Being an entrepreneur is an irrational act, said Jason Cohen, founder of five startups.
In the corporate world, employees can make steady six-figure salaries as executives. But entrepreneurs don’t.
An entrepreneur often forgoes a salary for years and drains his or her bank account, Cohen said. And in the end, the venture will probably fail, which means you just blew your savings, he said.
The stress, the daily grind, the expense and the time make the entire endeavor sound pretty miserable, Cohen said. And yet, entrepreneurs do it, he said.
“To me the reason we do this is we have a genetic defect,” Cohen said. “We want to do this to ourselves even though it is not rational. I don’t know if that’s ego.”
Cohen compared the practice of entrepreneurship to someone with a mental disorder who cuts himself or herself all the time, except it’s mental.
But this is why entrepreneurs tend to be serial entrepreneurs, Cohen said. It’s the only thing they can do really, he said.
Unicorn #2 at SXSW
On Friday, Cohen moderated a panel at South by Southwest titled “Unicorn #2: How Entrepreneurs Choose the Next Idea.” The panel featured successful serial entrepreneurs from Austin including Dean Drako, founder of Barracuda Networks and Eagle Eye Networks; Bob Fabbio, founder of Tivoli, White Glove Health and eRelevance Corp.; Vinay Bhagat, founder of Convio and TrustRadius. Cohen has also founded Smart Bear Software and WP Engine.
The panel was presented by Capital Factory, a downtown tech accelerator and coworking space, which Cohen described as the center of entrepreneurial activity in Austin.
“Many great businesses start out with big ideas,” said Fabbio.
In the late ‘80s as companies started moving from mainframe to network computers, Fabbio started thinking about ways to manage complex heterogeneous networks of computers. He wanted to manage those networks as a single computer and do it with a graphical user interface.
“I had no idea what it was like to run a company,” Fabbio said.
In 1989, Fabbio quit his job at IBM and launched Tivoli Systems with no money. The company created one of the largest software categories in the world – Enterprise Systems Management. The company went public. And IBM acquired it in 1996.
In 1989, Austin was a sleepy town, Fabbio said. Tivoli lacked clarity and culture, he said.
“We didn’t understand what business we were in or how to make money for many years,” he said.
Today, Fabbio is on his eighth startup and tenth CEO gig. He has also been a venture capitalist. And Austin is now an entrepreneurship mecca, with a great support system at Capital Factory, he said.
Fabbio founded eRelevance Corp, a next generation marketing system for healthcare providers to better engage their patients.
Unlike Fabbio’s experience at Tivoli, this time he worked really hard to address the “whats” to define the business. He addressed questions like “What is the target audience? What is the business model? What is the distribution model?”
In 1999, Bhagat, founded Convio, a software platform to help nonprofit organizations engage people and raise money. Blackbaud acquired Convio in 2012 for $325 million
“We took this concept to market and basically changed the way nonprofits raised money,” Bhagat said.
“My new company was born out of a challenge we faced building Convio,” Bhagat said.
In 2013, Bhagat founded Trust Radius, a website with reviews of business software which aims to become the Yelp of business software.
Every time Convio needed to buy technology to scale its operations it was a pain, Bhagat said.
“The question I kept asking myself – when you buy technology – it’s really difficult,” he said. “There’s no source of credible intelligent about software.”
Now Trust Radius is changing the way software gets bought and sold, Bhagat said.
Dean Drako has started five companies during the last 25 years. He bootstrapped three of them and raised VC funds for two. The most successful one Barracuda Network, founded in 2003, created an appliance for $2,000 to put in front of an email server to stop spam and other bad stuff, Drako said. He sold the product as a subscription model for hardware, which turned into a recurring revenue stream.
As an entrepreneur, the best problems to solve are the ones you understand intimately and personally, Drako said.
“All of the companies I’ve done and continued to do are based on personal problems I’ve faced in one of our businesses,” he said.
All the products focused on Barracuda were products Drako understood. He also understood the marketplace and he could get his head into the customer’s shoes.
In July 2012, Drako founded Eagle Eye Networks, a cloud-based video security company.
Cohen built four companies and sold two. He founded WP Engine, the world’s largest provider of WordPress hosting.
How to decide on what idea to pursue?
Before pursuing an idea, an entrepreneur should make sure they have clarity around the business definition.
“It’s much easier to sell painkillers than it to sell vitamins,” Drako said.
He looks for a product that he can build and a customer who is willing to pay money to get the product.
“I meet a lot of entrepreneurs who fail to make sure the customer is able to pay money for their product,” Drako said.
“The most precious asset an entrepreneur has is their time,” Bhagat said. Evaluate the idea carefully before pursing it, he said.
“I evaluated half a dozen ideas before I landed on this one,” he said.
With Trust Radius, Bhagat launched a private beta to test the idea. He wanted to make sure it had traction before he raised money and committed himself to the project.
All of the panelist agreed that entrepreneurs must do something they enjoy and that they are passionate about pursuing.
“You can be successful at many things, but what can you be passionate about?” Bhagat said.
“If you’re asking yourself whether you’re going to enjoy it, give it up,” Drako said. “You’ve got to have that passion.”
The importance of company culture
Building a company culture is also a key to having a successful startup, according to the panelists.
“If you’re doing a startup for the first time it’s difficult to implement “company culture.” Cohen said. “After you’ve done it once, you identify the importance of culture.”
The key people you hire off the bat define your culture, Bhagat said.
He was very thoughtful about how he hired initially.
“We made sure these people were entrepreneurial, customer focused, collaborative and frugal,” he said. “Those key first people you bring on board set the tone for everybody.”
The management team defines the culture, Drako said. But initially, the team doesn’t have time to define keys to the culture, they are too busy running the business, he said.
Fabbio said Tivoli had a messed up culture early on. He said the CEO defines that culture, but it took him time to realize that.
“The companies that express clearly what their values and beliefs that give employees ways to thrive are far more successful,” he said.
The Entrepreneurial Journey
In the end, most startups fail and run out of money and even the successful ones come to an end, Cohen said.
“Trying to go for a specific outcome is actually not the goal and not the way to spend all the time on that startup,” Cohen said. “It’s not really fun. It’s actually horrible.”
It’s important to find fulfillment on the entrepreneurial journey, Cohen said.
“The promise of entrepreneurship is to build a life that is fulfilling in a certain way,” he said.