In late 1999, times were good for twenty four year-old John Friess. He was living in Los Angeles and pulling down a decent wage in a product marketing role. His employer, a contractor to Kozmo.com, was helping to revolutionize the retail experience by providing Internet consumers with instant gratification. Kozmo.com offered one-hour point–to-point delivery of small ticket items like movies and groceries in eleven major cities in the United States. With Kozmo.com headed toward what seemed like a near certain and red-hot initial public offering, John looked forward to celebrating the holidays with his new fiancée. Then, John got a call from his older brother that changed the course of his professional life.
John’s brother Mark, a second year medical student, was watching the dot-com bubble build and wanted in on the action. Though they did not have a concrete business idea, the brothers spent the next couple of months brainstorming ideas for a startup in healthcare technology that could make a difference in people’s lives. Ultimately an idea struck them.
When he went on hospital rounds, Mark noticed that physicians spent precious little time with patients – on average only about seven minutes. Patients needed a lot more information to give them comfort and reassurance. Compounding the problem, many doctors could not communicate directly with non-English speaking patients. Seeing an unmet need, Mark and John decided their business would provide multilingual healthcare videos streamed over the Internet into hospitals and doctors’ offices. The clips would provide patients with valuable information on the diseases they were diagnosed with, treatment options, and what to expect during and after medical procedures.
A great idea is only the smallest part of the battle. If John and Mark were going to make their concept fly, they would need to give up their day jobs. Mark went to the dean of his medical school at Oregon Health & Sciences University and asked for a two-year sabbatical figuring that they could build and sell the business in a flash. John took a comparable risk, quitting his job and moving back in with his parents in Oregon. Fortunately, his fiancée stuck with him. They started out with little money in the bank and a mere ten-thousand dollars in seed capital from Mark’s trusting father-in-law. In March 2000, wired.MD was incorporated by its first two unpaid employees.
The Friess brother’s dream of a quick and lucrative exit did not last long. In the six day period from March 10 to March 15, 2000, the dot-com era came to an abrupt end as the NASDAQ lost nearly nine percent. Venture capitalists scoffed at the idea of streaming Internet video, telling the boys they should stick to physical media like DVDs and video cassettes.
Despite the darkening clouds overhead, they went on to raise another $100,000 in September 2000. Even in a bust, companies with real products that have tangible benefits can thrive. All told, they raised a total of $2.9 million. After nearly eight years with each of the founders logging 3000 hours annually, wired.MD produced 410 patient education videos in eight languages sold in 48 states. On January 15, 2008, the company with its thirteen employees was sold for $7.4 million to MediMedia USA. Kozmo.com, which by comparison had raised $250 million only to fail spectacularly in April 2001, was but a distant memory.
I asked John what advice he would give himself if he could send a letter back in time to his 24-year-old self. His lesson number one: entrepreneurs need to participate in a peer mentoring support group where they can share advice, resources, and human networks. He added with a mix of humor and earnestness, “Sometimes you just want to know that there is someone out there that is worse off than you.” To give other entrepreneurs what he lacked starting out, John co-created Starve Ups, a not-for-profit organization that facilitates peer networking in a confidential, founders-only environment.
John’s second lesson is that you need to have the appropriate level of financial resources. The problem of too little capital is obvious. However, John rails against over-capitalization as an even greater evil. He may just be onto something. Cambridge Associates, an investment research house, reported that ten-year annualized United States venture capital returns for the period ending June 30, 2010 were a depressing negative 4.2%.
His third and final lesson is that everyone in the company, not just the founders, needs to be “selling, selling, selling” every day. He added, “In the end, if you are selling well, you will find a way to get past your problems.”
Every entrepreneur would likely give their younger incarnation slightly different advice. Below, I have captured a set of principles that would make a compelling addition to any time capsule.
Find an idea that inspires you, your team, and your customers
In at least one respect, the Friess brothers did something that would make most entrepreneurs cringe. Rather than starting out with a concrete idea, John and Mark seemed to be as motivated by the opportunity to ride the early Internet wave as they were by developing innovative healthcare technology. The more common recipe for success is having a BIG idea that you are passionate about. However, they ultimately got their bearings just before they pulled the trigger on wired.MD with a concept that inspired them and would change people’s lives for the better.
Though focus is critical, successful entrepreneurs also share the wisdom that you should expand your mind as you mull over your overall idea. Think of your initial solution as the first stage in a larger journey. Instead of defining your business by what it is today, define it in terms of where it is going.
For instance, wired.MD’s initial product was appropriately laser focused on delivering healthcare video content purchased by doctors for patients in a clinical environment. They could have broadened their ultimate scope in several ways. One would have been to serve the greater needs of physicians seeking healthcare information within their specialty. This might include access to journal articles, reviews of emerging drugs and medical devices, and peer forums.
Another direction would have been to expand direct patient access to healthcare information beyond the doctor’s office or hospital room. This could be composed of services like doctor moderated communities, peer forums, physician referrals, and comprehensive guides to symptoms and treatments. They could have taken things one step further by providing 24-hour access to online medical professionals to answer nagging medical questions when one’s own doctor is unavailable. (This was the path taken by JustAnswer Corporation.)
In the long term, it is best to position yourself as addressing a societal need that can improve the lives of people or the planet. However, starting out, many entrepreneurs recommend that you position against an industry leader. In the case of wired.MD back in 2000, that would have meant finding niches that Healtheon/WebMD had not yet conquered. Positioning against a leader allows the larger entity’s brand equity to wear off on you and helps customers grasp what you are doing.
Balance the what, the how, and the why
The overwhelming majority of entrepreneurs possess deep technical expertise whether it is baking cupcakes or writing software code. They thrive on the adrenaline rush of their craft. Unfortunately, failing to transcend the “what” is a death trap for any business, especially a fledgling one. Great entrepreneurs build a team of A-player technicians to convert their dreams into reality. Hire great people that can execute on everything that matters strategically and then outsource everything else.
The biggest first step for most entrepreneurs is making the leap from chief cupcake maker to manager of the bakers. This is the step that elevates individuals from the “what” to the “how.” As a manager, your job is to set and control scope. Any reasonable scope should include a set of key milestones and at least some detail of the tasks needed to get there. The result is that great entrepreneurs deliver the “how” by architecting business processes and systems that allow ordinary people to deliver extraordinary value to customers.
If technicians possess the “what” skill and managers possess the “how” skill, then leaders possess the “why” skill. Fortunately, this is a step that most people find easier to take. Though leadership is many things, a big focus for entrepreneurs is carving out the time to design the medium term and long term direction of the company. This should include the path of incrementally expanding from one laser focused niche strategy to the next.
Know how you are going to make money
During the Internet bubble, far too many investors got burned because they never had a solid grasp on how their portfolio companies were going to make money. The company that John Friess’s employer was working for – Kozmo.com – was a great example of this.
Despite raising a whopping $250 million, simple math could confirm that the company could never be profitable. The company had sporadic orders, no delivery charge, no minimum purchase, and wafer thin retail margins. Orange puffy jacket wearing “Kozmo runners” often made only three deliveries per hour. Package delivery experts like FedEx and UPS were probably laughing rather than quaking in their boots. The experts knew that the scale of purchasing would need to be many times greater than that required for next day delivery in order to be profitable. People just don’t make that many purchases. Moreover, the vast majority of people that live in dense urban areas can get truly instant retail gratification within a couple of blocks of their dwelling.
The moral of this story is simple. If you start a business, then you should know from day one how and when you are going to make money.
Stop planning and start building
Spending time building a massively detailed business plan is more likely to turn you into a ‘non-trepreneur” than an entrepreneur. Any plan you build will likely be obsolete within a couple of months, if not weeks. If it is not, then you are operating with inadequate flexibility.
If you know what you are building, how you are going to build it, and have access to enough capital to just get off the ground, then it is time to start building. The entrepreneur’s mantra is launch, test, iterate… launch, test, iterate. A shortened form that is easier to remember is ‘execute and iterate.’ You have to suspend disbelief and accept that the fuel, the landing gear, and the runway, will appear in time for you to safely land the plane.
Successful entrepreneurs are always selling. They sell to customers. They sell to investors. They sell to employees. Even opportunities without a monetary outcome add another dime to the brand piggy-bank. Finally, as John Friess indicated in his third lesson, entrepreneurs should make sure that every individual within the organization knows how to sell at least on some level.
Here are the concepts you can immediately (well…) apply to become a successful entrepreneur:
- Find an idea that inspires you, your team, and your customers
- Balance the why, the how, and the what
- Know how you are going to make money
- Stop planning and start building
- Sell continuously