November 29, 2007

Entrepreneurship as a Career Choice

(Prepared for: The Small Business Policy Branch (SBPB) of Industry Canada for the Youth Entrepreneurship Forum, National Arts Centre, Ottawa, Canada) 

(By: Dr. Bruce M. Firestone, B. Eng. (Civil), M. Eng.-Sci., PhD., Entrepreneur-in-Residence, Telfer School of Management, University of Ottawa, Founder, Ottawa Senators)

Question: Why do people choose to become entrepreneurs?

1. They want to make more money.
2. They have no other alternatives.
3. They want to work fewer hours.
4. They want to have flexible work hours.
5. They believe they can create more interesting work for themselves than others can create for them.

I believe the answer for most entrepreneurs is e. In my experience as a mentor and teacher of entrepreneurs (and intrapreneurs) and as an entrepreneur myself, I see this countless times—entrepreneurs are like artists (who, by the way, are also entrepreneurs), they do what they do because they are driven to create new enterprises, new services and products, new business models. They want to innovate and change the world.

Would I have been able to work on interesting projects like the Bring Back the Senators campaign of 1987 -1992 if I had remained working for Supply and Services Canada (in their Bureau of management Consulting) in 1982? What about the more than 1,200 home sites we created in Ottawa, the dozens of office buildings and shopping plazas we built not to mention the planning and eventual construction of Scotiabank Place?

One day soon, Scotiabank Place will have a context when lands currently owned by great Ottawa companies like Minto and Taggart and, new on the scene firms, like Mattamy Homes, complete their projects in the Kanata West Concept Plan area. It is the ability to have vision and drive and to be innovative that pushes most entrepreneurs to do what they do.

Kanata West Concept Plan Area

Question: How could we get more young Canadians to consider entrepreneurship as a career choice?

Many young Canadians seem disillusioned with High School. Why is that?

My wife and I have five children—four of whom went to the Canterbury School for the Arts in Ottawa. Two were in the Drama Program, one in Creative Writing and one in the Dance Program. If you ever have the opportunity to visit Canterbury, do!

You will find a student body full of energy and life—they not only do the full curriculum that every other Ontario High Schooler does, they spend many extra hours every week on their art. Now I have asked myself why we can’t have more Canterburys. How about a High School for the Technological Arts or a High School for Entrepreneurship.

In a town like Ottawa with its strong technology industry, I would guess that there would be several thousand applications every year for a High School for the Technological Arts; they would have to go through the same audition process that Canterbury students have to got through to get in…

We need more High Schools for the trades too. Canada needs more skilled craftspeople and, guess what; some of the strongest entrepreneurs come from a trades background.

Many of my students ask me about mentoring, is it important for their future success and I always give a qualified answer. Mentored businesses do much, much better if they have the right mentor. The next question is always who they should go to for direction—their banker, their lawyer or their accountant and, with all due respect to these professions, I always tell them: none of the above.

Of course, everyone knows of the story of how the US auto industry ran into terrible difficulties in the 1980s and, in one particular company, every board meeting seemed to require another round of cuts—jobs and plants had to go. At each meeting, the accounting department pressed for more plant closures until finally, one day, the engineers on the board got fed up and said: “Imagine how much money we would save if we closed all the plants.”

Again with apologies, bankers, accountants and lawyers are not, by nature, very entrepreneurial.

Let me tell you a story about a friend of mine, Peter Patafie. Peter is the youngest person to ever work at the Chateau Laurier Hotel—he went to work there in the kitchen at the age of 12 because his family needed him to. Obviously, Peter understands the value of hard work.

Later on, he worked for a company that sold moving and packing supplies and he asked them to pay him only commission. The owner felt that was a particularly good deal for the company—if Peter didn’t sell anything, he wouldn’t be paid anything. However, Peter had confidence in himself until one day the company fired him because he was making too much money!

By then he was middle aged with a family to support and a mortgage to pay and no prospects. But he had drive and courage and ambition and a desire to work hard but he had more than that—he knew he could innovate in an industry where that was rare. One singular insight enabled Peter’s new company (Patafie’s Moving Supplies and Rentals) to capture 97% of the moving companies in his market area (that’s a better market penetration than Microsoft’s OS!)

Peter went to each moving company and asked a simple question: “What if instead of delivering moving and packing supplies (you know the cardboard boxes, wardrobe boxes and other stuff you need to move) to your warehouse, I delivered them to your customers? That way, all your salespeople who now are selling moves and then having to go back afterwards and personally deliver boxes and stuff to their customers won’t have to do that and will have more time to sell more moves which is where they and you make most of your money.”

Well, no one had thought to do that but Peter was able to unclutter their premises, make their salespeople more productive and build a very successful business in less than 10 years.

Now, by the way, Peter makes an excellent mentor and he has been part of the mentoring program at the Telfer School and any young entrepreneur that can get a few minutes of Peter’s time would be well served, in my view. Peter would tell you that he doesn’t have the formal education of a banker, lawyer or accountant but as a mentor, Peter is special.

Question: So why don’t more Canadians become entrepreneurs?

I think that many young Canadians are concerned about the risk profile of being an entrepreneur. They know that to be successful it takes a large time commitment and it is a total mind and body work out that tends to be quite stressful.

The Dalai Lama says not to worry about things. If something is going on and you can do nothing about it, don’t worry about it then. If something is going on and you can do something about it, don’t worry about it, do it.

But I think people know intuitively that there is another condition that applies—particularly to entrepreneurs. That is, when you are not sure if there is something you can do about it; that is where the worry lies. In the field of entrepreneurship, you are constantly operating on less than perfect information—is the client going to sign that contract, is my supplier going to come through on time, can I collect my receivables fast enough to make the next payroll, is the Board of Governors of the National Hockey League going to choose Ottawa and Tampa or Milwaukee, St. Petersburg, Seattle, Portland, Hamilton or Houston?

Now that is a worrisome thought and quite stressful too.

So I would list (in no particular order) the following reasons why most people would choose not to become entrepreneurs:

• Risk profile
• Worry
• Stress
• Lack of a predictable income and benefits
• Humongous hours of work
• Fear of success
• Fear of failure
• Fear of trying
• Lack of initiative
• Lack of leadership skills
• Lack of a supportive social network
• Lack of experience
• Lack of a good idea
• Etc.

You will notice that I did not say that lack of access to financial resources is one of the main causes of a dearth of young entrepreneurs in Canada. That is because I don’t think it is one of the main reasons, I think it is an excuse instead.

Sure, survey after survey says that SMEEs (Small and Medium Sized Enterprises) in Canada feel that the banks don’t love them (true) but so what. If you list the top sources of startup capital for new enterprises, banks would not be in the top five, I would guess. So when a young person tells me that he or she can’t start a business because they don’t have five million dollars in VC funding or one hundred thousand dollars in bank lines of credit, I view that as an excuse not a reason.

So if you look at my list above, what is the number one thing that I believe we can do to help young Canadians enter the field?

FIND THEM UNCONVENTIONAL MENTORS THAT REALLY, REALLY KNOW WHAT THEY ARE DOING.

This will take away some of the fear and give them confidence that they can do it… It is probably the number one thing I do for people—give them confidence to just go ahead and do it. (Note also that I don’t say go ahead and try. Trying is for losers. Entrepreneurship is all about succeeding, completing, finishing, winning.)

But terrific mentoring also does one more thing that is very, very important, not just for the entrepreneur but for Canada too:

It helps them to GTBMR (Get The Business Model Right).

I teach business modeling and (I realize I am being a bit biased here) I think business models are far more important than business plans. The best business plan ever written needed to be changed the day after it was finalized because of some type of change in the competitive landscape. Business models on the other hand describe the engine of the business and it was here that Mr. Patafie understood that he would not only have to serve his clients but his clients’ clients too. (That is, he would be paid by the moving companies but deliver the packing supplies to homeowners about to move—the homeowners are the customers of the moving companies but an incredibly important part of Peter’s business model and the business eco system in which his business exists. By analyzing his business model and understanding his ecosystem, he captured 97% of the market.)

Sam Palmisano, Chair of IBM, in an interview with BusinessWeek (April 3rd, 2006), put a great deal of emphasis on the importance of Business Model innovation. Mr. Palmisano is quoted in the article as saying:

...with product innovation, it's a certainty that your competition is shortly going to copy what you have done. With business-model innovation, though, if you can come up with a unique way of doing things, it's much tougher to react to.

A good mentor will help folks get the business model right so the harder they work, the more money they will make rather than the alternative.

Let me give you an example. A few years ago, four young persons came to me after completing their Entrepreneurialist Culture course with me. They had five ideas for business startups. As they went through their ideas, I could feel myself sinking further and further down in my chair as each idea was worse than the one before it. I mean I like to encourage students and future entrepreneurs but these were bad ideas.

I don’t remember the first three but I sure do recall number four—it was to build a silent alarm clock. No, I said to them, that probably won’t work either.

Well they were pretty discouraged by this point and didn’t even want to tell me idea number five but I encouraged them and they did. They said it probably wasn’t going to work because someone was already doing it…

They wanted to start an at home or at work, computer/network repair and maintenance service. If you couldn’t get your PC to work or connect to your printer or network or you had a virus running around on your system, they would come to your home or place of business at a pre-arranged time and guarantee that they would fix it.

I asked them if they had any idea how big this market is—there are about 600 million PCs in North America alone and, probably, at any one time, around 30% of those don’t work to their capacity—that is a potential market of 180 million PCs a day. I told them that so what if there was already competition. If it was a bad idea, they wouldn’t have any competition but why would that matter, it’s a bad idea. This was a good idea—all they would have to do is out-execute and out-innovate their competition. The result has been a very successful business now known as GradeATechs.com.

Question: So is entrepreneurship really more risky?

Yes and no.

Real job security comes from what you have between your ears—your education, your experience, your map of the way the world works, your creativity, your drive, etc. A friend of mine spent 30 years in the GOC (Government of Canada) doing post project reviews and when he left the GOC in the downsizing of the early Chrétien years (this was the mid 1990s when Canada was running a Federal deficit of over $42 billion a year and was perhaps within 18 months of national bankruptcy), he asked me, what do I do now?

I told him to start a business—he was then in his 50s and had very little experience that would likely be relevant to a private sector employer. He decided against that and wrote up 500 CVs and sent them out to 500 separate companies. Six months later he had not had one response and certainly no job interviews and his severance package was running out.

He asked me again, what do I do? I suggested he buy a franchise mainly because I thought he needed the structure of an established system to work within. He did indeed buy a franchise—in fact, he bought an existing sandwich shop that was losing money. But we devised some simple marketing* and within six months the shop was making money; his first year he took home about $32,000, less than a third what he made at the GOC. But by year two, he was into it—he was doing his own HR, banking, training, marketing, accounting and so forth and by year three he was making over $120,000. He bought a second shop a few years later and he tells me he loves it—he makes over $150,000 a year, and, as long as he keeps a good relationship with the master franchisor, he can do this until he drops dead. No one will ever tap him on the shoulder again and tell him he is not wanted, get out.

(* He printed up thousands of dollar off coupons and distributed them at nearby offices and shopping plazas between 10:30 am and 11:30 am and then ran back to the shop and served them sandwiches by noon. He also took huge platters of neatly cut sandwiches into high tech offices and, amazingly, talked his way past security desks and distributed both sandwiches and dollar off coupons to hungry employees.)

So I am not sure if your risk profile is really much higher if you are an entrepreneur instead of an employee, it may only seem that way.

Question: Is there a role for intrapreneurs in the Canadian economy?

Yes, absolutely.

No one has the time to baby-sit anyone any more. If you can’t make 90 to 95% of the decisions you need to make day to day in your JOB by yourself, no one will want you as an employee for very long. You need to make the right decisions nearly all the time, the tolerance for error has never been lower and you also need to know which decisions you should not make yourself and refer them on.

Ok, quick now who gets the green light on his or her pet project and who gets the promotion—Duncan or Julie?

Duncan has this great idea for a new product or service, it will take two years of R & D plus $10 million to develop.

Julie has this great idea for a new product or service, it will take two years of R & D plus $10 million to develop but she has three pre-launch clients who will each put up $2.5 million of R & D funds and take the first six months of production.

Well, Duncan is likely to be told to go back and do a business plan, then run it up the approvals chain and, finally, it gets to the Board level where it may or may not be green lighted.

Julie’s project probably get s approved at a much lower level, much faster and she gets the promotion obviously.

So for those who are truly not comfortable with the risk profile or stress of being an entrepreneur, they can still apply the skills of an entrepreneur within a large organization and you can be sure that she or he will personally benefit from that, so will the company and so will the Canadian economy.

Entrepreneurs and intrapreneurs tend to use scarce resources efficiently and effectively and this is good for all including the environment.

We built 42 private suites at the City-owned Civic Centre when the Ottawa Senators played there for three and half years before moving to Scotiabank Place. Our contractor, PCL, built them for $3.1 million including full F, F & E (Furniture, Fit up and Equipment). That works out to about $75,000 per suite. The suites are still there and now are enjoyed by the patrons of the Junior A team that plays out of the Civic Centre, the Jeff Hunt led Ottawa 67s.

The City of Ottawa had volunteered to build some suites for us—16 of them for around $12 million. That works out to around $750,000 per suite, ten times more than what the private sector could do. It seems to me that governments are good at policy but generally bad at the doing of things. So leave the doing to entrepreneurs—again if we make better use of our resources, use less materials, use less labour and so forth, that’s also got to be better for the environment too.

"An entrepreneur (or intrapreneur) is someone who can produce two dollars of revenue for every dollar that any fool could generate," Dr. Bruce M. Firestone.

Or

“An entrepreneur is like an engineer, he can do for a dollar what any fool can do for two,” I am paraphrasing a former Dean of Engineering, McGill University, circa 1967.

Question: So what are the barriers to entry?

Let’s return to the question of access to capital. As you heard above, I believe that the stated lack of access to capital by many would-be entrepreneurs is more of an excuse than anything else.

Here is my absolutely unscientific bar chart of what I think are the main sources of capital for startups. (I leave it to a future grad student to prove it or disprove it.)

This is just my experience talking—who knows I may be wrong but most entrepreneurs are, by definition, people without money. Again, in my experience, people with money are not entrepreneurs, they are called ‘old money’ and old money anywhere, tends not to do very much—it sits around collecting coupons not starting high-risk new enterprises.

I always laugh when my students first go to a bank and ask for a loan—Canadian banks only want to lend to people with collateral; i.e., people who already have money. It took 2006 Novel Peace Prize winner Muhammad Yunus of the Grameen Bank to realize that a bank’s real job is to lend money to people who need it—a completely novel thought, it turns out.

Dr. Yunus also realized that the way out of poverty for the vast majority of people on this planet is to become (at least at first) micro entrepreneurs. In fact, Grameen Bank lends on a priority basis to people who have the greatest need and the least money! And you know what? Their loan loss ratio is tiny and they make a profit too.

Question: How big is the entrepreneurship opportunity in Canada?

Huge. There is an incredible shortage of young entrepreneurs in this country, in my view.

In my industry (real estate), I look around at the development community and they are almost all middle aged. They will be leaving the scene soon.

For a young person with gumption, the opportunity in Ottawa and Canada is vast. Not only because his or her competition is going to be dying off soon, but because the real estate industry is one of the most conservative, resistant-to-change industries anywhere and a young person with an ounce of creativity will do a Patafie on the competition—they will stomp them.

Since 2000, I have been trying to get the real estate industry to intricate the Internet into their operations, pretty much with zero success. To give just one example, if the industry were to put their design centres online, they could improve the efficiency of that part of their businesses by a factor of ten or more.

When you buy a new home, once you have signed the Agreement of Purchase and Sale, you may think you are done—far from it. You then have to go to the Builder’s design centre and pick out your carpet, your lighting fixtures, your plumbing fixtures, your tile, your cabinets and a 100 other things. It can easily take 30 hours to do it all—your time and the time of the design centre experts too is tied up on endless discussions of carpet weights and hardwood flooring.

Why not put all of this online and invite your customers to use your online physics engine—add those green granite counter tops to your list of selections and watch the online cash register change. If you go over your budget, no worries, just take some stuff out of the shopping cart and substitute less expensive things. Knock yourself out—play with the system for 50 hours, whatever. Then simply print out your list of selections and take them into the design centre or just email them.

Builders are afraid that their competition will find out their pricing for things but, guess what, they already know. Ever heard of secret shoppers? Every developer knows what the other builders are doing in every detail. I would let anyone, even my non-customers, use my website. The more visitors the site has, the more your suppliers will want to be on the site—suppliers might even pay to be featured on the site and you may turn some of those people who are just fooling around on your site into real home buyers. Imagine turning the design centre into a profit centre.

Question: What are the ten most important things that an entrepreneur should do?

Who really knows? There are 100s of things a real entrepreneur does and, maybe they are like Wayne Gretzky, they do it but have a hard time explaining to others what it is exactly they do. But anyway, here is my list of ten things an entrepreneur should do:

1. Get the business model right*.
2. Innovate and add differentiated value*.
3. Self capitalize**. Use bootstrap capital.
4. Use smart marketing**. Be a guerrilla marketer.
5. Execute very, very well*. Check, check and check.
6. Crunch their costs**. Be efficient.
7. Sell, Sell, Sell** (to clients, suppliers, employees, banks, etc.)
8. Lead by example**.
9. Use the Internet** (reverse out the work to clients and suppliers, mass customize your products or services, create a scaleable enterprise, become part of a business ecosystem.)
10. Remember that Cash Is King*. (Collect early and pay late.)

(*Underpinning these ten things that entrepreneurs have to do to be successful is that they must also exercise good judgment and have a terrific map of the way the world works. The latter allows them to perform what Einstein called ‘thought experiments’. You can travel to the planet Mars in your mind faster than light and all good entrepreneurs can test ideas in their minds against their map of the way the world works and make a pretty good guess about whether something will actually work in the real world.

When I was starting out as an entrepreneur in 1982, I was told by a respected businessperson that if I could be right 51% of the time and wrong 49% of the time I would be doing pretty well. That turned out to be terrible advice—as a young entrepreneur, you have to be right almost all the time or you will kill your company in a hurry. Ever wonder why CEOs of large firms are paid so much? It’s because if your CEO has bad judgment, he or she can kill your company in a hurry.

Mighty IBM sells more than $85 billion worth of products and services every year one customer at a time. What would happen to IBM if they forgot one simple thing—to collect their receivables? Well, they sell more than $20 billion worth of stuff every quarter and probably have to pay out at least $15 billion of that to suppliers, employees, etc. So if they somehow forgot to collect their receivables for just 90 days, they could be $15 billion in the hole.

Now if the CEO has good judgment, it can make all the difference in the world. When Lou Gerstner first got to IBM, he was shown all kinds of gee-whiz technology. He was previously a soup guy, so the engineers at IBM thought he would be blown away. On seeing his first ever website, he asked: “Hey guys, where’s the BUY button?” He resisted all attempts by Wall Street to breakup IBM, shifted the company into higher margin services like tech outsourcing and did just about all the right things. He asked the sales department to produce a list of IBM’s top customers. “Why?” he was asked, “because I am going to visit them.” “Well, the CEO of IBM doesn’t do that,” they responded. “This one does,” he replied. The result was he created billions in value for IBM shareholders and other stakeholders.

* Also, entrepreneurs must be creative and have a keen understanding of human psychology—you can’t sell your ideas to your employees or anyone else unless you understand what makes people tick. You can’t lead by example either. And, of course, you need to be a creative problem solver in the face of inevitable difficulties.)

Question: Is Canada a good place for entrepreneurs to start up a new enterprise?

Yes, definitely.

Suppliers and customers are very supportive of new businesses in Canada that have all or most of the above 10 qualities. If you are innovating and adding value, your customers and clients want you to succeed because they need you. Your suppliers want you to succeed because, well, they want to be part of your ecosystem and sell you more of their services and products.

Question: What can Universities do?

A lot more.

I think that Business Schools and Faculties of Engineering should get together and start entrepreneurship programs that draw on the strengths of both departments. That is what I am trying to encourage at the University of Ottawa—that the Telfer School of Business and the FOE jointly start an Entrepreneurship Concentration or Option that not only welcomes students from Business and Engineering but from other faculties as well.

When I first started teaching entrepreneurship, I expected students to enroll from business and engineering but when students started showing up from architecture and the arts, I was surprised but shouldn’t have been. For many artists, death is a career move—they create a lot of value for their communities and for collectors but have a difficult time capturing much of that value for themselves. As they explained to me rather succinctly, they wanted to get rich while they are still alive.

Universities need to be places that promote research in the much under-researched area of entrepreneurship, especially self-capitalized enterprises; they need to collaborate more with industry; they need to encourage startups; they need to make sure they teach entrepreneurial skills to intrapreneurs; they need to focus less on VC-funded startups (a tiny fraction of all startups) and more on self-funded ones (which are largely ignored).

Question: What is the proper role for VCs?

I think their role should reflect the tall poppy syndrome.

I believe that enterprises that are somewhat capital starved are hardier than those that are beneficiaries of VC funding too early. Those are just big businesses with no clients and no revenues.

If early stage companies are focused on getting real clients and real cashflow, they will create better, more innovative products and services.

VCs should stand back and wait for the tall poppies to show up in the field and then go forth and provide them with mezzanine financing to grow even faster.

This will be better for VCs and better for the Canadian economy as the VCs will make wiser use of scarce capital and so will the entrepreneurs who receive funding—they will be better able to handle it and use it wisely.

Also, entrepreneurs who have real cashflow will be in a much better position to negotiate from a position of relative strength and with more equal knowledge when matched up with sharp VCs. They will end up owning more of their company’s equity and this too will probably be good for their firms, their stakeholders and for themselves and for Canada.

Question: Why is entrepreneurship important?

I wonder what the City of Ottawa would look like if your removed a few entrepreneurs from the scene? Say we remove Terry Matthews (Mitel, Newbridge/Alcatel, March Networks, etc.), Mike Potter (Cognos), Irving Greenberg (Minto and the newly named Irving Greenberg Great Canadian Theatre Company building), Mike Cowpland (Mitel, Corel), John Doran (Domicile Developments), even Bruce Firestone (the Ottawa Senators). I would think that Ottawa would be a much less interesting place with fewer jobs and even more of a small town than it is.

Richard Florida, one of today’s leading urbanists, said that diversity and strength in terms of a city’s economy is, in part dependent on a strong arts community. A vital arts community makes the city a more interesting place to live; it then attracts more creative people, who then start more new enterprises, which brings forth more cultural attractions and a virtuous cycle is arrived at. This is an important part of making our city-states competitive in the 21^st Century.

Canada also has a strong tradition of tolerance; our communities tend to get along. When two Canadians have an argument (a relative rarity), the most likely outcome is that they might use harsh words. In much of the world, they are likely to kill each other. This is a not inconsequential national advantage for Canada in our ability to encourage, attract and keep both entrepreneurs and artists.

Question: What are some other things that we might do to encourage entrepreneurship and intrapreneurship?

Here is a laundry list of some things that we might do:

A) Approach the UN with the idea of creating an Entrepreneur’s Day, celebrating their role in creating more interesting cities, alleviating poverty, making efficient use of capital, benefiting the environment, …

B) Create a National Foundation for Entrepreneurship—seed funding, royalty collection, commercialization of Canadian technologies, …

C) Create a national mentoring program made up of both volunteer and paid mentors.

D) Create centres of excellence for the study of and promotion of entrepreneurship and intrapreneurship both at the University/College level and at the High School level.

E) Create a monitored wiki website for the pooling of knowledge, experience and research in the field of entrepreneurship.

F) Create a Million Dollar Home Page for a single national reference site for entrepreneurship tools, support, research, etc.

G) Create a Social Networking site for entrepreneurs and intrapreneurs to communicate and to collaborate.

H) Create incubator centres in association with centres of excellence to help grow startups.

I) Create micro businesses similar to Carleton University’s School of Architecture’s Design Clinic that provides an outlet for entrepreneurial energies for students while at University or College or High School.

J) Reach out internationally to assist entrepreneurs around the world with Canadian know how in the field of entrepreneurship.

K) Help every person who wants one to create and hold onto a personal business for life that will support themselves and their families—after all, the moral imperative underlying entrepreneurship is to first take care of yourself and your family so as not to become a burden on society and then to reach out and help your fellow human.

http://www.dramatispersonae.org/BootstrapCapitalSources.html

http://www.dramatispersonae.org/GuerrillaMarketingAndFinance/BootstrapCapital.htm

http://www.dramatispersonae.org/GuerrillaMarketingAndFinance/GuerrillaMarketing.htm

http://www.dramatispersonae.org/GuerrillaMarketingAndFinance/GuerrillaMarketingExamples.htm

http://www.dramatispersonae.org/GuerrillaMarketingAndFinance/PresellingEthics.htm

http://www.dramatispersonae.org/EntrepreneurialistCultureFrontPage.htm

http://www.dramatispersonae.org/