Nothing Ventured, Everything Gained

How Entrepreneurs Create, Control, and Retain Wealth Without Venture Capital

Dileep Rao

• Publisher: An Inc. Original
• Year: 2018
• Print ISBN: 9780999191330
• eBook ISBN: 9780999191347
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

Is it possible for entrepreneurs to succeed at growing ventures without early-stage venture capital? Based on the fact that more than 9 out of 10 of America’s billion-dollar entrepreneurs did take off without early-stage VC, Dileep Rao says YES!
In Nothing Ventured, Everything Gained, Dileep Rao shatters the dominant myth that entrepreneurs need early-stage venture capital to build a giant business. In fact, says Rao, by avoiding or even delaying VC, billion-dollar entrepreneurs can control their companies and the wealth created by them—and retain more of that wealth. The book is based on 30 of Rao’s interviews with billion-dollar entrepreneurs (BDEs) and hundred-million-dollar entrepreneurs (HMDEs) and the analysis of the strategies of 85 BDEs. The author introduces the finance-smart skills, opportunity secrets, and strategy secrets of BDEs who took off without VC, and proves his points via stories of successful giants like Jeff Bezos, Mark Zuckerberg, and Steve Jobs. 
Every entrepreneur will do well to read and benefit from Rao’s invaluable insights and expertise.
?Dileep Rao, PhD, financed the growth of hundreds of businesses and real estate projects over the twenty-three years he was VP of financing and business development at a venture development and finance institution. He advises entrepreneurs, governments, Fortune 1000 corporations, and financial institutions on building big businesses with finance-smart strategies. Dr. Rao is a clinical professor of entrepreneurship at Florida International University and has taught at Stanford University, the University of Minnesota, and in executive MBA programs in Europe, Latin America, and Asia.

PART I

SKILLS TO SUCCEED WITHOUT
VENTURE CAPITAL

CHAPTER 1

Bootstrapping Innovation

What you sell is one of the most important decisions, along with how you sell and to whom. To develop the right product, the track record of billion-dollar entrepreneurs suggests that it helps to have skills to better satisfy customers’ unmet needs in emerging trends, emerging markets, or emerging technologies.

“And we have always been shameless about stealing great ideas.”

—Steve Jobs in a TV documentary, Triumph of the Nerds (1996)

Finding the right opportunity is the first step in developing your venture. To take off without capital, entrepreneurs need to have the skills to bootstrap their innovation.

Sam Walton knew how to operate stores in small towns. When the big-store format emerged, he had the skills and experience to operate a big store in small towns.

Steve Ells was a trained chef and wanted to open his own high-end restaurant. To earn some money, he started Chipotle to offer organic foods in a quick-serve setting.

Mark Zuckerberg and Bill Gates were programming mavens.

Most billion-dollar entrepreneurs developed their initial product or service using their skills—and did not need capital. Very little institutional venture capital is provided at the seed stage. In 2016, this amount was about $2 billion (according to pwcmoneytree.com), which is about 4 percent of the total U.S. VC funding. Only 1,428 deals were made, which is about 0.2 percent of U.S. startups. This suggests that most entrepreneurs will need to develop their opportunity without VC. They need to bootstrap or use limited funds available from friends, family, and angels. Even if angel funding is obtained, there is no assurance of getting institutional VC, so bootstrap innovation is advised.

Following are some billion-dollar entrepreneurial skills to bootstrap the opportunity for more advantage with less.

Identify and Satisfy Unmet Needs

Recognizing and satisfying unmet needs to offer higher value has been the hallmark of entrepreneurs. By understanding your market’s unmet needs, you can sell customers the right products and services. Ever since the first entrepreneur appeared, the second entrepreneur asked, “How can I do it better or cheaper?” Better or cheaper is an unmet need. Customers want to save money or have more needs satisfied. But the key difference among high-performance entrepreneurs was that they had the skills to develop a solution with a long-term advantage. This helped to increase sales and margins, which is especially useful in the emerging stages of a company and industry. And customers are likely to buy faster with shorter sales cycles and at higher prices.

Kevin Plank built Under Armour by developing garments to make football players and all athletes more competitive. He focused on college football teams since he was familiar with many of them, having been a college football player himself. He focused on showing these players how his garments improved performance, which was important to them if they were to be drafted by the NFL.¹

Glen Taylor (Taylor Corporation) started to catch brides’ attention by developing a catalog of wedding invitations that was of similar quality to those from the leading companies. But Taylor found that brides wanted to reflect their personalities on their special day. Previously, the company’s (and industry’s) response had been to tell them “You can get what we have.” Taylor, however, noticed that brides were not asking about price when wanting to satisfy their unique wishes. He decided to try to satisfy these customers by selling customized products at a higher price.

He was the first to offer cards based on the hot songs, movies, and other themes of the day. He offered additional colors that were in sync with the market and the industry. He helped brides coordinate all the colors in their wedding, including the paper products, invitations, bridal dresses, and more. Brides loved the idea and paid more for it. He could not keep up with demand. By satisfying the unmet needs of his customers, Taylor increased the size of his typical order by 5 percent and his profits by over 60 percent. His company took off. (For more about Taylor, see the last chapter.)

Emerging Technologies

Some entrepreneurs use their unique skills to develop their product or service to launch their business in emerging technologies. Established companies usually are not dominant in these emerging technologies, and the new ventures can gain a strong foothold before the dominant companies are aware of the opportunity—and the threat.

After World War II, as an electrical engineering student at the University of Minnesota’s Institute of Technology, Earl Bakken (founder of Medtronic) would stop by the university’s medical school and hospital to visit friends. He would repair their equipment on-site and realized that there was a business opportunity. So he and his brother-in-law started Medtronic to repair medical equipment on-site.

Medtronic’s early days were agonizing and arduous. The venture’s highest annual net income in the first decade was $10,400. To grow, Medtronic worked with physicians to develop custom-designed equipment for specific treatments. One of these physicians, Dr. C. Walton Lillehei, was using medical devices for the heart, but the devices would fail during power interruptions and thus adversely affect patients’ lives. So Lillehei asked Bakken to develop a device that would work through power failures. Bakken experimented with various options and, in four weeks, came up with a solution based on a circuit in Popular Electronics for an electronic metronome. This pacemaker was attached to a child’s heart the next day, heralding the dawn of the modern-day electronic medical device industry.

Emerging Industries

Emerging industries are usually based on changing markets, technologies, or demographics. They create new opportunities for entrepreneurs and offer an advantage to those who are willing to jump into a new industry.

Bob Noyce and Gordon Moore founded Intel at the dawn of the semiconductor age. Noyce was a co-inventor of the integrated circuit.

Bill Gates and Paul Allen knew how to write computer code for personal computers, which was a key skill in the emerging PC industry. The two had been working on PCs throughout high school.

Steve Jobs knew how to develop and market PCs and formed a partnership with Steve Wozniak, who had the technology skills. Wozniak developed the first few products sold by Apple.

Herbert Boyer and VC Robert Swanson founded Genentech at the dawn of the biotechnology trend. Boyer was a pioneer in recombinant DNA technology.

These successful entrepreneurs had functional skills in emerging industries, enabling them to become pioneers in their fields. Table 1 shows some major industries that have emerged in the last 50 years. This suggests that a key factor for highly successful entrepreneurs is to acquire technology skills in emerging industries or technologies—on their own or with partners.

TABLE 1. HOME RUNS BY TIMING AND EMERGING INDUSTRY

TIME	INDUSTRY	HOME RUNS (YEAR FOUNDED)
’60s	Semiconductors	Intel (1968), AMD (1969)
’70s	PCs	Apple (1976), Microsoft (1975)
’70s, ’80s	Biotech	Genentech (1976), Amgen (1980)
’80s, ’90s	Telecom/Optics	Cisco (1984), Ciena (1992)
’90s	Internet	eBay (1994), Google (1998)
’00s	Internet 2.0	Facebook (2004), Twitter (2006)

Improving an Emerging Industry

Many billion-dollar entrepreneurs got their start in emerging industries because they had skills in the industry. But they were not the first movers. When the industry emerged, they examined the leading products and improved upon them. They compared the benefits offered by the existing products with the unmet needs of the emerging market. This gave them a foothold, which they used to dominate the market. This suggests that first movers don’t always win. Imitators and improvers can do better if the first movers haven’t guessed right. In fact, first movers dominate only about 11 percent of the time.²

Larry Page and Sergey Brin used their expertise in programming to cofound Google when the Internet was just emerging.

Mark Zuckerberg was a programming expert when the online linking industry emerged. He wrote the code for a linking site and improved on the existing business model by focusing on college students who wanted to meet others at their university, and Facebook took flight.

Taking Advantage of Emerging Trends

Emerging trends offer a boost for entrepreneurs. Emerging trends offer the prospect of entering when an industry is still forming. An emerging trend can be especially beneficial if large corporations find it difficult to jump on the trend without major disruptions to their existing business.

Richard Burke founded UnitedHealthcare (UNH) in the 1970s, when legislation was passed to promote health maintenance organizations (HMOs). There were already a few HMOs around the country, such as Kaiser and Group Health, which offered access to a limited number of staff physicians and had limited market appeal. The new concept involved building off private-practice doctors to provide medical care in new managed-care entities. Two key features of the new federal law—the HMO Act of 1973—were that it overrode the state laws that had historically inhibited organizations of this type from operating, and it required employers with 25 or more employees to offer at least one managed-care option. By capitalizing on this law and forming alliances with local medical associations, Burke developed UNH into the dominating company in medicine.

Amazon.com is a classic example of a young company that recognized an emerging trend. It has taken full advantage of the limits of store-based retailing in a web-based world. By understanding the emerging trend of online retail and using the strengths of the Internet, Jeff Bezos has been able to build one of the world’s great disrupters, by focusing on excelling at the infrastructure of the Internet, along with selling products and services.³

Many entrepreneurs are under the impression that they can obtain a unique advantage from their opportunity—but few do. Most products or services can be duplicated by others.

To find an advantage, entrepreneurs need to know how to develop products that better satisfy unmet needs, especially in emerging industries, emerging trends, or emerging markets.

CHAPTER 2

Missionary Selling

In addition to technology skills, most billion-dollar entrepreneurs started out with sales skills and financial management skills. They were, in essence, technologist-accountants who knew how to sell. They knew how to convert skeptics and nonbelievers in a new venture into believers and customers. They were missionaries who could get converts for their new business.

“Business without sales is like Hamlet without the prince.”

—Source Unknown

Missionary sales are crucial for a new venture. At startup, no one knows who you are—and no one cares. For initial sales with attractive prices and high margins, entrepreneurs should understand customers’ unmet needs, make them happier than competitors can, and gain a competitive advantage to keep them happier in the long term.

Consider a group of 28 Minnesota billion-dollar and hundred-million-dollar entrepreneurs and the skills they started with (see Table 2).

TABLE 2. SKILLS OF MINNESOTA’S MOST SUCCESSFUL ENTREPRENEURS

	NUMBER	PERCENT
Sales & marketing	23	82
Sales	18	64
Accounting/finance	18	64
Technology	7	25
Marketing	5	17
Management	1	4

Source: Bootstrap to Billions, Dileep Rao, www.uentrepreneurs.com

At the outset, the billion-dollar and hundred-million-dollar entrepreneurs were strongest in sales/marketing (82%) and in financial management (64%), enabling them to sell more with less. These entrepreneurs knew how to sell to offer maximum value for customer happiness, for higher margins and at the least cost, and to dominate with high...

Table of contents

• Cover Page
• Title
• Dedication
• Copyright
• Contents
• Introduction
• Part I: Skills to Succeed without Venture Capital
• Part II: Innovation for More Potential per Dollar
• Part III: Strategy for More Edge per Dollar
• Part IV: The Complete Entrepreneur: Personal Development to Grow More with Less
• Notes
• About the Author