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Milton Chang and I have been partners at Incubic for nearly five

years, where we have shared our business experiences. We have an

approach to growing companies we refer to as building a business prototype.

We have steadily evolved our approach to help early stage businesses.

Milton’s book, Toward Entrepreneurship, contains practical advice from a

successful businessman who wants to help entrepreneurs achieve success.

This talk starts with rapid, global-scale transformations that will

spawn new business opportunities. From that broad perspective, I transition to

practical matters about starting a business and alert the aspiring entrepreneur

years of challenges will be ahead. For a first time entrepreneur, trying to build

out rapidly can be perilous. Being the first mover is worth questioning.

Committing to being a smart follower may be the winning marketing strategy

for a particular business.

By building the business as a prototype, the executive team will

develop functions critical for initiating revenue, testing the market, and

exposing weak or flawed assumptions influencing buying decisions of

customers. The process is analogous to functionally prototyping a complex

product. By analyzing performance data, improvements can be made.

Through early engagement with the market, the business can examine its

strategy, adapt, and improve before committing to scale up.

My talk ends with take-home points for the entrepreneur.

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Most people want to live healthier and longer. Pharmacopia

and electro-chemical implants will enhance our mental and physical

capabilities and promote emotional well-being. The biosphere will yield

solutions for enhancing cellular repair rates to extend high levels of vitality up

to life’s end, and for increasing life expectancies well beyond 100 years (The

Buck Institute for Age Research, www.buckinstitute.org).

The human body will be supported, supplemented, and

enhanced by non-biological systems, worn and internal. The distinction

between our natural and technological selves will be blurred. (The Singularity

is Near, Ray Kurzweil, www.singularity.com) Some people will choose to be

human/machine hybrids; some more machine than human.

Robotics will rapidly grow in utility to humankind during this

century transforming commerce and our lives. Machine-based sensing,

intelligence, and functions will become ubiquitous. Robotic assistants may

become the best trusted companions of people with special needs.

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Faster-than-exponential growth of Information Technology (IT) will radically transform communications. Our desire to communicate undeterred across distance and time to anyone, anywhere, anytime is steadily being fulfilled; to be globally connected at a personal level; interconnected in seamless flows of information; no boundaries for messages, images, data. Language translators, run on smartphones or worn on our bodies, will obliterate communications barriers, help bridge cultural divides. Virtual agents will be our proxies to friends, families, employers, and others. Rudimentary forms already routinely serve us; they suggest products, pay bills, transact emails, and locate us. Though crude, all are on an accelerating evolutionary trajectory. Could new forms of mass awareness emerge ? Will large group actions become commonplace?

The cost per bit has been following Moore’s Law for decades and has at least another decade ahead. Information storage will soon be essentially limitless for most people. An entire lifetime of images, messages, correspondences, and actions stored for posterity, your legacy, your personal history, in a thumb drive. (Gordon Bell’s “MyLifeBits” set the scale of the required storage volume.) Nearly one billion people already have profiles online. Your online persona is distributed on multiple servers and aspects of it will outlive you.

Concerns about heat dissipated by electronics will not slow the acceleration of information technology. Power dissipation in microprocessors and high-speed memories will be reduced through new materials, new memory technologies (e.g., spintronics-based STT-RAM), new transistor architectures. Global advances in nanotechnology are providing solutions.

Electro-photonic communications will enable mining information across large server farms by transporting data at rates orders of magnitude higher than electrical signaling.

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High value chemicals will be produced at lower cost by using catalysts engineered at the nano-scale or manufactured sustainably by co-opting and modifying nature (bacteria, algae, plants) and engineering it to be a producer. Vats of micro-organisms produce large molecules highly valued for medical and health applications, and may someday compete with chemical factories for lower value products.

The automotive industry will remain under attack. The barriers to competition erected by internal combustion (IC) engine intellectual property (engineering, manufacturing, and supply chains) will be obliterated by electrifying the automobile power train. Cost reductions of high capacity batteries will destroy market dominance of today’s purely fossil fuel burning vehicles, replacing them with either all-electric vehicles or plug-in hybrid electric vehicles, whose IC engines will be simplified and optimized for hybrid propulsion. Innovative car companies will arise to erode market positions of established automotive producers, and will be better able to serve a fragmented global market.

In summary, big trends, accelerating IT growth, and fundamental discoveries will spawn many opportunities for starting a business.

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Imagine you have a hot business idea for serving a huge

market. Do not expect to quickly grow wealthy. You will likely put in ten years

or more. Your financial gain may be acceptable, not spectacular. The stories

of individuals becoming super rich through IPOs are often fascinating.

However, even gaining moderate wealth through an IPO by a

founder/executive has a low probability, less than 1%, assuming he/she has

survived and not been significantly diluted by multiple rounds of VC

investment. Many venture-backed companies become “living dead” if they

require too many rounds. In such a scenario, investors may lose confidence in

the CEO/founder and replace him/her with one of their “proven” performers;

control of the company would shift toward the investors.

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Enter your first business opportunity with an understanding that you will work hard for many years. Have a personal goal to become a respected member of the business community by having delivered a good return to your investors, built a valuable business, and be considered an excellent prospect for building another company. Becoming wealthy quickly or truly feeling like you are your own boss are often dreams. They are wrong motivations. It takes years of hard work to build a business and the odds are against you becoming wealthy. As a CEO, you must be a tireless contributor to growing your company. You must answer to investors, employees, customers, suppliers, corporate directors, and others.

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Please keep in mind that investors have many choices and the major ones see many investment opportunities. To them, technological competitive advantage is a necessary but insufficient condition for building a technology company. While you may be enthusiastic about the technology, and they will expect you to be very enthusiastic, they will want more to hear a compelling business story, one resulting from a deep understanding of the market opportunity. Prospective investors will be prone to find reasons why they should not invest in your business. It will be a challenging task to persuade them to listen to your entire pitch and much harder to convince them your business is a worthy of their investment. Consequently, you must prepare very well before you approach investors.

Investors will focus on your explanations for … why the product will be competitive, if the product idea is financeable, do you have a good business strategy and the right model for building the business, is your need your capital acceptable, and how and when will the investors gain an attractive ROI (within the horizon of their fund, if a VC fund.)

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There are circumstances when being the first to market with a product makes very good business sense. For example, being the first to launch a new drug to the medical profession could secure enough doctors to keep other offerings out of the market for years. Unfortunately, the goal to be first-to-market is more often dogmatic than logical. It is a goal that a veteran CEO backed by deep pockets is more likely to achieve than a first-time entrepreneur, because of the compounding of risks. The assumption that you must be the first mover in the market warrants scrutiny.

Instead, if you choose to be an astute follower in the market, one committed to steady, evolutionary growth, you can learn from the pioneers’ mistakes, strengthen your intellectual property portfolio to better include customers’ preferences, i.e., “user experiences,” develop your business in logical steps, and avoid wasteful decisions and actions.

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An entrepreneur can better identify and make strategic decisions vital for efficiently using resources and achieving a satisfying ROI, by developing his/her business from its onset as a “prototype.” Take a systems perspective when architecting your business model. Identify and show inter-dependencies of each function. Write top level objectives and milestones for building each function. If the entrepreneur sharply focuses on winning a first customer, and, if the culture for developing the product and prototyping the business are solutions-oriented and customer-centric, the business team will gain Intellectual Property (IP) capturing “user experiences,” make market-relevant choices on the design of their product, gain insight from opinion leaders, one possibly serving as the first customer on a sampling basis, improve their understanding of market positioning, and learn how to make their product valuable to other prospective customers. The knowledge gained during execution will evolve the business by strengthening its market potential. The business will grow and adapt to its early and evolving understanding of the market.

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If the first-time entrepreneur focuses on what he or she knows

and does best… namely, applying and adapting technology to develop a new

product of sufficient maturity to successfully “signal” the market … he or she

will use capital efficiently to arrive at a juncture where the company will be ripe

to be acquired or be scaled into a larger operation. What if the entrepreneur

must then decide between securing a mix of venture capital and debt

financing to fill early customer orders or selling the business at its current

stage of growth? A mature prototype of the business, one validated during

execution, will provide an invaluable context to the entrepreneur for making

this critical choice.

By validating the business as a prototype, the entrepreneur will

have rendered scaling feasible and developed an actionable plan on how to

expand the business, thereby reducing the acquirer’s risk. With the help of an

investment banker, the event of being acquired could yield a satisfying ROI.

(Sometimes when selling the start-up, a good business story can raise the

value without adding risk to the stakeholders. To the acquiring company, a

good deal is one that makes effective use of its business infrastructure.)

By prototyping your business, you will be better positioned to

set realistic goals, decide on an appropriate business model, and seek the

right amount of money from the right investor at the right time.

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Intellectual Property (IP) must be regarded strategically

from inception of the business; because, when a product is enabled

with a unique invention made pragmatic by domain expertise, the

acquiring company gains a product not likely to emerge from its

departments. And, if the product’s IP is robust, fundamental, and

captures “user experiences,” the acquirer will be dissuaded from

attempting to copy the product. A prospective acquirer will be motivated

to buy the startup when a time-to-market advantage is important,

provided the business can be quickly scaled.

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Most businesses behave respectfully and honorably. It is in their best interest to do so because their reputation affects their brand, their relationships with customers and employees, and ultimately their future. Even if your eventual goal is to be acquired, plan and behave as if you intend to grow your business for the long haul. By being a strong company, prospective acquirers will be more motivated to close the deal and, if money must be raised, the investors will not cause heavy dilution. Efficiently making good decisions for creating value will support long-term growth of your company.

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You will want to grow your business in a manner that inspires confidence in investors who will be willing to provide adequate capital. In turn, they will expect a satisfying ROI. Evolving your company efficiently and hitting goals vital for growing value will be helpful when you attempt to expand your pool of investors.

Sustaining your company during its early years requires you to manage cost, succeed in market positioning and growing revenue, branding your business, and building a good reputation with your customers.

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Becoming an entrepreneur involves a major commitment. Many

factors affecting your fate will be out of your control. Just when you think you

have solved all problems, you may be hit by a lawsuit. Do you have the

stomach for litigation? Often, lawsuits are brutal.

If you are married or have a life partner, you must be able to

enroll him/her into your plans. Disharmony in your relationship will degrade

your ability to work on challenges affecting your business.

Many factors that will affect your business will be outside of

your direct control. You must remain calm to understand each surprise and

keep a clear head to adapt to changing conditions.

You must be able to think well under extreme stress and pick

yourself up often. You will confront challenges that may test you to your

breaking point. You will have many hours of doubt and may feel deflated.

The three most important components of your business …

Market, Market, Market … think Market first, and technology a distant second.

If you want to succeed, you must become obsessive about the market

opportunity; not be blinded by daily challenges.

Accept candid inputs from others who are stakeholders in your

business. Encourage members of your team to tell you what you need to hear,

not what you want to hear. All of us have blind spots. Discovering them when

you are at a low point can be very painful. Regard yourself as entrepreneur

prototype being steadily evolved.

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The exponential growth of information is changing our lives at

an accelerating rate spawning business. Opportunities for businesses can be

found at the intersections of disciplines and in presently underserved markets.

A foundational education will be valuable, because it will equip you for solving

complex problems.

You will be living a dream of extremely few entrepreneurs, if

your company becomes very large, many jobs are created, you have gained

great wealth, many of your employees have also became wealthy, and you

had vital roles at growing the company from its start up phase to being a

market leader. For each incredibly successful entrepreneur, there are

thousands of pioneers who struggled and have perished or on the verge of

perishing.

If you are willing to make personal sacrifices and remain

committed to building a valuable business, you will gain satisfaction for your

accomplishments and will likely gain a respectable level of wealth.

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Nicholas Colella is a Partner at Incubic Management, LLC and is a Strategic

Advisor to MBio Diagnostics and Aurrion, Inc. Prior to Incubic, he held senior

executive roles at Tessera, Inc., where he was instrumental in executing a turn-

around in 2001-2002, taking the company public in 2003, and helping to grow

its value to $2 billion by 2005-2006. He was the CTO of PolyStor Corporation,

a lithium-ion battery developer and manufacturer in the cell phone and hybrid

electric vehicle market segments in 2000-2001. In 1995-2000, he was CTO

and Executive Vice President of Angel Technologies Corporation, a

broadband, wireless communications company. Earlier, he held senior

positions at Lawrence Livermore National Laboratory, where he led missile

defense programs, and, while there, co-founded nChip, Inc., a multi-chip

module electronics company sold to Flextronics International. He served on

the Board of Grandis, Inc., a spintronics company, acquired by Samsung in

2011. He served as a Corporate Advisor to Greystripe, in the mobile

advertising space, acquired in 2011 by ValueClick. He served on the Board of

Ultracell Corporation, a portable fuel cell developer, and on the Science

Advisory Board of Zyvex Corporation, one of the first nanotechnologies

ventures in the world. He co-founded the National Robotics Engineering

Center at Carnegie Mellon, and served on its Advisory Board. He serves on the

Board of Visitors for the College of Science and Technology at Temple

University. He earned a B.A. in Honors Physics from Temple, and is an

Alumni Fellow. He holds a M.S. and Ph.D. in Physics from Carnegie Mellon.