Sequestration could lead to more start-ups in D.C. area

March 17, 2013

Elana Fine, managing director of the Dingman Center for Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, took questions from readers last week. Here are excerpts:

Sequester

Q.: Do you think the sequester will have a chilling effect on start-ups in this area, or just larger companies?

Elana Fine: I’m sure most people won’t agree with me, but sequester could end up being one of the best things to happen to this region. I don’t mean that we should be cheering for furloughs, but there is a federal spending bubble that is going to pop. Our region has been insulated from the impact of the Great Recession. Rather than starting high growth technology businesses, our top talent is working for government consultancies. There is now a higher risk to working in/for the federal government, so the trade-off to start a business has changed. If you are sitting at your desk right now, unsure of what lies ahead, and see a market need that matches your skill set, start thinking about starting something of your own!

Define ‘start-up’

Q.: Are all new businesses considered a start-up or is that term reserved for new businesses that are breaking ground by offering something new?

Elana Fine: Start-up has typically referred to a technology company in a high growth field. We rarely hear the phrase “I have a start-up nail salon” or “start-up dry cleaner.” They are considered small businesses. (Rightly or wrongly so — I’d love a start-up nail salon that can figure out how to get me in and out in 10 minutes — huge market and I’d pay a premium!) Both are just as hard to get going and are risky.

Daily deals

Q.: I am interested in starting a daily deals site for guys in their 20s and 30s. I have also read about the troubles of Groupon and LivingSocial. Do you think that this market is oversaturated? I have a great business plan and believe I have some seed money.

Elana Fine: I’m just going to answer this with one word: YES. These companies have shown the customer acquisition and sales costs are very high and unsustainable. Hyperlocal is hard. Merchants haven’t seen the kind of customer loyalty they were promised. People are tired of daily deal e-mails and can’t get through the noise. Plus, there are already a few companies out there targeting that space.

Intrapreneurship

Q.: I don’t want to start my own business, but I often think of new initiatives I’d like to launch within the company I work for. What do you think is the best way to go about introducing my ideas without stepping on any toes?

Elana Fine: Like launching a new company, starting something new requires a lot of selling. You need to be able to pitch your idea to the right people, to build coalitions, identify your target customers and their pain points. You also need to be able to identify resources needed within the organization and a clear road map to get a minimal viable product. Be clear on the “what’s in it for us” — does it help the company beat out a competitor, get to market faster or produce cheaper? Just like a start-up, you need to be tenacious and often not accept “no” for an answer.

Work from home

Q.: What is your take on the Marissa Mayer (above) work-from-home controversy? Seems like working from home is a great way to keep costs down for a start-up and a big company like Yahoo. She is on the wrong side of work/life balance.

Elana Fine: Hmmm ... I actually think the policy has nothing to do with work/life balance, but on fostering corporate culture. Just like companies have different products, they also have different corporate cultures. Anecdotally, I agree that innovation happens when people are in the same room. I see it with my team, with the start-ups we work with on a daily basis, the magic often happens when people are sitting in a room together. If you are Yahoo and you need to compete against Google, Microsoft, etc., you need to do everything you can to foster a culture of innovation and creativity, or you won’t survive. There are other ways to offer flexibility — on-site day care, flexible work hours, etc. We can’t expect every company to have the same definition of work/life balance.

Start-up funding

Q.: What if your network of friends and family is small in your area, like D.C.? Who are the best people to approach to get seed capital without giving away too much ownership early on?

Elana Fine: It really depends on how much money you are looking for and the stage of your company. Quite truthfully, it is very hard to find outside funding if you haven’t already started building a product. The D.C. area does have the benefit of being so close to federal grant funders like the National Science Foundation and National Institutes of Health. The process can be long, but worth it for non-dilutive funding. You hear a lot of stories about entrepreneurs maxing out credit cards to manufacture their product samples. Some companies have had recent success using crowdfunding sites such as Kickstarter for launching products. Look for creative ways to get products built, look for people to join you who might have specific skills sets to trade for equity, find early customers who might understand your pain point and fund some development. The bottom line ... you have to be entrepreneurial about being an entrepreneur.

Entrepreneur skills vs. management skills

Q.: What management qualities are important in an entrepreneur? I’ve worked for several entrepreneurs who had great skills for starting a business on their own, but failed at communicating and letting go once they needed to work with their staff.

Elana Fine: If you talk to employees at many start-ups, they will likely tell you that their bosses are impossible! The mind of the entrepreneur is always on overdrive — thinking of new ideas and new directions. The most successful entrepreneurs learn to balance between being focused while also agile. They understand that employees can’t always read their minds and that they have to slooowwww down at times and make sure they communicate the path forward. You need to build an organization and culture where the team feels part of your dream and your vision rather than just worker bees.

Comments
Show Comments

Sign up for CapBiz A.M.

Get the daily business newsletter for Washington.

Most Read Business