Are You An Entrepreneur?

April 23, 2012

Recently, I encountered several graduate students who were considering starting their own business. While many people dream about being an entrepreneur, a significantly smaller number are willing to put in the time and effort it takes to make their dream a reality. A colleague who has been running his own company for over 20 years said that when people ask for his advice on starting a business, he tries to talk them out of it.  When he started, “the only thing that would have stopped me from doing it was if my wife had told me, No!”  If you have that kind of dedication, you just might be an entrepreneur.

Starting Point 

A great place to begin is by writing a business plan – a document in which you completely describe the business.  Forcing yourself to write it down will make you step back and really plan out the venture.  The living document then serves as a roadmap as you move forward and start to involve other people.

Summary

One of the first sections of the business plan will be the executive summary. You should be able to describe your business at several different levels of detail.  Are you going to sell a product or a service? What is your targeted industry? What will make your offerings compelling to potential customers?

Legal Structure

Will you start a sole proprietorship, partnership, limited liability company, C or S corporation….?  The form you select will have implications for taxes, liability, staffing, and complexity.  Make sure you understand all the options and implications, and choose what’s right for you.

Products/Services

While you may have an idea of what you’re going to sell, in a written business plan you’ll have to detail your offerings.  How many different products/versions will you have to offer in the beginning?  How is your offering going to be different/better from other things already on the market? Will you offer customization?  How will you protect your intellectual property?  Will you patent your ideas, or keep them trade secrets?

Market Analysis

Describe the industry in which you will be working, including historical, current, and projected future size.  What subsection constitutes your target market?  What is the critical problem your offering is going to solve? What alternatives are they currently using?   What are their geographic and demographic characteristics? Who is your ideal customer?  Are there any seasonal or cyclical purchasing patterns you’ll have to work around?  What market share do you expect, and why?  

Marketing Plan

Once you have your product and target market, you have to get the two together.  What is your marketing plan?  How are those ideal customers going to find out about your offering?  Will you exhibit at trade shows or conferences?  Offer free trials?

Competitive Intelligence

Who exactly is your competition; other companies, or possibly solutions internal to your potential customers?  What are the strengths, weaknesses, and market share of each?  How important is this market to your competitors?  What are barriers to entry to this market?  What other offerings will present to differentiate you from the pack?  What is on the horizon from other companies?

Organization and Management

Who is going to run the company? What is their expertise and experience?   If you are going to hire employees, you become responsible for bringing in enough business to cover their salary, and taxes, while reporting requirements get more complicated.  Depending on the number of employees you have and the state in which you are operating, various other regulations start to apply as headcount numbers increase.  How will you address the various regulatory requirements?

Pricing

How much is it really going to cost to make your product or service, and how will you price it? Are you going to compete on low cost and high volume?  Or high cost and high quality?  Is your offering a need or a want for your customers, and will that affect what they are willing to pay?

Revenue

Will you reply on repeat customers, subscriptions, or contracts?  Will you sell over the Internet or are face-to-face sales required? Will you hire your own sales force, or use distributers? Where will start-up money come from?  How will you ensure enough money to cover operating expenses until substantial profits arrive?  Will you seek investors?  If so, how will you attract them and what will you offer them?

There are many more questions your business plan will have to answer, but if you’ve already thought about all these issues, congratulations!  You are well on the way to becoming an entrepreneur.  If not, you now know how to get started.  For more resources, see the US Small Business Administration or SCORE for more ideas, and the new ACS Entrepreneurship Initiative (EI).

This article was written by Lisa M. Balbes, Ph.D. of Balbes Consultants LLC.  Lisa is a freelance technical writer/editor and author of: “Nontraditional Careers for Chemists:  New Formulas for Chemistry Careers,” published by Oxford University Press.


Entrepreneurship: Can less be more for Startups?

March 5, 2012

A new study from North Carolina State University is turning conventional wisdom about technology start-up companies on its head, showing that:

  • moderately undercapitalized companies can still be successful and’
  • a top-notch product is more important than a stellar management team

Undercapitalization

Startup technology companies with moderate levels of undercapitalization can still be successful according to a new study from North Carolina State University and the University of Oklahoma. The study examined 79 companies started over a 10-year period. “Our research shows that undercapitalization is not a death sentence for start-up ventures,” says Dr. David Townsend, Assistant Professor of Management, Innovation and Entrepreneurship at NC State who co-authored the study with Dr. Lowell Busenitz, Professor of Entrepreneurship and Management and Academic Director – Center for Entrepreneurship at the University of Oklahoma.

The two researchers found that moderate levels of undercapitalization, even capitalization ratios as low as 20% of the venture’s initial goals, are not statistically related to a venture’s probability of surviving. “There are things a venture can do to survive and succeed.” Basically, Townsend says, start-ups that fall short of their fund-raising goals can take steps to minimize their cash outflows in order to stay viable.

They can do this by engaging in “management strategies focused on reducing their costs. For example, outsourcing certain development tasks and accounting responsibilities or exchanging services with other companies,” Townsend says. Locating your firm in an incubator that offers services that can put you in touch with firms that can do this with your startup can be an important factor in choosing a business incubator for your new firm.

Creative use of resources is important. For a chemistry or life sciences startup, this can mean obtaining inexpensive access to expensive laboratory facilities, particularly instrumentation.

Management team

Townsend also concluded that a great management team is not more important than a top-notch technology product when it comes to securing sufficient amounts of capital.

A disciplined approach to cash management is essential according to Townsend. Writing in Bloomberg Businessweek, Vivek Wadha, a start-up veteran and visiting scholar at the University of California-Berkeley, a senior research associate at Harvard Law School, and the Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University, agrees with Townsend. Wadha observed that when a company is running on a tight budget; it will perform better than a company with ample funding from venture capitalists. Why?

According to Wadha, large amounts of equity money can quickly lead to bad habits. Venture capitalists will want the CEO to bring in a seasoned management team. However, these managers typically want large salaries and big chunks of equity. These managers often want what Wadha calls “rock star perks” such as: a personal assistant, first class travel, company car, etc. Wadha reports that bringing in one or more hires like this usually means the original members of the startup team stopped worrying about keeping costs down and increased their own spending. According to Wadha, this “can quickly cripple and kill any new venture.”

Bringing in large amounts of venture capital often creates expectations of very rapid growth on the part of investors. This often comes at the expense of long-term profitability according to Wadha. It can also mean that startup founders worry more about keeping their investors happy and less thinking about customers. A lean and hungry startup tends to better maintain its customer focus.

John Borchardt is a chemist and freelance writer who has been an ACS career consultant for 15 years. He is the author of the ACS/Oxford University Press Book “Career Management for Scientists and Engineers.” He has had more than 1200 articles published in a variety of magazines, newspapers and encyclopedias. As an industrial chemist, he holds 30 U.S. and more than 125 international patents and is the author of more than 130 peer-reviewed papers.


Entrepreneurship. R&D Funding Available from the Federal Small Business Administration

January 16, 2012

The Small Business Administration (SBA), a unit of the U.S. Department of Commerce, offers two programs to assist entrepreneurs with research & development (R&D) costs.

Small Business Administration Innovation Research Program (SBIR)

SBIR funding is 2.5% of the total extramural research budgets of all federal agencies with extramural research budgets of more than of $100 million. These funds are reserved for research contracts or grants to small businesses. In 2010, that represented over $1 billion in research funds. Over half the awards were to firms with less than 25 people. One-third of the funds went to very small companies indeed, one with fewer than 10 employees. One-fifth of the funds went to minority- or women-owned businesses. One-quarter of the companies in fiscal year 20100 were first-time winners.

Information can be obtained from:
Small Business Innovation Research Program
United States Small Business Administration
Office of Technology
409 Third Street SW
Washington, DC 20416
202-205-6450
www.sba.gov/sbir or sba.gov/index.html
Small Business Technology Transfer Program (STTR)

STTR uses a similar approach to promote partnerships between small businesses and nonprofit U.S. research institutions. Funding currently totals 0.3% of the relevant agencies’ extramural research budgets. In the 2010 fiscal year, this amounted to over $100 Million.

The federal agencies involved are:

Each year, five federal departments and agencies are required by STTR to reserve a portion of their R&D funds for award to small business/nonprofit research institution partnerships.

• Department of Defense
• Department of Energy
• Department of Health and Human Services
• National Aeronautics and Space Administration
• National Science Foundation

Small businesses eligible for STTR must be American-owned and independently operated. The principal researcher need not be employed by small business. (Thus principal researchers can be academic researchers starting a company aimed at commercializing the results of their research). Company size limited to 500 employees

Upon reviewing the proposals, agencies make STTR awards based on small business/nonprofit research institution qualification, degree of innovation, and future market potential. Small businesses that receive awards then begin a three-phase program.

• Phase I is the startup phase. Awards of up to $100,000 for approximately one year fund the exploration of the scientific, technical, and commercial feasibility of an idea or technology.
• Phase II awards of up to $750,000, for as long as two years, expand Phase I results. During this period, the R&D work is performed and the developer begins to consider commercial potential. Only Phase I award winners are considered for Phase II.
• Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. No STTR funds support this phase. The small business must find funding in the private sector or other non-STTR federal agency funding.

To help small businesses deal with the complexities of working with the federal government, the SBA operates the Small Business Administration Answer Desk at 202-205-6600, extensions 296 and 287.

Other federal programs

Other units of the federal government also have programs to assist small businesses. For example, the Environmental Protection Agency (EPA) Small Business Ombudsman helps small businesses gain access to EPA funds. Ombudsmen may be reached through the EPA at www.epa.gov or by telephone (703-305-7777).

The Minority Business Development Agency is a unit of the U.S. Department of Commerce and collects and disseminates information about starting and operating minority-owned businesses. It may be reached online through www.doc.gov or by telephone at 202-482-4547.

The Office of Small and Disadvantaged Business is another Department of Commerce unit helping small businesses. It may be reached on-line at www.osec.doc.gov/osdbu or by telephone at 202- 482-1472.

The U.S. Department of Energy operates a similar program, the Minority Energy Information Clearinghouse focused on small energy-related businesses owned by members of minority groups. This program may be reached through www.hr.doe.gov/ed or by telephone at 202-586-5876.

The U.S. Department of Defense operates the Office of Small and Disadvantaged Business Utilization for DoD. Information is available online at www.acq.osd.mil/sadbu or by telephone at 703- 545-6700.

The Department of Energy also provides information to small businesses through the Office of Small and Disadvantaged Business Utilization for DoE. Its website address is www.doe.gov. The office can also be reached by telephone at 202- 586-7377.

NASA operates the Office of Small and Disadvantaged Business Utilization for NASA. Information may be obtained online at www.hq.nasa.gov/office/codek and by telephone at 202-358-2088.
The Small Business Administration Development Center Program provides technical assistance and information on management techniques to small businesses at www.sba.gov or by telephone at 202- 205-6600, extensions 275 and 277.

John Borchardt is a chemist and freelance writer who has been an ACS career consultant for 15 years. He is the author of the ACS/Oxford University Press Book “Career Management for Scientists and Engineers.” He has had more than 1200 articles published in a variety of magazines, newspapers and encyclopedias. As an industrial chemist, he holds 30 U.S. and more than 125 international patents and is the author of more than 130 peer-reviewed papers.


Entrepreneurship. Business Incubators and their Services

January 9, 2012

Business incubators are facilities that provide entrepreneurs with an inexpensive start-up environment and a range of administrative, consulting, and networking services.  According to a 2010 study by the National Business Incubation Association (NBIA), the survival rate of startups using business incubators is 87% compared t0 44% for startups that didn’t use incubators.   At that time there were approximately 41,000 startups using 1,200 incubators across the country.

Every state in the U.S. is home to incubators designed to serve as homes for start-up companies and promote innovation. The website www.angelscorner.com/articles/incubators.htm provides a list of links to major U.S. incubators. Incubators became widespread with the explosion of start-up companies in information technology and computer fields in the late 1990s. Not all incubators include wet laboratories in their facilities but many do particularly due to the growth in numbers of biotechnology start-ups.

Some incubators are affiliated with universities. Others are operated by venture capitalists. Others are quasi-government operations.  For example, the Iowa State University Research Park has more than 50 start-up firms as tenants (http://www.youtube.com/watch%3Fv%3DB2Wv7c-l0Ho). It enables entrepreneurs to link technology creation, business formation (including potential access to capital) and development assistance. Located on a major university campus, it is also near federal laboratories.

One of the three incubators in the SPARK Regional Incubator Network (SRIN), the Michigan Life Sciences Innovation Center in Plymouth, Michigan, offers entrepreneurs wet laboratory facilities. Besides laboratories, the 57,000 square incubator includes offices and conference rooms, a loading dock and ample parking. Lease rates are affordable for start-up companies.

Getting in

Gaining access to incubator facilities  is more than just renting space. The start-up company has to meet specific requirements. One has to apply for it. The start-up company’s business plan, management team, capitalization and time to commercialization are evaluated. Its operations must be compatible with the available incubator space including environmental permitting, major equipment and utilities requirements.

Once established as tenants, start-up companies cannot stay in incubators forever. Most incubators limit initial leases to no more than three years with the possibility of one- or two-year renewals.

Incubator services

Some incubators offer start-ups reduced rental rates with the rents gradually increased to the prevailing market level in the area. Incubators usually provide reception areas and meeting rooms, secretarial and postal services and office equipment such as photocopiers and projection equipment for meetings. Incubator tenants share these and other overhead costs.

Many offer services designed to facilitate the development and growth of start-up companies. Business incubators often provide courses in entrepreneurship and seminars on topics of interest to entrepreneurs such as intellectual property protection, access to capital. Business incubator managers also serve as facilitators connecting entrepreneurs to firms and individuals providing services they need such as local artisans such as glass blowers and electricians as well as consultants and advisory services.

A recent survey of National Business Incubator Association members indicated that 83% of incubators provide entrepreneurs with access to seed capital. Also, 76% provide assistance in obtaining federal grants. 74% assist entrepreneurs in preparing financial proposals.

Some incubators with wet labs offer tenants shared access to instruments that would be used by each only a fraction of the time and routine laboratory services. Some offer access to sophisticated laboratory services that are often outsourced in small established companies.

John Borchardt is a chemist and freelance writer who has been an ACS career consultant for 15 years. He is the author of the ACS/Oxford University Press Book “Career Management for Scientists and Engineers.” He has had more than 1200 articles published in a variety of magazines, newspapers and encyclopedias. As an industrial chemist, he holds 30 U.S. and more than 125 international patents and is the author of more than 130 peer-reviewed papers.


Entrepreneurship. Spinoffs from Former Employers

January 2, 2012

Entrepreneurs are increasingly licensing technology and receiving aid from their former employers and using it as the basis to build new companies.

Divergence, Inc.

Divergence, Inc. chief executive officer (CEO) Derek Rapp described the history of his St. Louis start-up firm in a paper presented at the Revitalizing the Heartland’s Chemical Economy Symposium (part of the 2011 ACS Combined Midwest/Great Lakes Regional Meeting). Divergence began operations in 1999 as a genomics-based company looking to identify pathways to control and prevent parasitic infections of plants. Its goal was to develop a biogenetics means of controlling certain pests (nematodes) that eat crop plant roots thereby reducing productivity. After giving up on this approach, Divergence licensed technology from the CEO’s former employer, Monsanto, and developed it to the point of commercialization. In October 2011, Monsanto bought the company giving investors and Divergence employees a handsome profit and jobs with Monsanto.

Michigan life sciences start-ups

Michigan life sciences start-up firms provide interesting examples of start-ups that received support from the large firm that gave rise to them. In 2003, Pfizer closed its Kalamazoo, Michigan laboratory, the former site of UpJohn’s research center. About 1,000 employees lost their jobs. To prevent the departure of all of these professionals, the state and city provided seed money for aspiring entrepreneurs to start businesses. The more than two dozen start-ups that arose were primarily pharmaceutical service companies rather than companies relying directly on Pfizer technology. Most were born at the Southwest Michigan Innovation Center, which opened in July 2003 at the Western Michigan University Business Technology Research Park in Kalamazoo.

As of 2011 most of these service companies have graduated from business incubators to become fully operational. At least some have become profitable. Together they offer a broad range of services from drug discovery through early stage clinical trials with associated manufacture of the drugs needed for these trials. They employ a number of former Pfizer and Upjohn scientists. In at least some cases, Pfizer has provided these firms with contract research business.

An example is Jasper Clinical Research & Development, which offers early-phase clinical studies. Jasper has received a facility and equipment from Pfizer plus three-year contracts for contract research business Pifzer estimates total as much as $20 million.

Another start-up, CeeTox, Inc., provides in vitro toxicity screening of drug candidates, received equipment and technology from Pfizer and a recent $25 million dollar contract from the U.S. Environmental Protection Agency.

The founders of contract research organization Kalexsyn, Inc., Robert Gadwood and David Zimmerman, based their 2003 start-up company on what they had learned about CROs while working for Pfizer and its predecessor companies in Kalamazoo. Former Kalamazoo employees initially formed the core of Kalexsyn’s workforce. As the firm grew to 23 employees, Kalexsyn outgrew its original 7,000 square foot site in the Southwest Michigan Innovation Center. Kalexsyn built its own $4.5 million, 20,000 square foot facility in the Business Technology and Research Park on the Western Michigan University Parkview campus. The building includes both laboratory and office space.

A mixed record of success

Most but not all the post-Pfizer start-up firms have succeeded. For example, contract research organization firm ADMETRx, Inc. also was founded in 2003 in the wake of Pfizer’s laboratory closure. In May 2010, ADMETRx shut down with CeeTox acquiring some of its assets.

John Borchardt is a chemist and freelance writer who has been an ACS career consultant for 15 years. He is the author of the ACS/Oxford University Press Book “Career Management for Scientists and Engineers.” He has had more than 1200 articles published in a variety of magazines, newspapers and encyclopedias. As an industrial chemist, he holds 30 U.S. and more than 125 international patents and is the author of more than 130 peer-reviewed papers.