The Seven Key Factors for Success as an Entrepreneur
Keith J. Krach (BSIE ’79, DEA 2006) is a founder and former chairman and CEO of Ariba, the leader in business-to-business e-commerce. Keith also was the youngest vice president in General Motors history and was the Ernst & Young National Entrepreneur of the Year in 2000. He is past international president for the Sigma Chi Fraternity and is a member of Purdue’s Board of Trustees. He is CEO of 3points, LLC, an investment holding company.
It was not long ago that engineers graduating from Purdue leapt at the chance to join an established company like IBM or GM to begin their engineering careers. Today, engineers are increasingly taking the risk to start their own companies and become entrepreneurs. However, while technical knowledge gleaned in college is critical to the product or service being developed, it is not enough for entrepreneurial success. Rather, engineering entrepreneurs need to know how to build a company that creates lasting value. After 10 years with GM and 20 years as an entrepreneur in Silicon Valley, it became clear to me that there are seven key factors that maximize the probability of taking something from a concept to a great sustaining company and achieving escape velocity:
A Big Market:
Always look for a big market for the product or service being offered because, with a big market, there is more opportunity to maneuver and more opportunity for growth and profit. If possible, identify a market undergoing a paradigm shift. An example of a significant paradigm shift was when the software business moved from a client/server architecture to the Internet. When such shifts occur, the existing big players go back to ground zero, opening up the market for new innovative players.
Fifty percent of Silicon Valley startups fail each year, not because they suffocate from a lack of opportunity, but because they drown from lack of market focus. The key is to segment the big market, determine in which segment the product or service can be differentiated, target that segment as the initial beachhead, and then fan out from there.
Always keep the company positioning simple and clear. The most intellectual exercise is taking something complex and making it simple. Executives and employees must be able to describe what their company does in a few words in order to execute, differentiate, and dominate in the chosen market.
You can have the greatest strategy in the world, but if you cannot execute, you will fail every time. Have a management system that sets clear annual objectives, quarterly goals, and assigns ownership to each. Measure everything. Put metrics in place to evaluate progress and hold leadership accountable, especially yourself.
A Real Business Model:
Revenue is everything. Successful business opportunities are not based on hope or conjecture; they are based on revenue minus expenses. Making a profit is an unnatural act, but entrepreneurs must have a real business model that can generate cash, not just hype.
The Right People:
Simply put, the company with the best people wins. This is the most important factor in building a great company. Institutionalize the team rule—“hire the best people, especially if they are better than us.” Magic happens when a leader inspires great individuals to work together as a team. That is synergy. That is one plus one equals one hundred.
Once the right team is in place, it needs time to make the magic happen. In business, time equals money. Raising enough capital is essential. Whether you are reaching out to contacts, venture capitalists, or banks, showcasing past successes, passion, and potential will ultimately convince someone to take that risk.
These seven success factors will maximize the probability of building a company with lasting value. With these in mind, engineers can readily become the great entrepreneurial leaders of tomorrow