I took a risk! Third of a three-part series about nurse entrepreneurs.
The relentless pursuit of opportunity regardless of resources controlled: This definition of entrepreneurship
has been my mantra since I first heard it from Jeff Sandefer
, MBA, founder of the Acton School of Business
in Austin, Texas, USA. The year was 1995, and I was attending my first meeting of the Entrepreneurship Club at The University of Texas at Austin.
A few minutes into the meeting, the lights dimmed and there, on the wall in the blinding light of the overhead projector, was my three-page résumé, which, as assigned, I had dropped off for feedback earlier in the week. The quote that still rings in my head from Sandefer’s gutting of my résumé during my first semester in business school is, "Now here is a guy who has no idea what he wants to do."
In fact, that statement was true. However, I did know that I did not want to do what everyone else was doing. My entrepreneurial journey has been informed by many of the clichés that are strewn throughout the following paragraphs, and I’m hoping these anecdotes will serve to inform the clichés. The holy grant
Grant writing was a required element of my dual-degree MSN/MBA program. The professor who taught the course had received a rather substantial grant, which the class got to hear about on a regular basis. One day, I asked him if he could bring a copy of this grant proposal to class. He was elated, and the following week, there, side by side on a table for the world to see, laid my business plan, prepared for one of my other courses, and the professor’s holy grant.
In crosswalking the two documents, we found them virtually identical except for nomenclature. I told the professor there was one other difference: “My business plan will live or die by the hand of the free market.” I guess they don’t call it B-school for nothing, because that is what I got in that course. The good news for all you aspiring entrepreneurs who have a background in grant writing, you already have some key skills in your entrepreneurial tool kit. The plan, the plan!
A few years after graduate school, I dusted off my business plan and set off to conquer the world. Clichés abound when it comes to planning. My personal favorite is the 5 P’s of success: Proper Planning Prevents Poor Performance. The difference between an entrepreneur and a small-business owner is that the entrepreneur builds a plan that aligns resources and grows exponentially the same enterprise that a small-business owner will still be toiling away at years from now.
The business plan is a living, breathing document that serves many functions. It’s the road map for the business, a benchmark for performance, a shared vision across the organization, and an investor prospectus that describes various aspects of the venture. Without a business plan, you are just someone with a cool idea. You are not an entrepreneur. Presenting your idea without a well-developed plan will paint you as naive and potentially poison future funding opportunities, should you decide to follow a funding path.
The most important section of the business plan is the financial plan. Just as in a research study, themes run consistently from the abstract through the conclusion, so, too, many of the themes and assumptions posited in the narrative of the business plan flow through to the financial projections. The novice entrepreneur will feel pretty silly when giving a presentation in which an optimistic sales forecast far exceeds the total size of the market. Cliché ahead: "It all goes back to the financial statements, because the numbers don’t lie."
The business plan will need to be updated from time to time for a variety of reasons. There may be shifts in the market, such as new entrants. There may be changes in funding, which will result in a shift in equity distribution. Updates should be performed on an ongoing basis, as should assessments of how the organization is tracking to the plan. These routine updates should not be confused with changes in strategy, which are also reflected in the business plan. The latter should not be taken lightly. Be particularly wary of updating the plan at the behest of investors, because investor incentives and long-term goals of the business may not align. Sticking to the plan, as hard as it may be, may be the difference between life and death for the venture. Legal protection
Once the plan is established, you need to protect personal assets from risks—some beyond conception—by forming a legal entity. On the advice of friends from business school, I engaged, at the height of the dotcom era, one of the top legal firms in Austin—then a booming information technology city—to assist me in establishing my venture. The law firm provided me with all the boilerplate legal documents you can now get off many websites, and it filed the necessary paperwork. Believe me, this was not inexpensive!
That law firm then referred me to an intellectual-property law firm, because they were sure “I had a good idea that must be protected.” I did visit that firm. I did have a good idea that needed protection. And they were glad to help me start protecting my intellectual property by doing $10,000 worth of groundwork and research. I could defer the $10,000 payment for three months, but then it would convert from a $10,000 debt to the law firm holding a 3.5 percent stake in my company, a company not even off the ground yet. I thanked them for their time and devoted some of mine to finding new legal counsel, the operative word being counsel.
Good legal counsel is invaluable. These important advisers attend to one’s day-to-day legal needs and, when the situation demands, are able to refer you to a deep bench of specialists. The good ones will set you up with all of the standard documents you need to operate your organization and don’t nickel and dime you for little tweaks to standard documents. They are there to be your sounding board in matters that cannot be discussed with staff members or peer groups. The best ones are truly guardian angels. I knew I had found a straight shooter when, in the initial interview, he told me: "I can’t keep anyone from suing you. I will do my best to make sure they don’t win." What kind of structure?
Structuring the venture appropriately at the start is key. A sole proprietorship is not the favored business structure of the entrepreneur, because it limits tools for providing incentives to those who may contribute to the venture’s success. The ability to issue stock to investors and advisers, and incentive stock options to key employees, can be critical in aligning both resources and motivations. In the early days of your enterprise, when cash may be tight, stock can be useful when assembling your advisory board. A good adviser can bring as much to the table as a good investor. Always be stingy with equity in your venture, and keep in mind that, as the structural complexity of the organization increases, so does the effort required to manage it.
The way you structure your organization up front will also affect the effort required to exit your venture. For example, when selling to a publicly traded company, every last share of stock must be accounted for if the company being sold is a C corporation. This could mean contacting individuals involved in the company’s startup who may have since departed under less-than-friendly terms, a situation that could be further complicated by personal issues. For example, if a person divorced after his or her departure, you may find yourself chasing down a sign-off signature from an estranged spouse. The bottom line is, ownership of an enterprise is a complicated endeavor. Sharing ownership has its benefits, but it can have complications beyond anticipation. The fun of funding
I launched my first venture just before the dot-com crash. In those days, money flowed like wine. Companies with five PowerPoint slides and a good story were raising millions of dollars from venture-capital firms. If everyone is doing it, I thought, it must be the thing to do—not unlike having a big law firm handle your company’s incorporation. So, in my copious free time, I set off to condense my business plan into a 10-minute PowerPoint pitch.
I must have given that pitch at least 20 times. On what may have been No. 21, a potential investor commented that my market was not broad enough and that I needed a business-to-consumer strategy. So, I proceeded to share my B2C strategy with him. This was the first time I had been asked for that, and I was hopeful. Finally, someone who gets it! My silent elation quickly turned to deflation when he told me I had lost focus. My response was, I had not lost focus. What I had lost was my most valuable resource: time—time pitching to potential investors who funded soon-to-be-dead Pets.com with its sock puppets mascot. Remember Pets.com
? I headed home to my popcorn dinner and work.
There are many times when it does make sense to take investment into your venture. However, investors should bring more to the table than a checkbook. They may bring expertise you don’t have on your team. They may bring relationships that help advance your business strategy. They may bring other investors. However, investors come at a cost beyond the interest or equity they receive for their investment. Even the most passive investors will need regular reporting. More active ones will demand more of your time. If not managed well, you can quickly find yourself spending more time servicing your investors than your customers, who are your company’s lifeblood.
Funding will take a venture only so far. At some point, preferably early on, sales must become the fuel that propels an organization forward. Salespeople: Be slow to hire ’em, quick to fire ’em. Keep in mind that they are salespeople. Nothing wrong with that, but remember, when you are interviewing them, they are selling the product they know best—themselves. Metrics for acceptable sales achievement should be clearly articulated from Day 1 and revisited frequently. Pay and pay well for sales performance. Deal with missed sales targets quickly and publicly. No sales, no business. And no, as the cliché goes, great ideas don’t sell themselves! Where’s the exit?
The goal of successful entrepreneurs is to eventually exit their businesses. Their job is to surround themselves with people brighter, faster, and smarter than they are; align all of the appropriate resources to create social value; and then, let go. Letting go may not mean cashing in on a multimillion-dollar transaction, but it might mean stepping aside to turn the reins over to a more experienced CEO who will take your start-up through its growth phase.
In the case of acquisitions, key staff members—including founders—may be asked to stay around to facilitate knowledge transfer and customer relationships. As the entrepreneur, this is your sole purpose for being there. Rarely are your peers at the new company interested in your ideas and contributions. The plan for you and your company was formulated long before the ink was dry on the deal.
My advice is, contribute when you can, confront as little as you can, and know when it’s time to get out. “Details” such as transition periods, performance requirements, and non-competes for key employees should all be negotiated before any transaction is consummated. Business brokers can add value during a transaction, but they should be screened as carefully as you would new legal counsel.
Many of the tenets of nursing hold true in entrepreneurship. One of the most important is the nursing process. Constantly assess, diagnose, plan, implement, and evaluate. Another is, "If you never wrote it down, it never happened." Kenneth W. Dion, PhD, MSN/MBA, RN, founder of Decision Critical Inc., is treasurer of the board of directors of the Honor Society of Nursing, Sigma Theta Tau International. He is past president of the board of trustees of the Foundation of the National Student Nurses' Association and past chair of the board of directors of Sigma Theta Tau International Foundation for Nursing.
Read the other articles in the I took a risk! series:
Part 1: My public speaking journey
Part 2: I knew I could do it better!