Building on Bedrock Page 3

  After Jordan turned thirteen, Max assigned him the job of making the sausages that would be offered for sale in his shop. After school Jordan took the bus to his dad’s shop to do his assigned work. In the basement he diligently ground and mixed the meats, added salts and preservatives, and then operated a machine that tightly packed the ground meat into the cow intestines used to hold the sausages together. This was Jordan’s chore for four years, for which he received three dollars an hour, money he saved to buy a car when he turned sixteen. He hated his assigned job in the basement, but there was no chance of negotiating something else with his dad. So Jordan worked away, meanwhile daydreaming of someday being free and visiting foreign lands.

  Jordan graduated from college with a degree in religion and a love for reading and writing poetry. He wasn’t sure what he wanted to do, but he knew what he didn’t want to do: go work for his dad and become a butcher. Jordan loved his father, but he did not fantasize about a life of working together, even if his father did.

  After several months of wandering the world following his graduation from college, Jordan returned to LA and began his first entrepreneurial venture. In his travels he had developed a passion for eating interesting foods from street vendors. Since there were no street vendors in LA, he hit on the idea of building food carts to get into the street food business. It seemed like a good way to make enough money to live on.

  He knew nothing about business plans, so he didn’t create one, but he did make a sketch of the cart he arranged to be built by someone he knew. A few weeks later, on the day after receiving the cart that looked like a backyard barbeque on wheels, he loaded it up with 500 sausages he had made the day before. He put the cart in the back of his old beat-up van, stopped by his favorite bakery to pick up 500 rolls fresh out of the oven, and then drove to his favorite spot in Los Angeles—Venice Beach. Within ten hours he had sold everything he had on the cart. Jordan made enough profit that day to pay for the cart he had built. He soon hired an assistant to handle the money so that he could concentrate on grilling and serving more sausages in a day, ultimately selling close to $2,500 on his busiest day. He loved grilling sausages wherever he wanted and offering his wares to strangers; he did so for four years before the health authorities even noticed. It turned out that the lack of street food in LA was not due to the unavailability of carts. It was due to the Department of Public Health: their rules prohibited street food. Within a year of Jordan’s being noticed by the health department, they cited him a dozen times for his unlicensed food cart, ultimately threatening him with jail if he stayed in the street food business.

  Jordan had sold his street food for much more than it cost to make. He pocketed over a dollar for every $1.75 sausage he sold. By the time his business was shut down, he had saved over $25,000. After making his own money, Jordan knew he would never be satisfied working nine to five for anyone else. And he had enough money to start another business.

  Having developed some confidence that, with the right permits, he could still make and sell food people would want, Jordan now dreamed of creating a business that would put him in the center of the place he loved most: Venice Beach. It was there that Jordan, within weeks of leaving the cart business, used much of the profits he had saved to rent a fast food stand. He knew in his bones that he could make delicious sausages with new tastes that would bring in even more customers. And making sausages for his business felt much more satisfying than making them for his dad’s.

  After renting the food stand, he installed the appliances needed to make, cook, and refrigerate his sausages. Unfortunately, the process of applying for permits and passing the inspections required to serve food on Venice Beach took almost two years to complete. By then, Jordan was in debt to his family and friends for the extra money he had not projected he would need in order to get to opening day. But Jody Maroni’s Sausage Kingdom (Jordan’s intuition told him that “Jordan Monkarsh’s Sausage Kingdom” didn’t sound as appetizing) was an instant success. Everyone involved felt that all the hard work, time, and accumulated debts had been worthwhile.

  Jordan is not a big guy, but because the interior of his Venice Beach food stand was designed to be two steps higher than the boardwalk, his persona, “Jody,” looked larger than life when he leaned out over the counter shouting at passers-by. He had a great smile and was hard to ignore, so plenty of people stopped to sample his sausages. The dozen or so different sausages Jordan offered were are all savory and high quality. People loved them, and on a sunny day at the beach, with the help of three others, he could sell $6,000 worth of sausages, French fries, and soda. With such a profitable business, Jordan was debt free within eighteen months.

  Serving a great product day in and day out to the thousands of people on Venice Beach gets you noticed. “Jody” loved the attention and accolades. “I deliver joy,” he would tell his customers. Trying to make them happy never felt like work to Jordan. The icing on the cake came when his efforts resulted in multiple mentions by a famous Los Angeles Times food critic— “Jody” became a local celebrity.

  Jody and Jordan have very different personalities. Jordan was an introvert who read poetry and liked to stay at home with his family. Jody shouted at strangers, flashed a huge smile, and was quick with the quips—an alter ego created by the passion and anxiety that go with having your future on the line.

  Jordan spent long hours running his Sausage Kingdom, as his dad had done with the butcher shop. Within five years he supervised more employees than his dad, the additional help required as the Sausage Kingdom served far more customers daily. It was open seven days a week, and Jordan oversaw the making of every sausage he served. He hired some people he knew from his food cart days, and they introduced him to their friends, some of whom he also hired. To make sure everything was done the way he wanted, Jordan was at the stand from the time he opened the doors in the early morning until he locked up a couple of hours after sundown.

  He was a demanding yet patient coach for his team, and the vibe at Sausage Kingdom was a good one. Even though Jordan paid only the going rate for food service workers, about 20 percent above minimum wage, employee turnover was low. He shared his recipes with his staff and taught them to emulate what he did. He even persuaded some of his staff to shout at passers-by in broken English. They didn’t make exactly the same impression “Jody” did, but they got attention and sold more sausages than they otherwise would have. Because Jordan cared about training his low-paid team and sharing his skills with them, they respected him, and he didn’t suffer from the employee theft that caused many other food stands on Venice Beach to struggle or to close.

  Soon after opening the stand, Jordan got married. In the next three years, Jordan and his wife had two children. Having paid off his debts to relatives and friends and created a business that was thriving, he savored his success and his independence—he felt he had it all.

  Big Numbers

  Jordan is just one of the fifteen million full-time entrepreneurs in the United States today, people who are in business for themselves or run the almost six million businesses that they started. Nearly eighteen million people are actively trying to start about 9.5 million businesses, and millions more are thinking about it. As previously noted, when you take into account spouses, parents, and siblings, you find that more than 30 percent of the adult population is engaged in starting a company or directly related to someone who is. For all the attention that entrepreneurship does get, it probably doesn’t get enough.

  No specific mental, emotional, or physical qualities distinguish Jordan, or any other entrepreneur, from someone who works for others. On average, an entrepreneur is no smarter, stronger, more extroverted, or insomniac than the rest of us. Given the large numbers of people in the entrepreneurial and the employee worlds, this is not surprising. If such a vast array of entrepreneurs had any distinguishing physiological or psychological characteristic or characteristics, we would have learned long ago how to spot them in a crowd.

 
When we think about entrepreneurs, most of us think about the less than 10 percent of all entrepreneurs who are far richer than the rest of the working population. The wealth represented in the Forbes magazine’s list of 400 wealthiest Americans has been almost entirely created by entrepreneurial endeavors. Because the overall number of entrepreneurs, working and retired, is so large, the number of rich entrepreneurs is in the millions, though that represents just a small minority of entrepreneurs across all tax brackets. And because the very rich attract a disproportionate amount of attention, most of us have a distorted perception of entrepreneurs and their wealth. We think, “If an entrepreneur can stay in business for a while, he or she must likely be wealthy.” The opposite is true. Ninety percent of entrepreneurs, no matter how long they’ve been in business, make less than they could by offering their same sets of skills and experiences to an established employer. At the point in Jordan’s story where we left off, he had less in his bank account than if he had worked for his dad or been the manager of a nice restaurant, even though Jordan’s sausage stand was doing well.

  Are there characteristics that differentiate very wealthy entrepreneurs from everyone else? That’s a loaded question. Surely, some people become much wealthier than the rest of us for a reason. But our inherent biases lead us to believe that we see patterns in what we read about famous entrepreneurs—they’re tech savvy, they have unique talents, they don’t have feelings, whatever. Those distorted perceptions arise, however, because we don’t know the truth about most successful entrepreneurs.

  Stephanie DiMarco is a classic example. She recently sold the software company she founded for $2.7 billion. Stephanie is not a programmer—she has a great personality, she’s shy, and relatively few people have ever heard of her. An exceedingly practical person, she majored in accounting in college. Though Stephanie feels more comfortable measuring risks rather than taking them, she never considered being an entrepreneur as unreasonably risky. Her father ran a small public relations agency, the guy she fell in love with in college and married after graduation started his own art gallery, and her father-in-law to-be was a freelance photographer with his own studio.

  Nevertheless, when she graduated from college she took the road most traveled, going to work as an accountant for one of the biggest banks in the world. She hated it. After less than two years she left to work for a small boutique investment advisor with ten employees instead of twenty thousand, but that wasn’t much better. Neither job gave her the career opportunities she craved or the chance to develop her full potential. As she puts it, “It was really unattractive to work to the beat of someone else’s drum, and I could see there weren’t a lot of women on the top floors.”

  Stephanie, understanding that her fiancé had entrepreneurial ambitions that she might be called on to support, took one more stab at finding a satisfying job. Another small boutique investment advisor was willing to hire her and also let her work on a project to automate the tedium that went into preparing the monthly statements sent to their clients—once she finished with her normal accounting tasks.

  Stephanie had worked with computers in college and become somewhat familiar with them at the large bank, but had never had responsibility for one herself. This was back in the mid-1980s, when computers were expensive and nobody other than computer engineers could get enough time on a computer to really learn how to program them. So she submitted a project idea with a budget that included buying the latest model mini-computer (a $30,000 DEC PDP-11 with a 5MB hard drive) and hiring a talented part-time programmer, Steve, whom she knew from college. As promised, the boss of the investment boutique approved her proposal, and Stephanie was able to launch a challenging project that made her feel she had picked the right place to work.

  Because she did much of the firm’s tedious manual bookkeeping herself, she knew exactly how a new program should work. Business accounting programs for the more affordable mini-computers were available at that time, but Stephanie could not find anyone interested in creating a program that did the arcane bookkeeping involved with investing other people’s money—the field was far too specialized to interest existing software companies. Stephanie and Steve focused on automating the simple but tedious task of listing the transactions made on behalf of each client, which had previously required a full-time bookkeeper to record hand-written entries in a large ledger book and then a full-time typist to prepare all the monthly statements to be sent to clients.

  Working well as a team, Stephanie and Steve began commuting to work together to have more time to talk about the project. Steve asked lots of questions about the hows and whys of keeping track of the stocks and bonds being bought and sold on behalf of clients. Stephanie asked lots of questions about what could be automated with a computer and how data could be collected more accurately. They both became knowledgeable about the possibilities of automating transaction ledgers and other boutique investment business arcana that nobody else cared about. They completed the project to automate the job of the full-time typist on time and under budget. The boss of the boutique investment firm was delighted. She encouraged Stephanie and Steve to build additional functionality into their program.

  Less than a year after Stephanie bought the PDP-11 mini-computer, IBM introduced its XT personal computer. The machine captivated her. It cost just $5,000 and its hard drive had twice the capacity to store accounting records. Steve, however, was not impressed. During their commutes she heard in great detail how PCs were ill-suited for the task of business automation—they couldn’t multitask and they didn’t have robust operating systems. Unintimidated by Steve or his technical jargon, Stephanie kept asking, “Why?” Determined to make Steve admit accounting could be done on a PC, she spent her weekends researching companies that were starting to offer more robust operating systems and programming languages for the XT. After more than a month of debate, Steve finally admitted that it should be possible to write the equivalent of their mini-computer programs for the new IBM XT—but it would take some pioneering work. That’s when Stephanie dropped the bombshell on Steve: “We should start our own company and sell this software to others.”

  Steve was not so sure. He was married and had a mortgage and a child to support. He felt starting a company would limit his ability to write the programs he found interesting. Stephanie, however, was—and still is—a very determined person. She offered solutions or mitigations to each of Steve’s objections. After a week of discussion and de facto negotiation, Stephanie got Steve to agree to co-found an asset management accounting software company. She offered to pay him a salary while she lived off of her personal savings and accepted nothing until the company became profitable.

  Stephanie quickly created a business plan for the proposed business and showed it to her friends and other people she knew personally. One family friend, “out of friendship,” says Stephanie, offered to invest $50,000 for a fifth of the company, with Stephanie and her programming buddy each owning 40 percent. Having secured the funds to start the company, she then went to give her notice of resignation to her boss at the investment boutique, but also offered her a chance to invest. “I have no interest in investing,” she said. “Just leave.” She did, and Advent Software was born.

  It took Steve almost a year to write the computer programs to work on an IBM PC. Unfortunately, potential customers, in spite of the IBM name on the computer, felt uncomfortable running critical bookkeeping functions on a PC. It was a much harder sell than expected, and it took another year to persuade asset management businesses to take PC-based software seriously. But within two years of the founding of Advent, IBM had introduced a more powerful generation of PC, Novell had introduced computer-networking software, and the amount of data that could be stored on a hard drive had more than doubled. That extra year enabled Advent’s software to mature, become networked and easier to use, and have a more professional feel. That extra year of development also required more money, so Stephanie had to ask the family friend to give her another $5
0,000 to keep the company going.

  Virtually all trained computer programmers and virtually all computer software companies at the time shared Steve’s disdain for using PCs as a platform for business software development. So when asset managers finally did feel comfortable using PCs, Advent was alone in offering an affordable package of the specialized accounting software. Almost exactly two years after founding, orders to buy their software started to roll in, and Advent was immediately profitable and cash-flow positive.

  Plenty of researchers have attempted to find characteristics that correlate with entrepreneurial success. Their research to date shows that the correlation between success and any characteristic or even any group of characteristics is so small as to be irrelevant to anyone’s decision to become an entrepreneur.

  We can say that wealthy entrepreneurs have invested more hours at work than the average person, but that is more effect than cause. Wealthy entrepreneur-CEOs work about as hard or harder than CEOs of other similarly sized companies growing at the same rate. Managing the complexities of a business that produces lots of value always requires putting in long hours. Young and growing companies require constant management attention to avoid pitfalls that can kill a fragile enterprise, and handling ever larger numbers of customers requires constant change and increasing complexity, making managing a startup very time-intensive.

  We can also say of wealthy entrepreneurs that virtually none of them succeeded by themselves. Whether or not they had a partner or more co-founders, they had key employees and teammates who helped them build their enterprises (perhaps hired as contractors rather than employees). These entrepreneurs may have been introverted or extroverted, they may have been open or secretive, generous or miserly in how they worked with the people that helped them create and run their businesses, but a great deal of productive work must have been accomplished by others to create the significant value required to make an enterprise profitable and its owner wealthy. Working alone, as you could choose to do as a bookkeeper, gardener, or Uber driver, virtually disqualifies you from becoming a wealthy entrepreneur.