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Innovation Crisis in Black America Pt. 3: The challenges of tech entrepreneurship

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"How do you hide important information from a Black man?" my friend asked.

"Put it in a book."

It was one of many such jokes I would be told by Whites who befriended me during my 12 years of service in the Navy. I was one of very few Blacks who qualified for propulsion engineering schools upon entry into the military in 1982. I didn't know it, but I was entering a universe of technology that had seen very few Blacks in leadership roles.

Not much has changed over the years. Technology based industries, which make up the bulk of investments each year and fuel the fast-paced productive path of American innovation, have relatively few Blacks.

TBED21.ORG

Ongoing efforts to motivate, educate and recruit Blacks into technology sectors are fragmented and in dire need of strong support. Industry associations, like TBED21.org (Technology-Based Economic Development for the 21st century) led by Dr. Chad Womack, are providing pathways and opportunities to help build an infrastructure for tech innovation among Black entrepreneurs.

Dr. Womack understands the crisis at hand. A statement on the TBED21.org website reads:

"Underserved communities and urban centers continue to be disconnected from the promise and opportunities of the 21st century global tech-based economy."

TECHNICAL DIFFICULTIES

Tech innovation is the fuel propelling entrepreneurship in the 21st century, unconstrained by geographic boundaries. In order for Black American entrepreneurs to add to this rapidly evolving productivity, as well as capitalize upon it, Black America needs to exponentially grow its numbers in the technology fields.

It is a critical time, requiring critical mass.

Coalitions and concerned cohorts must collaborate to ensure Black America isn't left out of the STEM evolution. The key response will be entrepreneurial innovation.

DEVELOPING ENTREPRENEURS

2010-09-27-DaveLavinskycropped.jpg
Dave Lavinsky, Co-founder
Growthink

Dave Lavinsky is the co-founder of Growthink. He is a successful entrepreneur who advises, develops and invests in entrepreneurs and their ideas. I picked his brain to reveal the challenges entrepreneurs face today. Dave was candid with both problems and solutions. (see interview below).

An Entrepreneur in Training: Circuitous Route

My personal story began with military training in Great Lakes, Illinois, which included a series of increasingly difficult engineering schools, an apprenticeship in a working plant and orders to the fleet aboard the first of two combat ships. Prior to arrival, I had received an elevated enlisted rank and a service record containing the Navy League Award, one of only two awards given to selected recruits from among 700 during boot camp. I was also second in my engineering class.

"Who did you piss off to get orders to this piece of sh*t?"

Walking the pier alongside a mammoth assault vessel that carried Marines and SEALS around the globe, I shielded my eyes and stared up at the flight deck where I would ultimately witness many helicopters land before my five-year sentence aboard the USS Anchorage would mercifully end. The sailor who welcomed me with a provocative statement laughed. I would never know who the silhouetted prognosticator was, but I still recall his prophetic words to this day.

Indeed, my education seemed irrelevant. My work ethic didn't matter. My eagerness to learn was abused. I spent the next two years as a messenger, serving coffee to engineers in the propulsion plants, diving in the bilges to retrieve tools dropped by my White counterparts and being barred from the chem lab, where only White sailors were allowed.

Things did eventually change ... well, a little.

I used my time wisely beneath the deck plates searching for lost tools in the oily seawater amongst hot pipes that formed water, steam, oil and fuel systems. I digested data from engineering tech manuals that served as my recreational reading. I watched. I helped. I asked questions. I volunteered to work with others who would willingly allow me to do their job for them.

And yes, I was angry.

But my big break eventually arrived.

Perseverance

Today, there are millions of young Black men abused by life's circumstances, barred from entering certain arenas and feeling like they've been relegated to the position of whipping boy. Some seek shortcuts, only to find out too late there aren't any.

Many times I wished there had been someone other than a military recruiter to point me in a good direction and set my feet upon a productive path. Like so many Black boys and young men today, I grew up without a father. But my mother instilled within me the qualities of an entrepreneur: attention to detail, flexibility, eagerness to learn and excel, competitiveness, endurance and perseverance.

I used all those internal elements to prepare for the day opportunity would knock.

Opportunity

When a team of experts arrived aboard the ship to test our engineering division, we spent several days out at sea failing miserably. At the end, a number of officers emerging from a lengthy meeting offered me congratulations, though I had no idea why. It turned out the team of experts told the captain there was one bright spot within the disastrous training episode: me.

Apparently, there was quite a conversation over why I was a just a messenger.

That day changed my career. Within six months, I was a propulsion plant supervisor. In 1987, I received Sailor of the Year. I was the first Black sailor aboard USS Anchorage to receive such honor. I went on to receive many more accolades during my military career and eventual media career.

Today, as an entrepreneur, I'm applying all of those lessons learned through two careers. Fortunately, there are many successful business leaders willing to offer their wisdom to help me navigate the stormy seas of entrepreneurship.

Dave Lavinsky spends his time developing entrepreneurs into innovative leaders across a variety of industries through his company, Growthink.

For most entrepreneurs, the interview below is the closest you'll get to picking his brain.

DAVE LAVINSKY

Q: How important is entrepreneurship and innovation?

A: Innovation is absolutely critical to America's future. America is a country that was started by entrepreneurs and is fueled by entrepreneurs. Without innovation, our country loses its competitive advantage. There's a lot of entrepreneurs throughout the world and we're seeing a ton of things coming out of China, Korea, etc. and we need to continue our innovation in the United States because there's always a better mousetrap.

If there is no innovation, let's say in the United States, innovation is going on in the rest of the world. Now, essentially, the world is the land of opportunity. You can start a business pretty much anywhere and grow it and take market share. The startup costs are a lot less than they were previously. Innovation is absolutely critical to our economy, to our way of thinking. Our children always need to be thinking of a better mousetrap and how they are going to change the world.

Not everyone is going to do that, but it's very important that we always have that mindset to get more entrepreneurs and continually evolve and innovate because innovation results in job growth and products created, and stirs up the national and global economy.

Technology

Q: Why are so few Black entrepreneurial ventures funded by angel and venture capital?

A: One of the keys to keep in mind is that virtually all of venture capital financing goes to technology companies. My impression is that African Americans are under-represented in the technology fields and as a result they are under-represented in raising venture capital because venture capital is tied to technology.

In the angel space the majority of financing is also technology. The largest sectors, software, health care and industrial energy comprise about 71 percent of angel fields. If African Americans are under-represented in the technology fields, it would make sense they would be under-represented in raising angel and venture capital.

Funding

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Q: What advice would you give to budding entrepreneurs?

A: Probably the most important point I can make to budding entrepreneurs is what I call a "funding pyramid." The bottom of the pyramid is very wide and there are sources of funding typically associated with bootstrapping like credit cards -- using your credit card to get $5,000.

As you move up the pyramid, there is what I call "institutional equity" or "venture capital," which is the largest segment of institutional equity, which is extremely hard to raise. And below that (top layer) are angels. They are really, really challenging to raise (capital).

Most entrepreneurs fail because they go right for venture capital. And its just not the right source of funding for them.

GOOGLE

Everyone wants to be the next Google. Google started by raising money with credit cards. Their first $35,000 was from credit cards and they maxed out their credit cards. Then I believe they got bank loans. Then they got $100,000 in angel funding. And then, later on they raised venture capital. But they were turned down initially by venture capitalists because they weren't ready for it.

So, entrepreneurs, and in this case African American entrepreneurs who are under-represented in angel and VC (investment fields) -- also Black entrepreneurs may be starting less technology companies, which is pretty much a requirement for particularly venture capital and to an extent angel capital -- should be looking at other sources of funding: like credit card funding, like bank funding, like crowd funding, like creative funding.

There's a lot of strategic financing. There's a lot of ways to raise funding other than angel and venture capital. In fact, angel and venture capital I consider the hardest two ways to raise funding.

Get Creative

Q: Talk about some of the alternative ways of financing a company.

A: One I like is vendor financing.

Take Kenneth Cole, the shoe guy, who did $4.5 billion in revenue last year. In the 80s he was nearly bankrupt and had no money. He wanted to start a company ... he found a struggling Italian shoe manufacturer that manufactured hundreds of thousands of dollars worth of shoes for him on consignment. So he then essentially raised hundreds of millions of dollars that he didn't have to get funding for, and didn't need, because the shoe manufacturer made them (shoes) for him and he didn't have to pay until after he sold them.

So, entrepreneurs, in terms of bootstrapping and starting, let's get creative. And let's think about, can our customers fund us?

Q: Consignment is creative. What's another option?

A: There's a new source of funding called "crowd funding," which is really getting your customers to donate money to you and giving them a reward for that.

SUCCESS comes in many forms

Q: If an individual comes from a background of poverty and all of his or her family and friends are similarly situated, what advice would you offer them?

A: An individual has to prove themselves before getting funded.

So if you say, I've had a hard background and I've never achieved any success, but if you give me $100,000 I'm going to be successful, I'm likely going to say, no. I'm not interested if that person can't show me some sort of background of success -- a track record of successes.

And success could be that they excelled in school. An 18-year-old entrepreneur may show they did really, really well in school and couldn't afford to go to college and they're hungry. Or they started at a very low level at an organization and had a tough break but started excelling in that role or position. I want to see some sort of track record of success.

Establish Track Record of Success First

I wouldn't recommend, for the most part, starting a business that requires funding if you're in a situation and don't have a track record of success. If you're dead set on starting a business and you don't have that credibility (track record of success), that great, but you have to start a business that ... requires very little capital. Figure out a business where you can sell a product and you don't have to buy the product before you sell it. Or online marketing where the startup costs are really, really low. You've got to get some success under your belt.

And then, once you have achieved that success, regardless of your background -- if you come from great poverty -- to me, that's a selling point. Look where I've been and look where I'm going and look what I've achieved. To me that's a selling point as an adviser or investor. It says this person is dedicated to becoming successful. But you need to prove that you've been able to achieve success in other positions through other endeavors.

Q: How can crowd funding be used if an individual doesn't have a crowd to which they can appeal?

A: I understand that if you come from a poverty background, your friends and family (funding options) are very limited. However, with social networking tools, I believe a lot of entrepreneurs have created networks beyond just their families and relatives.

Social Networks: Affinity Groups

Through online tools like Facebook, videos on Youtube, you can create a following. I'm a big fan in getting involved in your affinity group.

For example, if you're selling a product to bird watchers, what Facebook groups are made up of bird watchers and bird lovers? What social networks are there? Go onto this, what we call an "affinity group," and become a trusted and valuable member of that group, of that society. And that doesn't cost any money. That's just time.

Know Your Business

Clearly, to be a successful entrepreneur, you need to know your business really well. You need to have some sort of track record and have paid your dues. If you want to start a restaurant, you can't do that without having worked in a restaurant before and worked from the ground up and understand the business. So whatever business you're getting into, you need to know that business and you need to pay your dues. I'm not saying you need to spend 20 years paying your dues, but you need to spend time paying your dues.

When I started a juice business many years ago, I was doing it while I was in business school. And during the summer, when everyone else was getting high-paying jobs, I worked at minimum wage at two different juice bars to learn the business. I was a 28-year-old MBA student working for minimum wage. And I did that to learn the business. It just took me two months to do, but I learned the business.

You have to learn the business and then use your expertise in these online and offline affinity groups. Offline, the Association of Bird Watchers could have an event. Get intertwined in your affinity group and use that to create relationships. And then once you do that and you become a trusted and valued member of that community, then you can leverage that into finding someone in the group worth being an adviser or funding your business.

I think any entrepreneur can meet lots of other qualified people online very quickly just by commenting on blog posts and establishing themselves as an expert and then leverage that into more connections and then leverage that into all types of relationships you need to grow a business: employees, funding, partners, etc.

Investing in Entrepreneurs

Q: How cautious should an entrepreneur be about exposing their idea?

A: Investors bet on the jockey and not the horse. It's really (more) about the people who are going to execute the idea.

However, a lot of entrepreneurs are extremely nervous that somebody is going to steal their idea. If your idea is so easily replicable, then you probably have a big problem on your hands because the second your idea is successful, every Tom, Dick and Harry is going to jump into that idea. Particularly, larger companies will see it's working and compete against you. So you have to be careful about ideas that are very easily replicable.

But overall, you should not be too concerned about letting other people know your ideas. Because every idea you have, you could probably say with pretty good certainty, that somebody has thought of that already. There are so many entrepreneurs out there that it's likely someone is conceiving the same idea you are.

Many ideas will be conceived; Few will be executed

It's not the idea -- yes, it helps to have a great idea -- but it's about the execution of the idea. Because most individuals will conceive the idea but very few will take the first step (which is the most important step), which is to say I'm going to turn this idea into a company, and even fewer have the ability to go through the steps in executing on the business opportunity.

Business Plan / Presentation

Q: How important are business plans and presentations?

A: The two go hand-in-hand.

In terms of raising funding, the presentation is more important, in my opinion. Nobody wants to invest by reading a document. You're investing in a person. It's a face-to-face interaction where ideally (entrepreneurs) can convey that enthusiasm, get them excited, show them that you've thought through the venture and that this is something that is going to be worth their time. If they're a bank, they'll get their money back with interest; if they're in investor they'll get a nice return, etc.

However, it's very hard to create the presentation without going through the process of writing your business plan.

The business plan forces you to think through how much money do I really need to make this happen. How long is it going to take? What are the key milestones my team needs to accomplish? Who do we need to hire upon getting funding? What are the marketing tactics we're going to use to be successful? What's going to make us uniquely qualified to succeed? The process of creating a business plan forces you to think through all the issues you're going to present in the presentation. And if you don't present them in the presentation, it will give you the answers to the questions investors will raise. So, going through the process of creating the business plan is critical.

To print out a 50-page document is worthless. Nobody wants to read it. But you need to, for your own purposes as an entrepreneur, go through the process of creating a business plan.

There are critical aspects of the plan. And I definitely want to see a great executive summary. You will probably need that before the meeting in order to get the meeting. And you'll need a great presentation. In a lot of circumstances, you'll still need a full business plan to present to investors during their due diligence process.

* * *
The final installment of this four-part series will feature an interview with the Trim Tabber: Johnathan Holifield. Mr. Holifield will shed light on the "innovation infrastructure," the analysis of "lifestyle" vs "high-growth entrepreneurship," and the way forward in propelling Black America from 20th century ideas into 21st century innovation.

Previous posts in this series:
Innovation Crisis in Black America Pt 1:
Innovation Crisis in Black America Pt 2: Where are Black Entrepreneurs and Angels?