Elana Fine, managing director of the Dingman Center for Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, participated in an online chat with readers last week. Here are excerpts:
Q. What are your thoughts on getting involved in an existing franchise vs. starting my own company?
Elana Fine: It depends on your risk tolerance and the current opportunity. Franchising can be a rewarding route to start a business with a model that has been well tested. Like any start-up, it has it challenges, but it gives an entrepreneur an opportunity to operate an established brand. That being said, this is quite different than pursuing your own idea, dream and passion and seeing something grow (or fail). The latter may have higher risks because the idea and market is unproven, but more potential for upside.
Q.Have you owned a business? How did you become an expert on start-ups?
Elana Fine: I was an early employee at a start-up, technology-focused investment banking boutique. Our team was growing our own business while also advising early stage companies on raising private capital and buy side/sell side acquisitions. We worked with a variety of technology companies and often helped refine their growth strategy and business model to prepare them for venture financings or for exit. In my current role, I work closely with many student start-ups, as well as regional entrepreneurs.
Q.I know that it takes time to build a business. What is a reasonable amount of time to give a business before knowing if it has been successful? I guess the real question is: How many months of expenses should a person have when getting started until the income becomes regular?
Elana Fine: Ooh, that is always a hard question because it really depends on the type of business. If you are starting a restaurant, you may start generating cash flow sooner than if you are developing cancer drugs. I’d say two things:
Depending on your idea, you want to put a plan in place to score card yourself to know if this is an idea worth pursuing or whether you should pivot or lick your wounds and admit “failure.”
Always assume it will take twice as long and cost twice as much.
Q.I’m thinking of starting a tech company. Should I build it here in D.C. or move somewhere like Silicon Valley or N.Y.?
Elana Fine: STAY HERE! There is a thriving ecosystem of technology entrepreneurs and mentors — regardless of what you might otherwise hear . The community is supportive and collaborative with a deep bench of seasoned executives. The imminent decline in government spending should also free up tech talent who, after some soul searching, might find working at start-ups more rewarding than consulting firms. There is a funding issue, no question, but there is also a lot of expertise in grant funding and other non-dilutive financing.
Q.Is one age better than another for starting a business? I know that experience and age go together. I have known several people who reached their mid-50s or early 60s who decided to become consultants and cut back from their full-time jobs. I know college graduates who are used to living on a shoestring budget and could take the chance. But, I am somewhere in the middle. I am used to my current income level, but not my current job situation. I know that I could offer my services and have a better quality of life, but I am not sure if my finances would agree.
Elana Fine: Entrepreneurs are like marathon runners (in many ways) — they come in every age, shape and size. Young entrepreneurs are fresh with fewer financial burdens — and have the energy it takes to get ideas up and running. But they are inexperienced in hiring and managing teams, developing customer and channel partnerships, and often impatient with the ups and downs and highs and lows of starting companies. Identify your skill set as an entrepreneur and look for co-founders that might have complementary skills. There is no question your bank account will take a hit, but sounds like being your own boss might be worth the trade off.
Q.What is the Cupid’s Cup competition I saw a mentioned on the Dingman Web site?
Elana Fine: Cupid’s Cup is a national business competition, sponsored by Kevin Plank, founder and chief executive of Under Armour, for students who are currently running businesses. Five finalists will compete for $50,000, and access to Kevin Plank’s network, on April 5th here at the University of Maryland.
Q.As you know, Europe is in the midst of economic crisis. What is the best business that could survive this economic turbulence? Even big companies have already collapsed.
Elana Fine: The businesses that are most agile and proactive are more likely to survive. There is no magic formula — but if you are starting a business and expanding internationally, you need to think carefully about which markets to approach first. Those that are more unstable might be lower priority. Other emerging economies with vibrant start-up cultures, such as Brazil, might be a viable option.