Over the course of my career, I've been involved in both building companies from scratch and in purchasing companies.  While most entrepreneurs in high tech go the first route (building companies from scratch), in other industries, it is more common to purchase an existing business.  Each approach is fraught with its own perils.

One big advantage of starting from scratch is that you can bootstrap the company.  You and other founders can start up with very little overhead, growing incrementally as business develops. 

While purchasing a business costs money up front and comes with overhead, an existing business will already have customers and income.  If the business was well-run, it should have financial systems in place and a team that drives administration, sales, product/services and support.  The day you close the purchase, you can hit the ground running.  You can probably even take home a decent paycheck - enough to support your family without putting your whole life at risk. 

Much like purchasing a home, the business will have intrinsic value which will likely appreciate over time.  Thus, while you may need to come up with money to buy the business, if you've chosen well, you should be able to sell the business at a profit (should you ever need/desire to do so). 

On the other hand, there may be issues with the business itself, its products/services, and/or the team.  Sometimes these things are hard to see from the outside before a purchase.

Worse, unless the business is exactly what you want it to be, it may be too entrenched in its own product/service market to make the changes you want to make, be they growth or new products/services. 

But starting a business is hard.  Ask anyone who has done it. 

You will put in the hours.  You will see less of your family and friends.  You will have less time for non-work activities and interests.  You will put yourself and your family at financial risk.

Add to this the risks in getting started, the time to develop your product/service and get it to market, and the challenge of putting systems and team in place to make the business run smoothly, and you can understand why so many startups fail and why so many founders get divorced. 

If you purchase a successful business, you probably don't have to worry about a possible short-term failure and with less stress on the family, perhaps the divorce can be avoided too. 

You might argue that you'd miss the thrill of doing it all yourself.  Maybe it's true.  However, I'd counter that any business is a challenge and starting with a stable platform may allow you to more aggressively focus on what you want to do rather than having to deal with the necessary, time consuming tasks that are part of any business, but which will distract you from what you really want to accomplish in a startup. 

Okay.  Buying a business is not for everyone.  But for those who can find a well-run business in their area of interest which can provide a springboard for the next great idea, it's certainly worth considering.  And if you find the right seller, e.g. someone looking at retirement, you might be surprised by how easy it is to finance the purchase.

One of the guys I surf with told me a harrowing story today.  He's suddenly facing major financial problems.  He's been working for a company that supplies high-end construction components.  He does sales, helps with design, and supervises installations.  His largest customer is a major contractor in the Silicon Valley. 

Over the past few years, this customer has given him more and more work and started generating a nice income for him.  He focused on this customer because they were the fastest way to success.  He and his wife are in escrow on a house and life looked good.  The customer even suggested he start his own company - they would go with him. 

Then disaster struck.  One of the components failed.  It was the manufacturer's fault, but the customer needed a scapegoat and terminated all contracts with him and his company.  He lost 80% of his income because of something that wasn't his fault.  Fortunately, he still has a job, his wife is employed, and he can hopefully start rebuilding a more balanced client base. 

Since he was looking at starting his own company, I told him my own horror story of relying too much on one customer, emphasizing that this is an important lesson to be learned by anyone forming a startup.  I call it the one-customer syndrome.  As tempting as it is to all of us, it must be avoided.

When I formed Syzygy Communications, my first startup, I decided to bootstrap it.  I began by doing strategic-level consulting for a number of large networking companies and performing technology evaluations for Venture Capital firms.  It was lucrative, fun, and offered me visibility into potential product/service opportunities. 

One of my customers was IBM.  I had completed an architecture project for them and the manager of the project asked me if I could build the product for them.  I put together a team of contractors and we went to work.  That project led to another, then another.   Within a year, I had 25 people working on IBM projects in different divisions across the country. 

With the rapid growth of Syzygy and reliable revenue pouring in, I converted most of the contractors into employees, promising stable income, great benefits, vacations, the rewards of working with a team, and all the things that independent contractors have a hard time getting on their own. 

I expanded our office space and staff, bought the best equipment, software, and tools for my team, and put forth the image of a successful company that we deserved.  We got a receivables line of credit from a local bank. 

The bank had a policy that if a single customer represented more than 50% of the total receivables, they would limit their line with respect to that customer.  I ultimately convinced them that each IBM division was a separate entity and each division should be treated as a separate customer, so we didn't have a single customer that represented 50% of our business. 

I honestly saw the divisions as separate customers.  I had separate contracts with completely different terms and was paid from different places. Knowing the size of IBM and the independence of the divisions, I felt safe.  If one division had problems, others would be fine.  But in a reality I refused to see,  IBM represented nearly 80% of our business. 

As you can probably guess, in the midst of a minor recession, IBM had a reorganization.  Corporate dictated that all outside contractors had to go.  Within a few months, we had zero business from IBM. 

We scrambled to replace the projects with work from new customers, but our dedication or perhaps addiction to IBM had enabled us to ignore other opportunities.  We had to start almost from scratch.  And closing new sales takes time. 

Of course at that point, we had the overhead associated with nice offices and thirty employees.  We drew on our line of credit, hoping to bridge to our new contracts.  It looked like we were almost there.  Unfortunately, because of this same minor recession, our bank was acquired by a foreign bank who decided to get out of what they considered the risky high tech industry.  They called our line - demanded immediate repayment.    Syzygy was in trouble.

For me personally, this was a complete disaster.  My integrity was on the line.  Most of my team had given up their own businesses because they had faith in me and in the future of Syzygy.  My team was my family.  And now, the situation dictated that I had to layoff the majority of them.  It was difficult for them and humiliating for me, but I learned a lesson. 

We reduced the size of the company to ten people and started rebuilding.  We never again allowed ourselves to become dependent on one customer for our survival. 

Ultimately, we rehired most of the people we'd laid off.  Syzygy became one of Red Herring's top ten companies to watch, as we developed a world-changing technology that should have made us rich.  But that's another story (which is chronicled in The Silicon Lathe). 

Bottom line?  Bootstrapping a company is hard.  It's easiest if you have customers who can pay your way.  But the one-customer syndrome can be fatal.  I gave an example of financial dependence.  But even if you can avoid financial dependence, that one customer can demand too many of your resources.  What seems to be focus on this customer's needs can prevent you from building the best product/service.  Tunnel vision may cause you to miss the market altogether because your view is so narrow. 

So, for multiple reasons, avoid the one-customer syndrome at all cost.

Years ago, I was surprised when a group of sales people I was working with made a  bet on who would earn the most money for the year.  The losers had to chip  in to buy the winner a Porsche.  

Countless times since, I've  heard colleagues talk about leaving their jobs because they could make more money elsewhere.  And as I mentioned in Eliminating Performance Reviews, even some of the best companies tie money to performance and vice versa.   

Is money really the big motivator?  If we pay our team members more, will we see a corresponding increase in productivity and creativity?   

In my post Managing the Best of the Best, I discussed my philosophy in managing a startup team.  In that and subsequent posts, you can probably see that I'm really focused on motivating a team.  For me, the team is the company, and keeping that team motivated is the most important part of my job as a CEO and for all managers in the company. 

If money were the answer, I would have done my best to make sure my team members were paid more than they could receive anywhere else.  Of course at one point, I was competing for engineers and Cisco had over 5000 reqs out.  There's no way I could compete with the compensation packages that some of the industry giants offered.  I certainly hoped money wasn't the primary motivator for engineers.  If it was, my startup was doomed.

So how can a startup compete? 

To be successful, we need to know what it is that motivates our team members.  At first glance, it may appear that people are motivated primarily by money, or for those who join a startup, by the promise of future money.   To some degree this is true.   Everyone needs to make a fair wage to work productively.  I have argued that eliminating things that interfere with a person's ability to do their job, whether money issues, healthcare expenses, or inflexible schedules, will certainly improve productivity and build team members' loyalty to the company.  But if another company can offer similar things, how do we motivate our team members to stay with us and do their best work? 

Although the research has been around for years, most organizations and managers fail to realize that promising rewards or compensation for creative tasks actually decreases creativity.  It appears that having a dangling carrot causes people to focus on how to get to the carrot, not on doing the best job possible. 

So ultimately, once a team member's basic needs are met, compensation will not be the primary motivator.  What is?

It's tempting to say that motivation is different for different people.  But aside from the  salesperson who wants to make the most money possible, if we think about engineers, construction workers, healthcare professionals, CEOs, lawyers, pretty much any profession, it certainly seems like there are common threads that motivate these people to pursue their careers:

Making a difference -   whether it's the engineer creating the next great thing, the nurse helping the sick or injured, the construction worker building something to last, the CEO founding a company, or the lawyer pursing a case, all of us want to make a difference.

Be challenged in their daily work - mundane work is boring and can be the quickest way to lose a team member.  Of course there are always tasks that we don't want to do.  But as long as they're complemented by challenges that make us stretch, we remain interested in our work.

Opportunities for Growth - Most of us do lose interest if our job never changes, if we never learn anything new.  Hand-in-hand with being challenged is that we need to see that we can grow as professionals in whatever we do.  The French have a word that describes this best: épanouir.  There really isn't an English equivalent.  It's kind of a combination of enrich, grow, and blossom.  That's what we all want to do.

Recognition - While there are some of us who can work tirelessly with no one ever noticing, the vast majority of people work better if they know that their efforts are appreciated.  I have a former employee who received a small plaque nearly twenty years ago recognizing his achievements.  It still sits on his desk.  Cash bonuses he received were spent long ago and I doubt he can remember what the bonuses were for or where the money went.  Recognition doesn't have to come in the form of money.

As CEOs and Managers, we can motivate our employees.  If we take care to ensure that their basic needs are met and then focus on keeping them challenged, offering opportunities for professional growth, showing them that they are making a difference and recognizing their efforts, we will help them grow as we ensure the success of our company.  To me, this all comes down to that basic philosophy that IBM championed many years ago: Respect for the Individual.  Respect them and they will give you their best.

As for the salespeople who are only motivated by money?  Well, maybe there's actually more to it for them too.  I suspect that if we look closely, behind all the bling, we'll find that each and everyone of them is motivated by exactly the same things as everyone else.  For them, like the rest of us, money is just the frosting on the cake.

It's April Fools Day.  My wife might consider this a joke blog posting. 

A few weeks ago I bumped into a former associate on Facebook and LinkedIn.  He's a technologist and serial entrepreneur who has had some significant successes, but whose latest company, even after raising two solid rounds of venture funding, didn't make it.  I read the press when it happened and heard a lot of speculation about VC interference, competitors using unethical tactics, pushing a product to market too fast, quality issues, and improperly-set customer expectations.  Most of the industry analysts at the time thought the company could survive or even thrive, but that the VCs had pulled out too fast.  All or some may be true, but knowing my former associate and his technological prowess, I suspect management of VC expectations may have been at least a part of the problem.  I'll get the full story when we meet for lunch in a week or so. 

Once we'd reconnected on the social networks and set up our catch up meeting (he's out of the country on a well-deserved vacation), he asked me a very pointed question:  Am I DONE?

I suspect he's nearing the same place I was when I decided to pursue writing for a while.  While it may look glamorous from the outside, the Silicon Valley can be a cutthroat place.  The best technologies don't always win; the hardest working don't always get rewarded; and you can do everything right and still end up down and out - or at the very least, viscerally discouraged. 

When I stepped out, most of my former team as well as executive level friends and other entrepreneurs predicted I wouldn't last six months.  My dream of writing, staying in great shape, and pursuing the sports I love wouldn't stand up to the excitement of developing new technologies and getting them to market. 

To some degree, they were right.  I do miss the technology and my team.  I stay current on what's going on, but I rarely design a new system or see it solve a customer problem.  Managing my team, doing my best to encourage their professional growth, and seeing them accomplish things together that would have been impossible alone, inspired me.  And, writing is a solitary pursuit.  I spend a lot of time alone.  Still, I don't miss the stress, the long hours, being available 24x7,  or seeing world-changing technologies crushed by the big guys who feel threatened.  But am I really DONE?

Not long ago, I came up with an idea that would take advantage of new systems which collect medical records electronically to predict outcomes of treatments based on history, genetics, environment, etc.  It seemed particularly fortuitous because not long after formulating the idea, while waiting for an EV charging station,  I met the head of strategic partnerships for a major medical manufacturer.  They were interested in predictive outcomes based on analysis of application of their equipment in treating cancers - what an amazing coincidence - it must be fate!  He seemed to think he could raise sufficient funding to build a prototype.  Maybe I wasn't DONE after all. 

I discussed the idea with my wife as well as with a couple members of my former team.  My wife was shocked.  She'd been working hard to get her business to a place where she could exit to join me in retirement and now I was going back into startup mode with all the stress.  And I was going to abandon her? 

Of course my team members were enthusiastic.  I started laying out a business plan.  Then I had a second thought.  Did I really want to do this?  Maybe I could just get it started, build the prototype, line up at least the first major customer, raise some funding, and step out. 

I contacted a VC friend who convinced me that the medical industry was a mess I didn't want to step into.  He urged me to enjoy my 'retirement': pursue my sports write, relax.  Sadly, it didn't take much to talk me out of it.  So maybe I was DONE.  Of course I've since learned that he had just retired when he gave me the advice that he was following himself. 

So, am I DONE?

Well, I am meeting with this former associate.  He's a brilliant guy and a great technologist.  I'm pretty sure he's looking for ideas for his next startup.  On the other hand, maybe he just wants to know what it's like to be DONE.  But ultimately, who knows what will happen when  two technologists who are both former entrepreneurs decide to brainstorm over lunch?