Wednesday, April 27, 2011

How Can We Pass On Entrepreneurial Spirit to Our Kids?

It is estimated that 80% of family businesses fail in the transition from the first generation to the second, not to mention the slim margin that actually makes it to the third generation and beyond. The reason many family businesses don’t transition well from the first generation to the second is often because entrepreneurs don’t pass on that same “spirit” to the next generation. If the kids have no desire or passion for running a business, they aren’t going to want to run yours. If the kids don’t have the financial sense to run a business, they aren’t going to run yours for long.

How does someone fix this? Can you pass on entrepreneurial spirit? Do we make every child spend the first ten summers of their lives running lemonade stands? I will first say that I don’t know what the answer is. I do, however, know a few things that I think might work, and some things that I know don’t work. After all, Lindsay Lohan claims she “was not raised to lie, cheat, or steal.” Right, we believe that.

It doesn’t work to ignore the issue. Try not to allow your kids to grow up in an environment completely different from the one that you—the entrepreneur—grew up in. If you have your creativity from performing dance routines in the backyard, your determination from trying out for the baseball team all four years of high school before you made it, your resourcefulness from running for student council, or if you learned to save when your parents made you pay for your first car, those experiences likely shaped your entrepreneurial spirit today. Likewise if your parents helped you build the bleachers in the backyard and sew the costumes so you could charge admission to the theater production for the neighborhood, helped you collect canned goods for your first food drive, and helped you clean up when your first invention didn’t go as planned, provide those experiences for your children. Not all experiences require money to fund them nor do they require you to withhold money or privileges to teach the lesson.

Also consider teaching your kids to take calculated risks. Every successful entrepreneur needs to experience calculated risks that sometimes pay off and sometimes fail. Give them a small account to pick stocks, and let them make the good and bad decisions with a little bit of real or fake money. Give them a weekly allowance with the option of spending it now or saving it for a month and you will double it at the end of the month if it is still there. Let them be creative, and try things that they might fail at. Let them create their own summer jobs. These experiences teach children that they won’t succeed at everything, but that they also won’t succeed at anything unless they try.

Monday, April 25, 2011

China Bans Time Travel (it’s about time…)

On March 31, 2011, the Chinese State Administration of Radio, Film and Television issued guidelines that effectively ban television and movie plot lines that contain elements of “fantasy, time-travel, random compilations of mythical stories, bizarre plots, absurd techniques, even propagating feudal superstitions, fatalism and reincarnation, ambiguous moral lessons, and a lack of positive thinking.” Google translate makes this reliably readable in English (trust me).

CNN’s Eunice Yoon reports, “The government says…TV dramas shouldn’t have characters that travel back in time and rewrite history.” She goes on further to report that “They say this goes against Chinese heritage.” “They also say that myth, superstitions and reincarnation are all questionable.”…At last, conclusive evidence that the Chinese are still holding a grudge against NBC for not extending the 1982 TV sensation "Voyagers" to a second season…

Questions about restrictions on speech and expression in television and film aside, the fantasy of being able to meld time to suit our purposes isn’t a new storyline and no doubt will be a repeated plot line in stories for years to come. Often times, the premise of being able to “go back” or “go forward” is based on lessons that either weren’t learned (going back) or impatience to learning lessons in the future (going forward). Not surprisingly, the plot lines usually involve a stern warning about the impact of interfering with the course of time and events and some crisis that is narrowly averted in the “nick of time,” constituting the climactic turning point of the story.

The proverbial question is about what past decisions you would change or, better yet, if you knew then what you know now, how would it change the decisions you made? I suspect that there is equal division among those who would leave things as they are or those who go back and make different decisions.

What if, instead of going back to change time, a person had access to the resources to not have to ask “what if” somewhere down the road? I suspect that most people would be satisfied with the course of events as long as they had all the available information and tools necessary to make a decision.

So how does someone find the information that they need, the trusted advisor, the team of people who have “been there” and have “done that?” Will finding those people help prevent bad decisions or guarantee good decisions?

Such is the life of an entrepreneur.

Many entrepreneurs will develop a novel idea or disruptive technology based on an unmet or under-met need in the marketplace. Understanding how to move that idea from concept to market, where buyers willingly pay for it (we call it commercialization), is the challenge. Even seasoned entrepreneurs with deep industry experience won’t have solved all aspects of the commercialization chain. This is what makes an entrepreneur’s network of advisors so critical. Without exception, entrepreneurs who have the ability to go out and find a “team” of seasoned veterans, experts or pioneers who have gone down the same road before will be dramatically more likely to succeed than those who go it alone.

Also, consider the fact that in the United States, depending on how one defines failure, the failure rate for start-ups is 30-40% (companies that liquidate their assets and investors get no return on their capital) and up to 90-95% (if failure is defined as declaring a projection and then falling short of meeting it). Using either analysis, failure is common place for early stage companies. Preventing an “enterprise failure” may not be possible, but counsel from those who can help identify the right strategies for early stage companies may root out ideas that may ultimately fail due to a poor business structure, failure to understand the market or, in some cases, identifying innovation that is nothing more than a solution that is more expensive than the problem.

A critical tip for the burgeoning entrepreneur is to build an advisory board early with those people who have stormed the beaches before and understand the challenges of launching a new business. Experience, even tangential, will test aspects of your business and provide insight into potential scenarios about your product, your market, your competitive advantage, scalability and a host of other aspects to your business that may not otherwise be asked. Expect your advisors to provide sober analysis in each of their areas of expertise early in the process. Meet with them often and, if necessary, provide incentives for their valuable time. By having high expectations of them, they will in turn have high expectations for you. Doing so may prevent those “if only I had…” moments in the future. (but…since the Chinese have banned time travel, we may never know…)

Wednesday, April 20, 2011

Awakening Minnesota’s Hibernating Entrepreneurial Economy

Each year at this time, the bears, wolves, and other animals native to Minnesota awake from their long winter slumber. Like these beasts, Minnesota’s entrepreneurial economy has been in hibernation for years. However, recent efforts undertaken by the State of Minnesota may yield an awakening.

In 2010, the Minnesota Legislature passed the Minnesota Science and Technology Act, which created the Minnesota Science and Technology Authority (MSTA). The mission of the MSTA is to “promote a business environment that fosters lasting and inclusive prosperity through the growth of innovation-based businesses and jobs.” Earlier this year, the MSTA distributed its strategic plan for Minnesota. The plan is informational and enlightening.

After reviewing the plan I was surprised to learn that Minnesota’s entrepreneurial economy really is in hibernation. I knew from firsthand experience in working with numerous start-ups trying to launch, raise capital, and grow that Minnesota start-ups faced financing and other challenges. But I was surprised to learn that in measuring entrepreneurial activity, Minnesota ranked near the bottom when compared to other states. In 2010 entrepreneurial activity, Minnesota ranked 42nd, a significant drop from 24th in 2007. Entrepreneurial activity is calculated by dividing the total number of entrepreneurs starting businesses by a state’s total population. In addition, in net high-tech business formation, Minnesota ranked 41st.

After several years of effort by various organizations that promote entrepreneurial activity, the State of Minnesota has recognized the hibernation and has taken its governmental stick and begun to poke at Minnesota’s slumbering entrepreneurial economy. In 2010, Minnesota adopted an angel investment tax credit, which provides angel investors with a credit of up to 25% of the dollar amount invested in qualified Minnesota start-up companies. While this tax credit came several years after similar credits were adopted by surrounding states such as Wisconsin and North Dakota, the effort was welcomed and necessary to catch up with these neighboring states. The state has also supported the establishment of the Minnesota Angel Network, an organization that will assist entrepreneurs in launching and funding new companies.

It will take more than a couple of pokes from state government to wake up Minnesota’s slumbering entrepreneurial economy. But at least the beast’s eyes are now open.

Friday, April 15, 2011

Outliers: The Story of Success

What: Outliers: The Story of Success, by Malcolm Gladwell (Little, Brown and Company, 2008).

Why: This is a groundbreaking study, focused on whether success in any endeavor is due more to ability, work or luck.

American entrepreneurs take as self-evident the proposition that anyone, through a combination of talent, motivation and hard work, can be successful in whatever they may choose to do. It’s the American Dream. Think of Abe Lincoln studying law by firelight, a penniless Andrew Carnegie building his huge fortune, or college dropout Bill Gates creating a software empire. Tony Robbins tells us that whether we make it or not is entirely within our own control, a product of how we interpret and act upon the events of our lives. Maybe. But maybe this Horatio Alger myth is only true if the focus on what leads to success is narrowed to take in only the factors of free will and individual merit. Malcolm Gladwell, author of the earlier best-selling studies The Tipping Point and Blink, is here to tell us that, no matter what we may think, fate is an equally powerful determinant (and, indeed, a prerequisite) of success. This, in itself, should not come as a startling revelation. After all, according to the old adage, it’s better to be lucky than good. What is remarkable here is Gladwell’s assertion that, more than we may realize, the success of “outliers”—we all know who they are—is not really exceptional, but “is grounded in a web of advantages and inheritances, some deserved, some not, some earned, some just plain lucky.” There is, in fact, no such thing as a person whose success is entirely “self-made.” Some of Gladwell’s examples are especially eye-opening:

  • Star hockey players tend to have been born early in the year; youth hockey programs usually have a January 1 birthday cutoff, and those born immediately after the cut-off, being the oldest in their program years and thus more mature and developed, tend to be assigned to better teams with better coaching, starting a cycle of success.

  • The Beatles honed their craft through years of playing eight-hour gigs every day of the week in Hamburg clubs, an opportunity that came their way almost by accident.

  • And has anyone else noticed that all the most successful computer industry pioneers—Bill Gates, Steve Jobs, Paul Allen and others—were all born during or within a year of 1955? They all happened to live at just the right time to have free and unlimited access to mainframe computer time, allowing them to develop and perfect the skills that ultimately led to the personal computer revolution.

The takeaway point here is simple: no one ever does it completely on their own. There are always societal or cultural opportunities or disadvantages that affect what someone can achieve. Is that a reason not to try? Certainly not. All Gladwell asks is that we recognize that there’s more going on in any success story than grit, guts, talent and smarts. And, in recognizing that, perhaps we should think about how making opportunities available more generally (and removing cultural roadblocks that frustrate achievement) could benefit us all.

Tuesday, April 12, 2011


As I think back on my life and career I see a successful line of failures. Oh my gosh, did I really say that out loud? Yes, I did. Entrepreneurs can learn from failures (mine or their own).

I grew up in a single parent family. This was in the days when divorce was rare and single parent families were the exception. Every family wanted to be the Cleavers from Leave It To Beaver. My mother, who is a saint, has fought her whole life to get ahead. Despite numerous setbacks, she continued to forge ahead, eventually (after 24 years) graduated from college, and worked at her two dream jobs (as a college registrar and kindergarten teacher) at the ages of 64 and 75. My mother instilled in me the will to fight and drive to win despite failures.

After 21 years away in the frozen north, I returned last year to Silicon Valley. Since then, I’ve been thinking about all the things that make it still one of the best places to start a company. First and foremost in my mind is the way people embrace failure. No, not that they want to fail, but that they encourage risk taking. They understand that, without risk taking, no companies would be started, no new products would ever be created, no new technologies would be developed, and no corporate stars would be born.

While I was in Minneapolis I felt that the opposite was true. A person who failed was often shunned and discarded as a “failure.” I was at a Mobile Gaming Meetup a couple of weeks ago at Kabam, one of the top social gaming sites, and the management gave a great presentation how they push decision-making down and encourage reasonable, rational risk-taking. Failure is treated as a learning experience and not a scarlet letter. This idea of embracing failure as a path to success resounds throughout the Valley. Everybody has their big “failure” story to tell and investors tend to gravitate toward executives and founders who have experienced both failure and success.

As I look back on my life, I see the same thing. A number of failures leading to successes leading to who I am today. I can’t tell you how many times I have failed, but in each failure I have learned. In the Movie Rocky Balboa, Rocky says it best when he tells his son: “It is not how hard you can hit; it is how hard you can be hit and keep moving forward.”

Starting and running a company, whether it be the idea in the garage or Apple Computer, involves a series of failures followed by successes. In the invention stage you are developing your idea; you discard the bad ideas always trying to further refine the idea until it is a product that meets some customer problem. Once the product is developed, you have to build it—there are constant problems in that. After you manufacture it, you need to sell it and you find that there are still problems and you head back to development. Ultimately, you will only succeed if you have learned along the way. Finally, you generate significant sales and realize that so much is not within your control—wars, recession, earthquakes. All result in some failure. Always you try to learn from failures, to not repeat them, and to turn them into success. In the end, it is failure that breeds success.

A Post by Frank Vargas, Guest Blogger

Thursday, April 7, 2011

How Much Do You Know About Intellectual Property? More than the People Behind this TV Show?

I’m a night person. Late night. I’m at my best after 11:00 p.m. That’s when I do my best thinking, or puttering. Catch up on the news, do laundry, try a crossword puzzle, read a contract. And while I’m doing these things, I like to have background noise. Usually an old movie, but lately I’ve picked up on some of the cable series that are replayed a zillion times at all hours. Perfect for me.

A couple of weeks ago, the noise was provided by an episode of Leverage, a TNT original series about a team of con artists who use their skills to right societal wrongs. Modern-day Robin Hoods. In this episode, the team poses as entertainment—magicians—for a “state of the company” meeting, in order to obtain proof that a certain executive (I think the CFO) is knowingly allowing the company to distribute tainted food, and hiding that information from the company’s CEO. A frightened employee has informed the team that this officer decided it was cheaper to compensate for deaths than do a product recall.

As the team plans its con, Nathan Ford, the leader of the team (and disgruntled former insurance investigator), shares his knowledge about the heightened security measures employed by food companies to protect their “food patents,” the highly valuable intellectual property of any successful food enterprise. I pick up on those words—food patents—and immediately think about the Coca-Cola recipe or the Colonel’s 11 secret herbs and spices. (Remember that I was only half-listening). But those valuable pieces of information are maintained as trade secrets, not patented. Patents are published. So why would a company have heightened security to protect information that is publicly available? I smile knowingly as I catch this glitch—like a misplaced prop or inconsistent dialogue (the trip to Cleveland inexplicably becomes a trip to Cincinnati). This is only background conversation to show Ford’s industry experience and set the mood for the complicated plan they will have to devise to get around the company’s sophisticated security measures. The point of the story is tainted food. Greed and corruption to be stopped. Human suffering to be alleviated.

But while I dismiss this rather unfortunate dialogue error, I admit that I was now paying more attention to the program. What other mistakes might I catch? Of course, I also wondered how long it would be before one of my entrepreneurial clients or an employee at one of my food industry clients calls to talk to me about pursuing “food patent” protection for their intellectual property.

As the story unfolds there is physical action and technological tension. Complications abound, and ultimately the team is thwarted in its attempt to secretly download the damaging information about the company’s distribution of bad food products that would expose the evil executive. But, of course, the team must be successful, so in a clever plot twist, it turns out that the computer geek of the team managed to download the company’s food patents on the bad guy’s phone (or maybe it was a Blackberry). He is then caught leaving the building with the company’s valuable intellectual property and fired on the spot!

Seriously? Here was a major plot point that is just wrong. The actors were grinning and high-fiving over their achievements in exposing the bad guy, albeit for a different reason than originally intended. The concept is okay, but he was caught doing what? Stealing public information. Something anyone could obtain online at no charge. How could so many people (just think about the number of people involved in these productions) have missed this simple and easily verifiable fact? The initial reference to the protection of food patents as the basis for a high level of security was disturbing, but forgivable. A slight error in terminology is not fatal so long as the point is made that this is going to be a particularly difficult job. Right? But this wasn’t a mere glitch. The term “food patents” was used multiple times, and the theft of “food patents” was the ultimate undoing of the unscrupulous corporate executive. This was no little mistake. It ruined the story. But it also has piqued my interest to see if other episodes are equally flawed. Stay tuned.

Tuesday, April 5, 2011

A Recipe for Happiness in Golfing and Entrepreneurship

Okay, you are probably wondering whether such a recipe exists, right? My experience—as an entrepreneur, as a lawyer advising primarily entrepreneurs, and as a generally happy golfer—is that entrepreneurs are successful because of energy, focus, creativity, and efficiency, plus a little luck sometimes. The same applies to golf (and happiness).

But let’s start with this proposition (and remember, you read this here first): THE KEY TO HAPPINESS IS REASONABLE EXPECTATIONS! This applies to business, pleasure, relationships, and essentially everything that we do, including golf. Whether you are an entrepreneur or a golfer, if you have high expectations but you don’t have high energy, focus, creativity, and aren’t efficient (and a little lucky), then I strongly recommend that you adjust your expectations downward or resign yourself to an unhappy existence.

Once you have your expectations in a reasonable place and have a reasonable goal for your game of golf, then you are ready to go forward. Let’s start by focusing on people who shoot between 80 and 120+ (handicaps of 10 to 36, if you care). I will get to the rest of you later, but this still might have some application to you.

Energy? Entrepreneurs rarely start a business, much less grow it, with a 9 to 5, five-day-a-week schedule. Similarly, golfers rarely get better by being out of shape. My advice for entrepreneurs and golfers? Get in shape. Stay in shape. Walk, don’t ride. Take the stairs, not the elevator. You get the point. You don’t have to kill yourself, but good conditioning should be a factor in your expectations. Simple.

Focus? An entrepreneurial daydream rarely becomes a successful business without focus. Really good golfers tend to be very focused on golf in general and especially when on the golf course. But most of us think of golf as entertainment or fun, so we would prefer to not spend lots of time “focusing” on the game of golf. Good for you, I say! But those of us who think this way should probably remember this when we are setting our golfing expectations. If focusing less helps you enjoy it more, no problem. On the other hand, if focusing more helps your friend enjoy it more, no problem. You will both be happier. One of the beauties of golf is that you can still play together!

Creativity? This is often a key part to the success of an entrepreneur, and also to that of a golfer. Neither person has to do things just like everyone else. There is no playbook for most entrepreneurs. And you will rarely find two golfers with the same physique and the same golf swing. So what’s my point? Take a few lessons—search out a golf instructor (or business mentor) who will work with you, just as you are. Tell this person about your expectations and make sure they will work with you within your parameters. If they don’t get it, find someone else. As you develop your game or business skills, a good “teaching pro” will work with you about creative shot making and creative strategies.

Efficiency? For an entrepreneur, this generally means planning, cost controls, efficient staffing, etc. When it comes to golf, this can mean many things, including an efficient golf swing and planning the most efficient type of shot to get the ball in the hole with the fewest strokes. Those things can be learned, but it’s important to have the right tools. Don’t try to fit your business or golf game into a box designed by someone else. Each one is unique in some aspect. I’ll tell you about custom-designed clubs—one of my favorite topics—in a future post.

Remember, I want to help you meet your reasonable expectations when it comes to golf, business, or life—which can help you find HAPPINESS, whatever the course.

Friday, April 1, 2011

Oregon’s ‘Devil Tax Credit’—A Road Paved With Good Intentions?

With all the attention that people have been paying lately to the adoption of state angel tax credits designed to spur entrepreneurial funding and growth, I’m surprised that the recent tax incentives proposed by the state of Oregon haven’t received more attention.

For those who missed it, the Oregon House of Representatives has adopted measures designed to attract large “800-pound gorillas” to move their corporate headquarters and workforces to the state.

In supporting the proposed legislation, Lirpa Sloof, an official with the Oregon Business Development Department, said: “While it’s true that small businesses are responsible for creating over 75% of all new jobs, we think that big business deserves some attention, too. With everyone else fighting for those new entrepreneurial ventures, it seemed like a good opportunity to address a less competitive landscape. We think this legislation is a good start and will be healthy for Oregon.”

As background, angel tax credits typically provide tax incentives for individuals to invest in new (usually high technology) companies. The goal of these credits is to spur investment and create more available capital for fledgling enterprises that desperately need access to capital to keep their entrepreneurial dreams alive.

The measures proposed in Oregon, which seem likely to have a chilling effect on entrepreneurship, apply to large companies (over 1,000 employees) who have both their corporate headquarters and at least 1/3 of their total workforce in Oregon. Key components of the legislation include:

1. A 33% credit for all money spent in defense of antitrust litigation

2. A whopping 40% “litigation tax credit” of all amounts spent:

  • Defending antitrust litigation

  • Pursuing protection for large patent and trademark portfolios (in excess of the first 25 patents or trademarks filed annually)

  • Enforcing non-compete agreements against former employees

3. A 15% tax credit for individual employees on any purchases they make of on-site amenities (e.g., day care, dry cleaning, postage, and even your favorite latte)

Entrepreneurs from around the country have vowed to keep a close eye on this legislation as it works its way through the Oregon Legislature. Entrepreneurial attorneys have even vowed constitutional challenges to “state sponsored support for illegal activity” under applicable antitrust laws.

Bill Gates, chairman of Microsoft, which is headquartered in Oregon’s neighboring state of Washingon, commented that “while a move might be a little disruptive to some of our employees, the array of credits is pretty intriguing. It could increase company share value and my net worth enough to provide me and my foundation with additional resources to do more important work in Africa and other underdeveloped areas.”

I’m sure the growth and enormous economic impact of companies (like Google) in neighboring states has a lot to do with it, but these measures sure look like “Devil Tax Credits” to me. If large companies are encouraged to pursue excessively aggressive litigation and intellectual property protection, along with engaging in predatory pricing and other anti-competitive practices, the death of emerging high tech business enterprises can’t be far behind. If other states follow suit, we may all be headed to the fiery place where the “road to good intentions” often leads…