A LEAP INTO THE ENTREPRENERIAL ETHOSPHERE
You’re smart, creative, and aggressive. You get a job in an industry that you’re familiar with either from school or family involvement. You work hard, but something’s missing. Then you keep noticing a problem that organizations in the marketplace have that needs to be corrected, but hasn’t. The problem and the impact that it’s having on productivity and safety are really noticeable to you.
You comment on it when you can, and everyone that you talk to seems to agree that it is a problem, but for some reason no one has been able to do anything about it. You think about it. You come up with some ideas. Over time you mentally develop a product that will solve the problem. You go through a number of iterations in your head, and get more and more excited about the idea.
Then one day you’re having lunch with a close friend and
colleague, and the subject of discussion somehow comes around to this
problem. You hear yourself
saying, “You know, I have a great idea for a product that would solve the
problem. I’ve been thinking
about it for sometime, and I know that it would do the job.
We couldn’t make enough of them to satisfy the demand.”
With those few sentences you stepped off of the cliff into the Entrepreneurial Ethosphere, and asked your friend to join you. Money is the first thing that you’re going to need. You don’t have much, but your friend has enough to, at least, get you going for awhile. So before you do anything else you both agree on a 50/50 split. Excitement reigns, and you agree to get together after work to discuss it some more.
You both want to be cautious. You put your heads together and agree to build a prototype. That shouldn’t be too difficult. It will have some roughness about it, but the two of you have sufficient skills and contacts to get it done.
At this point it becomes obvious that you need an agreement between the two of you, and a structure for your enterprise. It’s really exciting. You can feel the adrenalin pumping. You don’t want to tell anyone about it yet, and you know that at some point the two of you are going to have to quit your jobs. All in good time! You want to be cautious, but even so there’s something inside you that keeps pushing. That keeps driving you to move and move fast, but you think... “you’ll get there. Stay calm…”.
You both come to an agreement that it will be a 50/50 split. Your close friend, colleague and now partner wants the enterprise to be a corporation so that your personal assets will be protected. You feel bigger than the world itself. You go to an attorney to draw up the papers. He raises the issue of capitalization. You can put in $15,000.00, but that’s all you have. A $15,000.00 investment will wipe you out. Your salary from the job will have to cover your expenses.
Your close friend, colleague, and now partner will put in $50,000.00 so that the initial capitalization of the corporation will be $65,000.00. That should be enough to get you going. The two of you agree. You will be the Chief Executive Officer and Secretary of the corporation. He will be the Chief Financial Officer and Director of the corporation. The two of you even give the corporation a name while you’re in the attorney’s office.
The excitement inside of you gets even greater. The adrenalin is pumping faster. You're ready to burst. You’ve just given birth to your new enterprise, and you can’t wait to make it happen. Your close friend and colleague is your partner, but only because he has the money. He's a great guy, but not real creative. He has to be considered, but you’re the one with all of the good ideas and know how. It’s up to you.
You want to quit your job so that you can get the prototype built, but you know that it’s too soon, and your close friend, colleague and partner doesn’t think that either of you should quit your jobs until there’s, at least, the prospect of some revenue coming in. You agree, but in a matter of a few months you see that if you stay at your job it’s going to take forever to get the prototype built and the enterprise running.
Another 3 months pass without much progress. You get your close friend, colleague and partner to agree that if things are going to move forward you will have to quit your job. He’ll continue to work. You’ll have regularly scheduled meetings, and you’ll keep him informed about everything that’s going on. You’ll have to take some money from the corporation, but only enough to cover your monthly living expenses. You’ll cut those back to bare bones. To keep expenses down you’ll work out of the house where you have an office and a workshop.
You’ve taken a big step forward, but in the mind of your friend, colleague and partner he has just been pushed to the back plus now he's paying your salary. He can afford the $35,000.00, but he’s no longer on the inside. He feels uncomfortable about it. Maybe he should quit his job too. He can’t. It’s too soon. It would be the wrong thing to do. He puts it behind him, but the thought still lingers in his mind.
Things go well, and as promised, the prototype gets done within 3 months after you quit. This is about 9 months later than anticipated. Due to material costs the prototype cost came in about 15% higher than budgeted. Your friend and partner is excited. He, too, can feel the adrenalin pumping, but inside he knows that if more time were taken to shop for materials the prototype would have come in on budget.
The two of you know this very well placed, and
influential, woman at this large corporation in
Your contact really likes the concept of the product. It’s really needed and it could make a significant contribution. She even calls several of her managers into her office to look at it, but during the meeting there are some things that they agree need to be changed. Those changes would be difficult and costly, but they all agree that it would really make it a dynamite product. She tells you that if you make the changes she’ll try it out in one of her divisions.
You both drive back a little discouraged by their request for changes, but encouraged by their overall reaction. The two of you sit down together to see what exactly has to be done to the prototype to make it acceptable, and to establish a cost for the second prototype. By now the money you’ve been taking for living expenses and the increased cost of the initial prototype have eaten into the $65,000.00 capitalization.
Your partner wants to go to other companies to see if they have the same reaction, but you argue that ".. you just got feedback from one of the largest companies in the industry. If you get them you'll get the rest of the industry. You'll go to other companies, but lets get going on a new prototype...".
The second prototype is going to be costly. If your partner quits his job, which he's now planning to do ("After all why not pay himself back some of that $50,000.00 he invested.) so that he can be directly involved, the enterprise is going to need more money. He doesn't want to put in any more money until you do. Now your friend and partner is just your partner.
Your partner quits his job so that he can be directly involved. You're both taking a small salary, and the money is tight. You agree that you need an angel investor, and that each of you will give up 15% to attract that investor. AND SO IT GOES!
You can make the changes, but you don’t know if you're
responding to a company requirement or a market requirement or if the market
is segmented so that different segments will have different requirements. 
You needed the first prototype, but you should have protected the idea and
done more research before you quit your job, built the first prototype, and
spent a lot of money.
Do you really want to come up with a second prototype at this point? It's probably a question of how much it will cost. If you do come up with a second prototype do you really want to put the first one aside and focus all of your attention on the second one? Maybe you have two products. Maybe you don't have a product at all. You don't know, and by now you've invested a considerable amount of time and money in the project so in fact you're in worse shape at this point then you were when you started. Since you don't know if you have a marketable product, you can't estimate how much time and money it’s going to take before you start generating positive cash. It's unlikely that your going to find an angel investor that will take the risk without an answer to those questions.
Your partner, $50,000.00 poorer, goes back to his old job. You find a job at a small company in your industry, but you've had a taste of the Entrepreneurial Ethosphere and you liked it. "You're not going to let it go. You'll find another idea, but this time you'll do it right."
HOPEFULLY!
If the guidance and information that you find here is helpful, we would appreciate a small contribution every once and awhile. Your contribution will help us to continue our efforts to bring you new and useful information. To contribute just click the button below.