Taking The Entrepreneurial Plunge

Anita Brick: Hi, this is Anita Brick, and welcome to CareerCast at the Chicago GSB to help you advance in your career. Today we're really excited to be speaking with David Weinstein. David is president of the Chicagoland Entrepreneurial Center, or CEC, which serves entrepreneurs in all phases of development and growth. Since its inception, clients of the CEC’s advisory services have secured contracts in excess of $80 million, and 50 clients secured financing of about 40 million.

So before you plunged into the world of entrepreneurship, what did you do?

David Weinstein: Well, I worked as a consultant right out of college. And after that is probably when I had the biggest career shift. I went to go work for Mayor Daley, first as CIO, chief information office and one of the city's largest departments, and then, directly as his first technology advisor, in the late ’90s, which was really an interesting process for me—during the ramp-up of the internet world to actually be Mayor Daley's technology advisor.

Anita Brick: OK. So what was sort of that defining moment or moments that you went from working in government, albeit in a very edgy kind of position, to entrepreneur?

David Weinstein: Well, while working in government, I was going to graduate school. I was actually going to that other school along the way.

Anita Brick: We're familiar with that other school.

David Weinstein: I went to the part time program at Kellogg at night while working for the mayor. And as I was getting my MBA, and I saw the market going where it was going, I just got this bug, this great desire to create my own business. I had been watching other businesses being created, and I come from a family of entrepreneurs, too. And literally as I made it halfway through my MBA, I just decided that that's what I wanted to do: I wanted to start my own business.

Anita Brick: One of the students asked the question, when's the right time? Is it at the beginning of your career, at the middle of your career? Toward the end of your career? Do you think there is a right time?

David Weinstein: That's an excellent question, and it's a debate I have all the time with other entrepreneurs. And my answer goes something like this: There's no better time to start your own business than today. However, there's some things that you can do in your career to better advance your opportunities when starting a business. And what I mean by that is, if you've never worked in the P&L side of a business or had revenue responsibilities, and then you go and try to start a business, it will be very much a shock to your system, because the notion of going from potentially marketing or research to then having to sell is such a shock.

That is my one ... I think that's the one consistency that my friends as entrepreneurs think is that you've got to be able to sell. So if you're going to be in corporate America or government, if you're not working in some responsibility where you're managing some type of profit and loss statement, it is going to be hard to start a business.

That's just been my perspective. And so when I'm asked, often when I come on to universities, what's the best planning if you're going to go into a career of entrepreneurship, … my common answer is you've got to get in the revenue stream of the business that you're at and really learn what it's like to actually sell and win business.

Anita Brick: So what would you advise people to do to assess their strengths and weaknesses beyond having personal responsibility? What would you suggest that people do to, say, to get a handle on their strengths and weaknesses? As a … in entrepreneurship?

David Weinstein: That's a great question. I think entrepreneurs have three important characteristics that are a prerequisite, and these are questions that you can use as an internal gut check, if you have what it takes. And first is passion. That is something that is a prerequisite of being an entrepreneur. You have to be able to handle rejection, and kind of be resilient. So you have to really be passionate about your ideas. So that's number one and very important.

I think another important corollary to that is humility. You are going to get rejected a ton of times. And if you're not used to handling that and being told your idea is not going to work and being told no, all the time, and how you come back from that, you can't you can't go forward as an entrepreneur.

And part of that with humility also means learning to listen. And oftentimes people think, well, how can you be passionate and humble? Well, those are very important criteria for entrepreneurs. I think the other big thing is, actually, self-awareness, and that means self-awareness of your strengths and weaknesses. Like, for example, with myself, I'm a natural salesperson. I'm not a natural operations person. So when I start a business, I have to complement my weakness right out of the gate. So I think really having an assessment of what you're good at—more importantly, what you're not good at—and then figuring out how you're going to bring people around you to compensate for those weaknesses are marks of really good entrepreneurs.

Anita Brick: OK, so let's say you're the idea guy in the generic sense, man or woman, whatever, whichever you are. How do you know what types of people to bring in? Do you bring in corporate types? Do you bring in entrepreneurial types? What do you do to build that solid team behind you?

David Weinstein: Well, I think, that's a good question. I think that there's no right answer there. I think in certain businesses that have new business models … so let's use an example of an internet business model. No one could predict, whether or not you have a corporate background or you're just more of an idea person, whether or not you're going to succeed in that entrepreneurial venture.

Again, I think the key is identifying what you don't have that you're going to need to be successful and finding the best people that can work around you there. I also think the notion of team is critical in an entrepreneurial endeavor, and really understanding how you can leverage the roles of people around you.

And you don't want too many people like you. Like one of my mistakes, and I love telling about it, is when I launched my first venture, I hired all these people that were type A personalities like me. And so as the ship started sailing, we all went in the same direction, right? We didn't have any balance in the business. And I think that's one of the important things, is seeing how you can, again, balance the business with different characteristics, but also different skill sets, and then knowing how to shift the roles in the organization.

Anita Brick: One of the students asked, do you have to have a great idea? How do you find ideas? How do you start a business if you … do you need to have an idea or is there another way?

David Weinstein: Let me restate it. I think a prerequisite for a business is what problem are you solving? And so … rather, what is a unique idea is, what problem are you solving? And the more complicated problem that you're solving, the greater the potential the business has to be unique in the marketplace. Good ideas are only as good as they can be executed.

So I've seen an idea farm with people that don't know how to execute, and those ideas never make it to market. So I think really the first thing you've got to find out is what problem are you solving or what need in the marketplace needs to get out there. And then does your idea, can your idea be executed against solving that problem?

That's the framework that I use to dissect business plans and business models when we review them all the time.

Anita Brick: So. Right. So now you have a problem that you're solving. You feel that you can execute. What are some of the thresholds that you need to consider when you're looking at financial viability?

David Weinstein: Let me turn that inside out. For me, one thing that was not taught to me is that the best form of capital in any business is customer revenue. So I really—and many of the entrepreneurs that I work with as well, now that I'm in the venture business—we don't look at financial viability as much as we look at client traction and the ability to actually uptake clients and convince people to buy your products.

And I think that there's way too much emphasis on financial viability and capital structures, rather than on the psychology of, do you have a product or service that people are willing to pay for? And I know that sounds simple, but as a guy who started two businesses, you can have the most elegant business model and it can look so sizzling on paper.

But the second you go live in a going concern, it's all about the customers. And if you can't focus on that and really translate the problem to making a solution for a customer, everything else in the model, the elegance, just goes away.

Anita Brick: All right. So what are some key things that you need to consider when you're putting together a customer-focused solution to get that kind of traction?

David Weinstein: Well, for me, what often isn't done is really just going out and talking to people in person and doing focus groups. I find that there are a lot of business concepts that are kind of created in a vacuum. And for me, I love people that do a lot of customer testing. And when you—you know, I've studied entrepreneurs over years, and if you talk to the best entrepreneurs, you will hear one commonality. They're so customer focused. They have their ears to the ground of their customers.

And so they don't even—they spend less time telling you about what they do than what their customers want. And I think that is a very unique component and kind of an enduring trait of great entrepreneurs: how well they listen to their customers.

Anita Brick: So all right, but there is a financial component to this.

David Weinstein: Yeah, absolutely.

Anita Brick: How does a person potentially obtain funders without losing control of the business?

David Weinstein: All right. Before I answer that, let me just—sorry, not to do this, but …

Anita Brick: No, it’s great.

David Weinstein: But the question is, are you going to be a lifestyle entrepreneur? Are you going to be a small business? Or are you going to be a high-growth entrepreneur? OK. And if you segment those types of entrepreneurs, each one of them has different funding strategies. If you're a lifestyle entrepreneur, that means you're running a corner shop or, and it's just enough money for you to actually have a great life and potentially pay for you and your spouse to live with your children, but you're not growing 20 percent of your …

There, you're using your credit card. You're using your savings. You're generally out of the gate profitable. It's not like you've got venture money in those companies. So that's a very different capitalization strategy than a small business moving up the chain. That small business might employ between five to 100 employees. And there, you're generally growing on the sales of your products and working capital and bank financing.

Then you move to the third category, which is what we all love talking about: high-growth entrepreneurs—entrepreneurs who are growing at least 20 percent a clip per year, often called gazelles. And those companies, you know, generally you look at a model that says, we're going to do 500,000 out of this year, two million next year, in five scaling up to like 25 million.

And those are the fun business models that we see from business plan competitions. Those companies often—because they're not cash flow breakeven, you know, cash flow breakeven for 24 months out—those companies need angel or equity capital to finance them until they get to EBITDA breakeven.

So again, I think not one size fits all. And you need to know what you're talking about. And I think a lot of that … you can tell how much time I take spending trying to communicate there are differences between these types of businesses. And there's nothing wrong with being a small business. You can have a great life and create great wealth. That is far different than raising venture capital and creating tremendous returns for your investors and hopefully yourself too.

Anita Brick: Because the pressures are there. Yeah, VC funding all of a sudden the game is very different.

David Weinstein: The game changes tremendously. You know my—and that's a great question. And I'll just share a couple things. You know, my first company, I was 29 and I raised $30 million, OK? And there, the pressures that occur when I went from zero employees to 110 in three months. Now that is an unnatural act, OK, without the clients to support that.

So I was using a ton of cash to build up an operation before I have the clients with hopes we're going to have the clients. Well, guess what happened? The clients did come, but they didn't come at the pace we wanted, so that as the market, you know, as we moved out as a business, the pressures that I got as the CEO of a company, around growth, were so intense that I had to do things that we wouldn't have probably done if we had grown more slow and steady.

Those can be very painful trade-offs for an entrepreneur. Like, for example, you test a person. If they don't perform in two months, you fire them immediately and stuff like that. So some people need a little bit more time in grooming in companies. Well, VCs may not tolerate that slow growth.

The other thing is market share versus profitability. Right? So VCs generally—and again, this is a general rule of thumb. They want market share. Well, when a company is growing topline growth, it's very different than when it's growing bottom-line growth. And so there are different pressures that come with that. And you just need to be aware of what some of those trade-offs are about taking venture capital.

And I think a lot of people need to spend more time interviewing their venture capitalist. I find that one of the interesting things when I meet with entrepreneurs, they don't do due diligence on the venture capitalists, while VCs are doing tons of due diligence on them. For me, money is green, so getting value with the people giving you money is so important.

And part of that process is actually interviewing the people that they've put money into.

Anita Brick: All right. So you're going to do that. Let's say I'm an entrepreneur. I'm going to look for venture funding. What kinds of questions should I ask so that I'm not funded by a vulture capitalist rather than a venture capital?

David Weinstein: Right, my number one secret sauce there is, you want to find out which companies did the venture capitalists invest in that went bad, right? And so while the VC may want to have you talk to their portfolio companies that are doing well, you want to ask to talk to some portfolio companies that were duds. OK?

Let me tell you why. It is so important to understand how disputes are going to be handled once you get that venture capital in house and once you go to your first board meeting, and understand how they handle bad news and how they handle when things don't go as planned. And most entrepreneurs never think to go down that path because they're so enamored by getting the venture capital and the upside of it, they don't look at the downside of it.

So that's one of my pieces of advice: to separate out operating VCs from kind of investing VCs. And that's another big distinction for me: entrepreneurs really should be getting money from venture capitalists that have operating experience behind them. So they can kind of, if you will, understand the bed sweats that an entrepreneur faces every day they're running their business.

Anita Brick: What else do they ask?

David Weinstein: You know, for me, one of the other biggest questions is what is their network and where can they add value. So one, you know, if you're going after a certain market, you want to make sure that your VCs have client contacts for you. You want to make sure that your VC has strategic partnership contacts—and more importantly, that they're going to open up those contacts for you, because money's just green, and venture capital, as the wonderful Steve Kaplan on your campus said, is very expensive and the hurdle rate is about 40 percent.

So you better be getting some value with that money. And that means contacts as well. So those are one of … that's probably the biggest thing that I advise companies on is to find out how strong the VCs networks are respective to that company's business.

Anita Brick: So one more question around the VC front. All right. So you're a great ideas person. If you can't run a company, how do you make sure that you don't lose everything, including any equity that you might have?

David Weinstein: Well, I guess the first step to that, if you're a great idea person, is that's not important to me—you better have a great salesperson. OK. So if you're a great idea person, I want to see that you're going to compensate for that with a great person who can go and sell your product or service once you have that in place.

I think one of the key things that you have to determine is really developing a strategic road map for the business and determine how much capital you actually need to hit those objectives, and then raise the least amount of capital that you need to get to your next milestone. Sometimes—and I know that seems counterintuitive. Many entrepreneurs like myself, we raise too much money.

And guess what happens when you raise too much money? If you don't do well, or the market goes down, you get crammed down. And that's when dilution comes in place for owners. So one of my pieces of advice is go slow and grow slow and steady, but still with rapid acceleration. And that means take the least amount of capital to get you to a milestone.

And then when you hit that milestone, then you've got more, as we would say, you've got a lot more control of the company. Based on you hitting that milestone, you can leverage out a better deal for the next round of financing.

Anita Brick: So getting back to a question we talked about, and I think that's really very good advice. How do you find and convince potential employees? And again, should they come out of the corporate bucket, should they come out of the previous entrepreneurial-based bucket, or somewhere else?

David Weinstein: You know, it all depends on the position. There's no right answer there. I mean, for me, I think that, depending on the position, coming out of any one of those backgrounds could be equally successful in the business. I think the key is understanding what that person brings to the table. Are they willing to work in a very different environment?

Taking somebody from corporate America and putting them in a startup environment is a shock to your system. It can be a positive shock or it can be a negative shock, and you really need to understand how that person is going to handle that. And you also need to understand what their personal risk thresholds are. OK, that is an important question to ask anybody.

Can you handle potentially reducing your salary for a month if we hit a bump in the road? I can't—you know, that's a question that never comes up if you're going to apply to a Fortune 500 company. But that question could easily come up in a startup business. So you have to know about the flexibility and adaptability of the people coming to work for you. And that's an important question to ask.

Anita Brick: Well, I guess you have to ask yourself the same question. Can you—what's your risk profile? How much risk can you absorb?

David Weinstein: And so yeah, and I left that out of the— when I told you what are the required characteristics of being an entrepreneur. My fourth point is what is your personal risk threshold. You know, if—and that changes depending on your perspective in life: what's going on with your family, where you're at. And you really need to do a strong self-assessment of that before launching a business or going to work for one.

Anita Brick: So one of the students asked, what led you to starting the CEC rather than going on and building some more businesses?

David Weinstein: Because no one had given me the direct advice that I needed to hear when I ran my first business that I thought was credible. And, see, my experience of running a business as an entrepreneur—I wanted to take my experiences, more importantly, both good and bad, and share that with other entrepreneurs. And I quite frankly found that both therapeutic and really one of my gifts.

And if you actually think about the organization, I consider running the nonprofit a very entrepreneurial endeavor. I started it, and we're now the largest nonprofit that helps entrepreneurs in Chicago. I run it like a for-profit business to keep myself fresh, so I kind of eat my own dog food. You know, we practice the policies we preach every month.

I have to report to my board on how I'm doing and selling, and selling for me is fundraising. And so for me, this is an entrepreneurial endeavor, but it also is doing something important for the community. And I guess one of the things important for me is the impact that I have on the marketplace. I love Chicago, and I was so scared when I ran my first business.

I mean, I was frightened. When we were growing so fast, I really didn't have anywhere to turn. I found all these people counseling entrepreneurs in the market, but none of them really were entrepreneurs. I found that I could—I learned and listened the most from other entrepreneurs. And so I know taking my own experiences and starting a nonprofit, if that could help other entrepreneurs going through some of those blind waters you travel as an entrepreneur, then I knew I’d love what I'm doing.

Anita Brick: So what do you see when you think about the clients who come through the CEC? What difficulties do you see over and over again?

David Weinstein: Go-to-market strategy is the number one thing. I think people completely underestimate the sales challenges in their business. And I'm pretty sure that is the truth of the situation. That's not just what I'm seeing. I mean, I think that most entrepreneurs, they've got this wonderful product or service, and they think the market's going to take it, and it doesn't. Revenues never come in as planned. And when they do go wild beyond your plan, those are the rare circumstances rather than the average circumstance. So that's the number one thing.

The other thing that I see from entrepreneurs is really a misunderstanding of how to capitalize their business and what's the appropriate form of capital. You know, in the late ’90s, I was one of those guys who thought venture capital was a real road to happiness.

And again, I always love to say the best form of capital in your business is customer revenue. And most entrepreneurs starting out of the gate, you'd be surprised how many businesses we find that want to capitalize their business with other people's money without putting in their own money first or getting customers, and I just don't think that's the right way to go about business.

But you know what? It's so hard to tell that to an entrepreneur unless you've been down that path before. And so me telling my experience to other entrepreneurs of running my first business, that is—the kernels of wisdom they get from my own mistakes are very helpful.

And I'll tell you one thing about entrepreneurs. Entrepreneurs love talking about their mistakes, not just about their successes, because any good entrepreneur knows that you're constantly trying things and experimenting in your business. And sharing those kind of experimentations, which often lead to failure, hopefully to quick failure, are far more substantive when you're running your business than some of the successes that you have, that, as you and I both know, are unplanned.

Anita Brick: True. That's true. So what's the biggest upside you've experienced from a big obstacle?

David Weinstein: Well, that's a great question. For me it was self-awareness of my own weakness, which was my weakness. I had such great success early on in my career that I thought that I was just going to succeed as a business, and I thought that it was my way or the highway. I thought that I had all the right answers.

And I know this sounds simple, but the greatest obstacle I overcame was the humility of understanding how to find people around me to compensate for my weaknesses. And I love telling that to other entrepreneurs. You know, right now, in running my business, we've been growing fast as a nonprofit, and that's because I have a partner who runs the organization with me—who, by the way, is going to GSB—and he is my finance and operations guy.

And it allows me to focus on my strengths—which is message, communication, and selling—and not focus on the details that, quite frankly, drag me down and that I'm not good at. And that's why we've been able to grow fast. So I would tell you that in the past, that was my greatest obstacle: attention to detail. And now I've turned that around by hiring people way smarter myself in that area and turning that obstacle into a strength.

Anita Brick: So I know you're extremely busy, so I don’t want to take a lot more of your time. But any closing words about advice that you would give someone who has—I think there's a fantasy that people have about entrepreneurship.

David Weinstein: Absolutely. It's the American way.

Anita Brick: And this time, for this particular topic of entrepreneurship—usually we get five or six questions? We have close to 40 questions. So I know that there's this pent-up … I think it's a fantasy. So maybe you can separate the fantasy from the reality for us.

David Weinstein: That's a great question. You know, I live the fantasy, and my first time up at bat, you know, was the tech bubble. I went for it. And by the way, I swung for the fence. Right. When you swing for the fence, if you miss, you’re striking out. So it can be a little bit more extreme.

I think really I think one of the benefits—and I’ve got to speak in time here of getting past the bubble that we lived through—is that people came back down to earth and realized that business fundamentals mattered. And some of the things that we've forgot about—the notion of just having an idea, putting our shingle out there, and that the world was going to go to it, that's kind of changed a little bit and there's a little bit more grounding, I think, that people have now about their ideas, which I think is important.

The other thing is that people need to understand that running a business is the hardest job you will ever have. The time commitment, again, the rejection that comes with it, is so intense, yet the pleasure is so wonderful. There's nothing like being your own boss.

So as long as you can kind of handle those highs and lows and try to create a steady state throughout that, you really can be a great entrepreneur and enjoy following your dream. The benefit also of being an entrepreneur … My story: after my first company, we ended up selling at a fire sale. 24 hours later, I started my next business, and being able to know that I had confidence in myself, that I could just start another business and handle that and get something up and running quick was a great thing.

Rather than going through—many people that we both know, they go through career transitions and it could take one year to two years to start to move into a new career. You can always try starting a business. Now, you may fail, but you can always try that. And that's why it's a wonderful opportunity, because anyone can start a business.

And I just want to end on, or just share with you, you know, last year in Illinois, 60,000 businesses were started; 49,000 businesses went out of business the same year. In America the number was, I think, in the US, was like 666,000 businesses started; almost equal numbers went out of business. So understand that as a new business starts, a new business fails all the time. And that's part of the cyclical nature of entrepreneurship. That's both wonderful, but understand what that means.

Anita Brick: So you have to have guts and you have to have the internal fortitude and the resilience to make it a reality.

David Weinstein: Absolutely.

Anita Brick: David, thank you so much. David, this is really great. And one thing I would recommend: go to Chicagoland EC. Even if you're listening to this from Singapore, you know, or Shanghai, there's so much good information there. But it's ChicagolandEC.org. David, thanks again, and thank you all for listening. This is Anita Brick with CareerCast at the Chicago GSB. Keep advancing.