Re: Why SIAI is a nonprofit

From: J. Andrew Rogers (
Date: Sun Oct 24 2004 - 12:56:39 MDT

On Oct 23, 2004, at 2:37 PM, Ralph Cerchione wrote:
> I can't speak to these exact statistics, but I think there's a great
> deal to
> what you're saying here about novice entrepreneurs. The learning curve
> can
> be critical, and is often helped along by painful lessons individuals
> may
> have experienced in previous attempts. Or at least witnessed.

I don't actually know if 80% of ventures by "experienced" entrepreneurs
are successful, but that is my anecdotal experience. Assuming you can
put together a reasonably good idea, ventures are all about execution,
and that usually gets better with time such that each venture is more
successful (or less screwed up) than the last. There are always those
that don't learn, but they usually stop trying eventually.

After a couple ventures, you've already learned most of the painful
lessons of running a venture AND you are well-known to the venture
capitalists and money people, which is a very significant resource in
itself. A lot of VCs are wary of people who have never failed, as that
tends to indicate a lot of luck and a lack of practical experience with
worst case scenarios. Also, experienced entrepreneurs tend to run in
herds, and when they want to start something, they'll bring in and
attract other experienced folks that they worked with at other
successful ventures, improving the quality of the initial team.

> This is an interesting point, though I think you could add that with
> some
> kinds of smaller business ventures (such as purchasing and renting out
> a
> duplex for significantly more than the cost of taxes, upkeep, and
> general
> property management), the learning curve isn't always so sharp. There
> are
> definitely small start-ups that don't require you to get a seasoned,
> Harvard
> or Yale-trained executive mastermind to run your pretzel stand, for
> example.

I was referring to startups that deal primarily with technological
innovation, the specialty of Silicon Valley and presumably the class of
startup that would be dealing in AI. My prognostication has only
limited application to other lines of business.

> Having said that, I've noticed that the venture I'm in has benefited
> greatly
> from having a number of experienced people around -- generally
> speaking, a
> team where just about everyone is extremely experienced and/or
> talented at
> some key element of the business (the law, our specific field, the
> underlying technology, the needs of our primary customers,
> revolutionary
> product development, etc). We managed to start this company with
> relatively
> little money but with several key people willing to put in enormous
> sweat
> equity.

This is precisely how it is done. No dead weight whatsoever -- a
startup cannot afford it.

A common problem is the useless executive. There are herds of people
that exist to only do "executive-like" things but which bring no
measurable benefit, and survive by hiring their other executive
friends, moving from company to company. These people are often hard
to weed out too until you see them in action. A successful tactic used
at one of my ventures by the CEO and founder when looking for
executives (including his own replacement) was to ruthlessly hire and
fire, forcing them to deliver. Even with a careful screening process
up front, only about one out of three executives actually made the
grade when the pressure was on and the rest had to be fired. A lot of
startups find "experienced" execs but never have the courage to can the
guys when they don't deliver.

That said, the benefit of having a top-notch experienced executive team
cannot be overstated. The founders of most companies are not suited
for the job.

> My point is that if someone here were interested in starting an
> AI-development or related business, there are avenues for attracting
> talent
> that don't necessarily require bucketloads of up-front money. Just a
> thought.

For good talent, upfront money is generally never a factor. The
professionals at this game believe they are making a bet that will pay.
  And if they are good, it often does pay.

> Though I think you have a point about a "really experienced and
> competent
> executive," I think you have to be careful about defining such a
> person. You
> may have a gal/guy who's an absolutely terrific CEO of Exxon, but who
> is
> utterly lost in trying to launch a small software company. Or you
> could have
> someone who is great at managing a huge, status quo company but who
> lacks
> the imagination or daring to try and disrupt existing markets with a
> new
> innovation that renders old product lines (and the companies that
> produce
> them) obsolete.

Yeah, experience has context. Ignoring the incompetent executives, you
still have three classes of executive that tend to be mutually
exclusive: the guys that run established businesses, the guys that
rescue established businesses, and the guys that build businesses. You
find that the executives who are really good at building a company tend
to leave when things start to level off, to be replaced by an executive
that runs established companies, and are the kind that startups need.
Like other startup junkies, they thrive on the stress and dynamics of
building a new venture but get bored after most of the really serious
challenges on the horizon start to evaporate. Finding really
experienced and competent startup executives is quite difficult, but
the reputation and experience they bring with them can easily make or
break a startup.

No startup requires an optimal executive team and you can get away with
a lot if everyone is a competent startup veteran, but it substantially
improves the odds of success if only through the acquired credibility.

j. andrew rogers

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