Starting a business takes vast sums of money. Investors. An endless capacity for risk. And if you are not going to go big — Dell Computers-big — you might as well not even bother.
You believe that? Derek Lidow says you shouldn’t. But he also says that far too many people already do.
The truth, says Lidow, visiting professor in entrepreneurship at Princeton University, is that most successful, long-term businesses do not have teams of investors behind them, nor the desire to turn the world on its ear.
And the myth that success only comes from the Silicon Valley model of entrepreneurship, where high-tech secrets and lawsuits play, is a product of good marketing by venture capitalists.
Oh, and as for Dell Computers? Michael Dell started the entire operation with a $5,000 loan. From his parents.
Lidow will discuss the models of entrepreneurship used by the other 98 percent of startups in his keynote speech at a conference called “Posters, Pitches and Prizes at Princeton” on Wednesday, February 1, at 4:30 p.m. at Princeton’s Friend Center. Cost: $45. Visit www.NJEN.com.
“Posters, Pitches and Prizes” is this year’s take on the New Jersey Entrepreneurial Network’s annual poster-and-networking event to introduce young entrepreneurs to each other, the academic community, and potential investors and clients.
Lidow, a longtime entrepreneur and one of the few tech entrepreneurs to have salvaged clients from the dot-com bust of 2000, teaches a course in entrepreneurial leadership at Princeton.
Entrepreneurial leadership, Lidow says, tends to spark ideas about what it means to be an entrepreneur or a leader. Which means they spark a lot of misconceptions.
Born leaders. One of the first myths about leaders and entrepreneurs, Lidow says, is that they are born that way. Leadership books are written about giants and visionaries in politics and the corporate world, but in truth “most entrepreneurs start their companies because they need a job,” he says. And leadership comes to entrepreneurs out of a similar necessity because “they will do anything to make their businesses work.”
So while there is the occasional Jack Welsh or Lee Iacocca, the majority of business leaders, says Lidow, are not the clairvoyant, risk-taking, shoot-for-the-moon types. They are people with ideas who want not so much to do things bigger, but better.
VCs and PR. Venture capitalists are among the few whose stock and trade is actual money. But it is others’ money, and they need to make sure it changes hands. As a consequence, Lidow says, venture capitalists have sold the idea to entrepreneurs that it takes big money and big nerve to start a business.
Part of the pitch is that it’s hard to start a business, whether it’s in your basement or in 50,000 square feet of manufacturing space. So if it’s going to be hard anyway, and if it’s going to take just as much blood, sweat, and tears regardless of the size of the operation, why not do something really big?
Lidow says that this pitch is intoxicating to new, particularly young, entrepreneurs who ache to be the next Jeff Bezos or Mark Zuckerberg. It is not unlike credit card companies that lull college students into massive debt by preying upon the 20-somethings’ need for independence and adventure.
Taking the romance out of it, Lidow says that small, non-tech companies (which comprise the overwhelming bulk of startups) have a slightly higher chance of surviving than those funded by venture capitalists looking for the next game-changer. The reason, he says, is because venture capital comes with its own risks.
For one thing, venture capitalists want their money back, and they want it soon. They are unwilling to wait 10 or 20 years the way a bank would, much less to wait as long as mom and dad might. For another thing, venture capitalists demand a certain level of growth that can be the death of a company just as it starts making good money.
“Companies that grow too fast don’t have the chance to build solid foundations in accounting or recordkeeping or human resources,” Lidow says. “They haven’t learned how to recruit the best or retain the best employees.”
Certainly, Lidow sees nothing wrong with venture capital and tech development. He built his own business in tech, after all. He just wants entrepreneurs (and potential entrepreneurs) to stop thinking that there is only one way to go into business — laden with VC debts, intellectual property filings, and the delusion that if you don’t come up with the next eBay, you have failed.
Lidow grew up in Los Angeles and came to Princeton University for a degree in electrical engineering (Class of 1973). He earned his Ph.D at Stanford in applied physics. He then started his career in the “golden years of the semiconductor industry,” where he worked for 25 years.
Lidow was picking up where his father, a pioneer in the semiconductor industry, left off. Lidow’s father, a refugee from Nazi Germany, was an inventor with several patents to his name who worked on the technology that eventually would be used for radar and television. Eventually the senior Lidow went to work for Sarnoff Inc., though not in Princeton. Lidow, whose father-in-law also is an engineer, has passed on the engineering gene to his oldest son, who also is in the field.
Lidow himself worked his way up to be CEO of Industrial Rectifier, where he became interested in the supply chain end of the semiconductor and electronics industries. The trouble was, he could not seem to interest anyone else in what he saw coming — that between outsourcing and shoddy recordkeeping of inventories, tech was headed for trouble.
In 1999 Lidow decided to start his own company, iSuppli, with the intention of getting more visibility in the global supply chain. What iSuppli found was that suppliers were being asked to create large inventories so that distributors would be able to buy and sell cheaply — except that nobody was aware of it because records were not well-kept.
By 2000 iSuppli had only four major clients, Lidow says. “But they thanked us profusely.” Because iSuppli had seen the mess coming, those four clients were able to prepare for the impending tech collapse that came with the dot-com crash.
And while Lidow is himself a tech entrepreneur with a measure of foresight, he does his best these days to convince entrepreneurs of all kinds to see the value in running small businesses. Most, he says, are started for $20,000 or less, and whether they are tech firms or accounting firms, small businesses of all sorts create jobs and value all the same.
“It all comes back to this obsession with the Silicon Valley model,” Lidow says. “There are many models of entrepreneurship to be explored.”