Start-Up Saboteurs

How Incompetence, Ego, and Small Thinking Prevent True Wealth Creation

Ziad K. Abdelnour

• Publisher: Morgan James Publishing
• Year: 2020
• Print ISBN:
  9781683503019
• eBook ISBN:
  9781642796964
• Topic: Business
• Subtopic: Business General
• Index: Business

"Dispenses true-to-life advice on . . . pitching investors, facing down competition, and modifying your business to embrace disruption." —Stanford B. Silverman, founder and CEO Minerva Capital Management
 
Start-Up Saboteurs shows entrepreneurs how to create real wealth by abandoning their limited thinking, eliminating boundaries, and stop defining the outcome.
 
Money is first and foremost about freedom and not about acquiring things nor flaunting them in front of family and friends. Money is about the freedom to do whatever one wants, whenever they want. Ziad K. Abdelnour calls upon striving entrepreneurs within  Start-Up Saboteurs to empower them to create their own wealth. He guides them through the challenging maze of egos, incompetence, and ignorance so they can separate fact from fiction. By the end of  Start-Up Saboteurs, entrepreneurs are inspired to create their own wealth, not for the sake of wealth, but for the sake of becoming free and independent.
 
"Start-ups are not for a weak stomach nor is this book. I have seen many start-ups launch without a true and honest self-assessment that would have saved them and others years of heartache, pain, and chaos. Ziad guides you through that assessment and jolts you with the start-up world's brutal realities to help protect you from the saboteurs—including yourself." —Katherine Malmay Bazemore, CEO and president of Cocoon Resources, Inc.
 
"As a veteran financier in private equity and the commodity markets, Ziad knows it's not easy for start-up to succeed so he pushes you—hard—to reach your full entrepreneurial potential." —Mark Skousen, investment expert and editor-in-chief for  Forecasts & Strategies Newsletter

PART I

NOT ALL START-UPS ARE CREATED EQUAL

Just as no two entrepreneurs are alike, there is no one-size-fits-all start-up. Your success in large part depends on knowing exactly what kind of company will best bring your vision to sustainable fruition. This section provides strategies for building the appropriate foundation for your start-up starting on day one.

Chapter 1

The History of American Start-Ups

Trust your instincts, know what you want, and believe in your ability to achieve it. Rules and conventions are important for schools, businesses, and society in general, but you should never follow them blindly.

— Biz Stone

The conviction that we live in the land of opportunity for entrepreneurs is part of the American DNA. Throughout United States history anybody with a good enough idea, strong enough determination, and a committed willingness to work hard believed they could successfully start a business and prosper. It could be easily argued that this country was built by bootstrapping self-starters, although the goals of those entrepreneurs have changed over the centuries as have their start-ups.

According to Steve Blank at the Wall Street Journal, there are six types of start-ups today: lifestyle, small business, scalable, buyable, social, and inside a large company. That’s because not all entrepreneurs want the same thing, and not all start-ups are designed for the same purpose. The differences are of intent, scale, and aspiration.

Buyable start-ups mostly refer to mobile app start-ups that are created for the express purpose of getting acquired by a bigger company. Technology has advanced to the point where the cost required to build a product is relatively minimal. Combine that with how quickly these products can come to market, the insatiable appetite for phone apps, and an abundance of angel capital willing to invest $100,000 to $1 million—a pittance in tech start-up terms—has attracted a steady stream of entrepreneurs looking to build and flip start-ups for usually six-figures. They make money to create their next app, and investors get a return. Win-win.

Sometimes large, established companies develop a start-up in-house in an effort to launch new products to keep the company relevant to consumers or take advantage of new technology or new cultural trends. Sometimes the start-up is for an innovating new product, but usually it’s just a variation of core products because large, established companies have a harder time developing truly innovative products outside their envelope.

Social start-ups refer to businesses founded to basically make the world a better place, not to make the entrepreneur rich, at least not in a material sense. This kind of start-up has been around throughout modern times and hasn’t changed much over the centuries.

The flipside of the socially conscious do-gooder is the lifestyle start-up entrepreneurs. Consider the person who starts a ski lesson business. They attract enough business to pay the bills so they can spend the rest of their time on the slopes. California beaches are full of dive shops and surfing rental stores run by entrepreneurs who earn a comfortable enough living so they can continue to pursue their personal passions of surfing or diving. These are lifestyle entrepreneurs who have no greater aspirations than living the life they love.

The vast majority of American entrepreneurs run small business start-ups. Small businesses make up more than 99 percent of all companies and employ half of all non-governmental workers. Small businesses include probably the places you visit the most: hairdressers, mechanics, plumbers, electricians, your favorite local restaurant, the dry cleaners—these entrepreneurs are anyone who runs their own business.

This type of entrepreneur might be the hardest working. They serve the local community and either hire locally or employ family. Most are profitable—but often just barely. A small business is more than a description; it is a mindset. Small businesses are not designed for scale; these entrepreneurs simply want to own their own business and take care of their family. Their finances are basic. If they need additional capital, it comes from their own savings, from relatives, or a small business loan from their local bank. Small business entrepreneurs might not be built to grow into million-dollar enterprises, but they are by far the backbone of entrepreneurship and local economies.

This category of entrepreneur has been around since colonial days when they opened small local businesses as blacksmiths, publishers, carpenters, lumberers, gunsmiths, silversmiths, milliners, breweries, candlemakers, tavern owners, and innkeepers. Back then all businesses were small because of logistical, economic, and technological limitations. Communication was limited and transportation confined to local communities before the onslaught of national railroads. Nor were there any banks. In many cases commodity money—animal skins, wampum, and tobacco—served as the method used for buying and selling as paper money and coins were scarce. But beyond that, small businesses were trusted. Early Americans retained a distrust of large companies and big government, seeing them as a threat to personal liberty. According to historian James L. Houston wrote in the American Historical Review: “Americans believed that if property was concentrated in the hands of a few … those few would use their wealth to control other citizens, seize political power, and warp the republic into an oligopoly.”

Thomas Jefferson believed small businesses were the very cornerstone of the would-be new country, saying, “The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of lending institutions and moneyed corporations.”

The Boston Tea Party happened because local merchants and tradesmen were worried that the East India Company, then the world’s largest corporation, was selling low-priced tea in the colonies, and had that continued it would have driven local business to ruin. (Two centuries later, Walmart’s low-prices did in fact ruin many small businesses in most of the areas where the company opened a store, so the colonists weren’t just being paranoid.)

Even after gaining independence from Britain, the concern over powerful companies that hoarded wealth prompted the new federal government to institute severe restrictions on the creation of corporations, and the freshly-minted state governments followed suit, restricting a corporation’s size, profitability, geographic reach, and even how long they could exist. That is not to say small businesses have never broken the mold and jumped categories. Some of the United States’ most venerable companies that still exist began during that time as small businesses including Jim Beam distillery, Bowne stationers, Ames, the country’s first shovel company, Bakers chocolate, and Caswell-Massey soaps.

Whereas the small business designation is one informed by limits of size, vision, and scale, scalable start-ups—what most people think of when they hear the term start-up—are identified by the ambition to grow-fast and conquer wide. Today they are probably most closely associated with Silicon Valley tech companies, but start-ups as we think of them today go back more than one hundred years. For example, in 1909 Dr. Leo Baekeland—called the father of the plastic industry—patented Bakelite, the world’s first synthetic plastic. Three years later he formed the General Bakelite Company to manufacture and market his new engineered material that would be used in a range of electronic products such as phones, radios, and stereos. The company merged with two others in 1926 and Baekeland would die a very wealthy fellow.

While working at the Buffalo Forge Company, Willis Carrier patented the first electrical air conditioning unit in 1906. When his employer passed on producing his innovation, Carrier and six other young engineers pooled their life savings of $32,600 and started Carrier Engineering Corporation to manufacture and distribute heating, ventilation, and air conditioning (HVAC) systems. Up until then, air conditioning was the domain of the super-wealthy. Carrier wanted to bring comfort to the masses and took advantage of a huge market. As of 2012, it was a $12.5 billion company with more than 43,000 employees serving customers in 170 countries on six continents.

One of Silicon Valley’s first success stories is now hi-tech lore. In 1939 Bill Hewlett and Dave Packard launched HP out of a garage in Palo Alto. Their first product was a precision audio oscillator, which they sold to Walt Disney among others. But their road to legend was with high-quality electronic test and measurement equipment. The company is credited with creating the first personal computer, the first handheld scientific electric calculator, and introduced both inkjet and laser printers for the desktop. HP’s innovations served as a springboard for other companies.

Another famous story is how Steve Wozniak originally designed the Apple I computer while working at HP and offered it to Packard and Hewitt because they had the right of first refusal for employees’ creations. But they passed because they wanted their company to stay focused on the scientific, business, and industrial markets. So Wozniak ended up starting Apple with Steve Jobs. The power of empowerment; the freedom of choice.

The key to most start-up successes is seeing a need and filling it. In 1962 Sam Walton’s business model was to target areas neglected by retail stores, and by 2018 there were a total of 5,358 Walmart stores throughout the United States with net sales of more than $14 billion. Similarly, in 1971 Herb Kelleher thought the time was right for a discount airline to make flying more affordable for the average traveler and founded Southwest Airlines, which serviced neglected areas and provided a low-cost, no-frills option, along with a company culture of self-deprecating humor. Consumers responded, and Southwest is now one of the largest airlines in the United States and has enjoyed more than forty straight years of profitability.

The list goes on and on, from well-known iconic companies like Microsoft, Google, and Facebook to relative unknowns like Acuity Surgical, GYMGUYZ, and Defense Logistics that have gone from start-up to multi-million and billion-dollar businesses. What all these companies have in common is that they were scalable start-ups, which is what venture capital investors crave to bankroll. And what scalable start-up entrepreneurs aspire to build. They never thought small; they had a vision they believed could change the world, or at least their corner of it.

Unlike small business entrepreneurs, these founders were not concerned with earning a long-term living; from the start their eyes were on the prize of creating equity in a company that would eventually go public, providing them with a multigenerational wealth level payoff. You shouldn’t be surprised that these types of start-ups are the least common, mostly because they are the hardest to realize.

They are also the riskiest because of the steep capital these start-ups often want—whether they require it is another issue. So enter the venture capitalists. Technically, their job is to seek out start-ups that have a repeatable and scalable business model, then finance it for fast-growth. Sounds simple enough. But it hasn’t worked out that way; why is debatable.

The Rise of the Lean Start-Up

Some of today’s younger entrepreneurs won’t remember the dotcom crash of 2000, the dramatic end of a five-year-long dotcom bubble that started with the Netscape IPO in 1995. Suddenly Internet tech start-ups were proliferating like an aggressive black mold. And VCs were climbing over one another to get in on the action and public offerings were providing risk capital at scale. The problem was the IPOs, and subsequent stock prices had no bearing in reality on actual revenue and profits. It was fueled mostly by irrational expectations.

Start-up founders wrote business plans filled with exuberant forecasts without a thought to product-market fit. But it didn’t matter because the assumption was they’d raise more money when needed through an IPO. The actual process of creating a business plan, raising money, then executing the plan wasn’t the issue as much as the sheer volume of start-ups flooding the market. It was unsustainable, and inevitably IPO money shriveled.

After the dotcom bubble burst, angel investment dried up, and most corporate VCs closed. The remaining VC money was scarce and mostly out of reach, meaning start-up funding was essentially nowhere to be found.

Enter the lean start-up model. Proponents argued that too often VCs—as well as academics—had approached start-ups as if they were just a mini-me version of established large companies that work under established business models. Lean start-up advocates state that start-ups by nature have to search for a scalable and repeatable business model because you can’t judge a market beforehand.

Traditionally, entrepreneurs developed a multiyear business plan first then used that plan to raise money so they could develop the product and establish the start-up. The lean start-up process calls for entrepreneurs to search for a business by testing their ideas, by building a prototype or releasing some other trial balloon, then using customers feedback to determine their next direction. The main point is that it’s driven by a fail fast, fail cheap mentality.

The whole lean start-up process was designed to minimize the time and money invested in start-ups by developing products that consumers are known to want within an existing market, rather than coming up with a new product or service that requires cultivating customer demand and having to create a market from scratch,

To me the lean start-up is a solution to the problem created by trying to do everything as tech start-ups in Silicon Valley. The primary reason lean start-ups had to hunt for markets was that they were in the wrong geographical place.

At some point you should get out of the building—or in this case, California—to be an entrepreneur. A start-up focusing on making money by ...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Foreword
• Preface
• Acknowledgments
• Introduction: It’s All about Wealth Creation, Stupid
• Part I: Not All Start-Ups Are Created Equal
• Part II: Don’t Let Failure Happen to You
• Part III: Lessons from Real-Life Failures and Cautionary Tales
• Bibliography
• About the Author