- Stephen A. Boyd, Ph.D. CEO, Havelide Systems, Inc.
Why Start Ups Fail...and Why They May Succeed
I loathe calling myself an entrepreneur. Nowadays, the connotation is that you may not be driving your Porsche (yet!), but in your spare time, you’re already googling where the local dealerships are and choosing what color would suit you best. (FYI: There’s a gorgeous dealership in Roslyn, NY. I have to drive by it every day and I hate to do so every day.)
The cold, hard fact is that about 80% of start-ups fail within the first five years. Yet, paradoxically, the top 10 richest people in America are all entrepreneurs—for example, Jeff Bezos (Amazon), Elon Musk (eBay, PayPal), Vinod Khosla (Sun Microsystems). This list goes on.
So what is the sure-fire way to become a successful entrepreneur? No surprise—there isn’t one. We can all deduce the obvious: if there were a magic formula, then it wouldn’t be so effing hard, would it?
Having been asked to write a piece for CEBIP, I wanted to use this opportunity as a teachable moment to express what I have learned so far about what can affect the potential for success for start-ups.
Point One: The Laffer Curve is Laughable.
Arthur Laffer (yes, that’s his real name) was a distinguished economist who came out with the eponymous Laffer Curve, which is at the heart of the now infamous “Trickle-down Economics.” According to Laffer, capitalism works as it pertains to entrepreneurship because rich people, who would enjoy near zero taxation, would invest in entrepreneurs, thereby redistributing the wealth while making more money for themselves and the few entrepreneurs who have the stones to try it.
Fast-forward to all the studies ever done on this assertion. They all show that it fails miserably. The most telling curve is the wealth disparity curves for rich v. poor (see inset). If this were a predictive theory, then the public at large would be wealthier and better disposed to buying more goods and services, etc. But we’re not.
Entrepreneurs can’t count on the Laffer Curve effect to generate financing from wealthy people.
Point Two: Rich People Rarely Draw Outside the Lines.
In 2010, during my Ph.D. studies in chemistry, I came up with a method of creating power by having people drive over crystals. That compression would make a teeny bit of power—a form of crowdsourcing electricity.
My buddy Pauley arranged a sit-down for me with a billionaire (I’ve met 11 so far) at Borrelli’s in East Meadow. I came armed with extensive research, a solid business plan, Gantt charts, scheduled funds, etc. and two patents. I even had permission from Suffolk County to put down a prototype on Veteran’s Memorial Highway!
So I gave him the dog-and-pony show but he just nodded and smiled. When my friend left the table for a moment, I asked the billionaire what he thought. He quickly snuffed, “Oh, I have no interest at all in investing.” So I asked him why we were having the meeting. He said, “I just met you as a courtesy to Pauley. I’m making too much money pushing commercial paper.”
Fast-forward six years and LA’s highways are being fitted with similar (but inferior) crystals. The Israelis, the French, Australians — they’re all doing it. Yet my patents predate all their IPs.
Moral of the story: The overwhelming majority of rich people (I think I can say this with authority) are making plenty of money doing what they’ve been doing to make them rich in the first place. Why change?
Of course, for the start-up in LA, this brings us back to the beginning of this article.
Point Three: You Did Everything Right and You Still May Fail
Right now, my company has a solid patent on something I invented. Our sales are in the low double digits, but we keep approximately doubling our sales every month. We’ve shipped to places on the planet I’ve never even heard of. I’ve even smashed current, published data in the field that it’s in, in one case by 4,500% on an incredibly difficult molecule (yes, that’s correct)! My stuff is ready for military deployment as well because it can save soldiers’ lives in the field.
So our risk profile is not only near zero, but we’re also generating revenue. Yet we still can’t get one bit of next-round funding. So it’s back to the drawing board to figure out what we need to do better or differently.
I could cite the many books I’ve read and wise advice I’ve gotten from millionaires and billionaires. But instead, I’ll share five tips based on my own experience that may help you succeed:
1) Build relationships with your investors. You’re getting into bed with them. More importantly, they’re getting into bed with you! This is a marathon, not a sprint. Having sophisticated investors is crucial and communicating with them on at least a quarterly basis is essential.
2) Always be on the search for the next round of funding as well as ways to save money. I got $10k of glassware for free, tons of surplus chemicals and free furniture. I built my own fume hoods and bought most of what I needed from eBay, Home Depot, aquarium stores and Amazon. And we still hunt for funding to make those next milestones.
3) Make sure your investor has the same vision and realistic understanding that you do. The worst thing you can have is an investor who has no clue what you’re doing or why.
4) Your job is probably the hardest in the world. You’re trying to find not only a very rich person (likely the top 1%) but someone who is also a maverick and not afraid to draw outside the lines. Be careful of Rule 506, Regulation D. (Don’t know what it is? Look it up on the SEC website.)
5) Everybody hates attorneys, but spend the money! They’re worth every penny, and maybe even your first-born child.
I really hope that this piece helps all of us in the CEBIP community who are trying to change the world, one hard-earned dollar at a time...