How do I get on the road to becoming an entrepreneur?

April 1, 2001
I am entering the job market with an MS engineering degree. What career path would best prepare me for entrepreneurship?
1304qa Chang New

Q: I am entering the job market with an MS engineering degree. What career path would best prepare me for entrepreneurship?

A: You are very wise to plan ahead. Rushing into starting a business can lead to costly mistakes. So the first priority in any job you seek should be the potential for learning experiences.

In an ideal world, work for a well-run medium-sized company. Big companies are too structured for you to get an overview of how other parts of the company function or what's behind the procedures already in place. Small companies, on the other hand, may be operating on a trial-and-error basis or in a fire-fighting mode, making it difficult for you to pick up good habits. If you cannot land a job in a suitable company, then work for a big company as a pathway to that ideal medium-sized company, or work for a small company that is managed by experienced founders. The company you work for must have a good reputation because that will help when you look for the next job.

Q: I want to start a business based on a technology developed for my Ph.D. thesis. Please review my business plan and advise.

A: It is important to point out the reality, but also acknowledge that companies are never built by naysayers. So, persist to a point, objectively. I encourage you to think about working a few years first. The answer to the previous question reflects my bias towards learning. In the meantime, talk to potential customers to verify whether you have a good idea before committing to it.

Here is the reality: this is your one idea, whereas a top VC firm sees from 2000 to as many as 5000 business plans a year and only invests in about 10. So, what is the likelihood of a recent graduate without industry experience coming up with a good business idea? Under the most optimistic conditions, you have to come up with 10 ideas before you settle on one. I certainly had many ideas during my earlier years. In retrospect, none of them would have worked. A friend and I even poured a concrete optical table in my two-bedroom apartment to prove the feasibility of holographic mass storage! But by working through each idea that you dream up, you will hone the skills you need to ultimately select the right one.

If you are still convinced about the potential of your technology, consider starting off as a research/contract company. There is a natural cycle time for technology development, people accepting and adopting the technology, and also for market acceptance that would be extremely expensive to shorten. The point is one can usually trade time for money. That goes for building a brand and for converting technology to product. What happened in recent years with VCs investing huge sums in technology is a risky approach and one that's not likely to continue for very long.

Q: You mentioned in one of your talks that manufacturing capability is a competitive advantage, but many successful companies outsource everything.

A: Being vertically integrated is an outdated strategy. Outsourcing is a cost-effective approach that also allows you to focus on strengthening your core competencies. So, keep in house any process-intensive manufacturing that gives you a sustainable competitive advantage and outsource as much else as possible. I am glad you question my generalizations.

Q: I am starting a company in California. Should I incorporate as a Nevada corporation?

A: Probably not. If your IPO is some time off, then you should incorporate as a California corporation. Even as a Nevada corporation, you have to comply with a number of California regulations that apply to a private company headquartered in California. If your IPO is only a year or two away, then you might as well start off as a Delaware corporation to save the costs of reincorporating. The annual fee is higher in Delaware than California, but Delaware law is more sympathetic toward management. Nevada laws are modeled after Delaware, but the courts there are less experienced and have less case law to fall back on. Today, most of the startups in Silicon Valley begin as Delaware corporations. I now have more legal resources to draw upon: Judy O'Brien, a well-known corporate lawyer, has joined me as a partner at iNCUBiC. What's great is she can put a business context to a legal issue. She sits on the Board of Ciena, and has earned the honor of being named one of the "top five woman lawyers in California" by California Lawyer Magazine and one of the "top 12 dealmakers of 1999" by American Lawyer, and most recently made Forbes' list of "50 most powerful dealmakers." So, keep the questions coming!

About the Author

Milton Chang

MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.

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