Butler added: “In 1974 the growth industry in Austin was Tex-Mex food and there was nowhere to get a job.”

Several of the speakers had personally contributed to Austin's economic transformation. The four main speakers covered stages in the entrepreneurial process:

• Peter Zandan, MBA ‘83 and founder of Intelliquest, discussed the inception or “garage stage” of a venture.
• Ken DeAngelis, partner in Austin Ventures and former chair of the McCombs School’s Advisory Council, took over to discuss the “growth stage,” when venture capitalists may get involved.
• Admiral Bobby Inman, the interim dean of The University of Texas at Austin’s LBJ School of Public Affairs who became a venture capitalist after retiring from the U.S. Navy, spoke about the perilous “chasm stage,” when a company reaches the brink for success.
• Carl Paul, the founder of Golfsmith, described the “harvest stage,” when fortunate investors and managers earn returns on their investments.

Following the speeches, a panel of McCombs Business Honors alumni entrepreneurs spoke about their own experiences as entrepreneurs. Gary Hoover, founder of Bookstop and Hoover’s Inc., spoke during the luncheon.

Fueled by passion

Speakers were unanimous on the importance of passion. “One of the problems during the bubble period is we really didn’t have entrepreneurs who had passion,” said DeAngelis. “They had greed. Passion doesn’t come from money. It comes from doing something extremely well, succeeding well, winning. Yeah, the money is nice, it’s important, it comes with, but it’s not enough.”

Passion for the business is non-negotiable, because starting a venture requires tremendous dedication. “The first one to two years are really hard and nothing happens that fast,” said Zandan. “I was working 80- or 90-hour weeks and saw no light at the end of the tunnel.”

Greg Woodard, a business honors alumnus and the co-founder of Woodmark Technologies, confirmed that such a demanding job takes its toll. “People say business isn’t personal, but it is personal,” he said. “It’s your time. It’s your life. Any time you spend on your business is time away from your other passions.”

Compounding the stress is that entrepreneurs have responsibilities as employers.

“Once I had money in the bank, I was able to sleep at night,” said Zandan. “But when I knew that I had to make a certain amount of money to pay the people who were planning on making house payments or something, that was very stressful.”

Ideally, said DeAngelis, entrepreneurs and venture capitalists should cultivate a love of the game, to recalibrate their emotions to respond to both victory and defeat.

“The thrill of that fight is part of what motivates us as venture capitalist, and motivates entrepreneurs.”

Navigating risky waters

Of course, even extreme sports aficionados wear helmets, and speakers advocated several strategies for avoiding catastrophes. Although risk is intrinsic to entrepreneurship, conservative behavior in some areas can help keep it under control. In other words, while vision is important, so is bookkeeping.

“Keep a close eye on your burn rate, and contain the optimism,” said Inman to potential entrepreneurs. “Ignore revenue: look at the market, who’s the competition?”

Having a close eye on the market is crucial even after the garage stage of the venture.

“Recognize if something isn’t going to work,” said Inman. “If you haven’t sold something in the marketplace for six months, the market’s trying to tell you something.”

DeAngelis corroborated the point. “We’ve invested in plenty of projects where there’s some validation early, but there’s not a strong enough value proposition for that company to really grow up,” he said. “That’s when we have to really look each other in the eye and choose to shut those down.”

Also, while entrepreneurs generally have an independent streak, they have to be able to work well with others—for their own benefit, and also because potential investors insist on it. “Founders must be open to team building,” said DeAngelis. “We’ve never made money, with a great product and a great market and a great idea, with mediocre people. It just doesn’t happen.”

“Hire people that are smarter and more capable than you are!” he encouraged. “It sounds easy, but there are people who are insecure and are unable to do that.”

Offering another venture capitalist’s perspective, Inman said that entrepreneurs must be as up-front as possible with their backers, even when the news is bad. “I don’t like surprises even for my birthday. But I take bad news calmly when it comes from the person responsible,” he said.

Portrait of an entrepreneur

Over the course of the day, symposium participants heard about a variety of entrepreneurial experiences. Several speakers had become entrepreneurs incidentally. Woodard founded his information technology consulting firm while working for Arthur Andersen, which would only take on large projects. Woodard saw an opportunity to start a business with a focus on smaller clients.

Others took a more systematic approach. In 1999, McCombs alumnus Bjorn Billhardt knew he wanted to start a company that would develop interactive educational software. Ignoring the trend watchers, who advocated starting as many companies as possible, he decided to earn an MBA. After graduating in 2001, again ignoring the trend watchers, who had soured on entrepreneurship, he founded Enspire Learning.

On the other hand, there were interesting commonalities among speakers. For example, when it comes to starting new ventures, there is a fairly high rate of recidivism. After selling Intelliquest, Zandan was initially looking forward to exploring other interests. “I did everything I had not been doing for fifteen years,” he said. “That ran out in about a year.” Shortly thereafter, he founded another company, Zilliant, which does price-sensitivity testing.

Grick, for another example, is alumnus Sean Mast’s second new venture. Directly after earning his MBA at the McCombs School, he founded Circline, a fine art and antiques marketplace, which he ran for five years.

More than one of the speakers had non-traditional career paths. Zandan spent two years of his young adult life in Mexico, “watching sunrises and sunsets,” supporting himself with informal international trading, before deciding to get an MBA on a weekend’s notice. Jonathan Tescher, alumnus and founder of A Bright 21st, spent some time as a nomad. “I believed that hippies were my people,” he explained.

Resume items like these might raise eyebrows in a buttoned-up HR department, but according to DeAngelis, they may simply reflect the entrepreneurial personality: “We like them when they’re not just overachievers but are a little kooky.”