Education in Business, Privave Equity and Venture Capital

I have a few very very smart people working for me and they started fresh out of college.  These smart people  achieved MBAs from top schools or they got degrees in mathematics studying things I can't pronounce let alone understand.  I've found these educated people have something in common, they are virtually worthless to me in business.  It's taken me 9 years to figure out why this is and why they get trapped in their jobs even though I provide guidance and training.  I've also sorted out a program for them to be successful, whether or not they follow it is up to them.

Since these smart people were children, their parents drilled into them the importance of schooling.  Their parents convinced them since practically birth that they were competing on a local scale against global academic opponents and the children needed to be the best.  The parents devised at a young age several plans for the children, the children were going to go to good schools, they were going to join a sport to learn how to work with a coach and other kids (maybe a scholarship for athleticism if we are lucky!), they were going to join an academic club like debate, they will know their teachers and they will study.  Since competition for spots in a good school is fierce, maybe they will need to pick up a specialized hobby like Falconeering or feign interest in green energy to get something on that college application.  All of these activities are geared towards college admission.

Some parents would extend their commute to their own work by an hour or more each way to move into a good school district.  I've seen instances where a parent will rent an apartment in a good district just so they had an address within the right zip code for the best high schools.

Then the kids started to study.  They studied a lot.  Morning noon and night.  If they said they didn't they are flat out liars.  They spent a chunk of their weekends studying for tests and nights were filled with college application related activities and more studying.  The plan worked, they got into the school they wanted to and went on to do a lot of the same studying (dropping the sports and hobbies once in college, of course, don't need them now).

So they graduate and I get them.  They come here, all degreed up, still talk about the Falconeering they did 10 years ago so they look somewhat interesting and I look em up and down and see their good grades and say, what the hell, let's give this kid a shot.  He comes in here, gets some training and completely bombs as an employee.  Why?

They completely abandon all of the concepts that made them successful.  The new employees are going to have to come up to speed quickly and training and mentor ship is only going to get you so far. In order for them to succeed, they need to do the following:

1)  Read a book on the subject they are working on (marketing, PR, sales, accounting, whatever).  Don't rely on my training or schooling they had 5 years ago.  Find a good book by looking on online forums for recommendations for books then copy pasting the title into Amazon.  From there, look at the reader reviews on Amazon to see if it's a good book or not.  Then look at the other books that Amazon recommends and see what those books are and if they are reviewed by the readers even better.  Settle on a book and read it.  Take notes on important things in the book in another notebook.

2)  Find a small study group of like minded people that are interested in talking about the book you are reading.  Hopefully it's someone you work with or your boss.  In absence of that, set up an online forum on websites like http://www.reddit.com or something within your specialty.  Discuss the book and post your questions.

3)  Network on the subject you are talking about with people you don't know.  How?  Do a search of occupation that you want to learn more about on Linked in and ask someone out to lunch.  I've learned about EVERYTHING this way and I've only been turned down 1 or 2 times.  If this is too much for you, do your best to get over it.

4)  Review your notes and the forums to make sure you understand your topic

5)  Start testing and applying the principles in the book

6)  Remember learning and your life doesn't always happen at once, it happens over time so you only START learning once, but you will never stop once you start.  There is no end.  Get more books, go to more lectures, talk to more people.

Recap or TL;DR - New Hires - the only thing that made you successful in school is you - read the book, went to the lecture, took notes and then studied.  Do that in your new job or you will completely suck.

Chicago Angel Investing Panel - Observations.

About a month ago I was at a private equity event at Perkins Coie given by some group to showcase about 10 companies that needed angel money or venture capital.    There weren't any concepts that I was interested in as I do try and stick to simple businesses where I can see where the money is going to be made.  Maybe I'm a part of a rare breed that thinks that there should be some kind of return associated with an investment, not dreams.  Remember, hope isn't an investment strategy.

I had a few obersavations about the hard money investors and a  few about the small business startups that I met in the audience.

1)  Ron May is an interesting guy.  I still don't know what he's all about, but at least he's interesting.
2)  There was a concept from the panel that said if you are looking for money, figure out if you need help or money.  If you need money, ask for money, if you need help ask for help.  An example is if you are asking for a commercial investment and you don't really need financing but you really need help with sales and marketing, ask for help with sales and marketing.  If you ask for business capital you are going to get it but then you won't get any help with your other problems.  No matter what you ask for, you are going to get it, a lot of it, so be careful and honest with yourself.
3)  An old concept of mine, fail fast if you are an entrepreneur.  Fail today, not tomorrow or next week.  It's better to start a new idea than to hang on and torture yourself with an idea that's not generating cash and has no hope.  How can you tell if you are generating cash?  If you can pay all of your bills at home, your payroll and other expenses.  If you are deeper than 3 months into your business and none of this is happening, well you might want to start reconsidering picking back up your day job.
4)  Starting a business isn't for everyone, sometimes people want to invest in ideas that are already mature vs. start ups.  Some people would rather purchase a new gas station over funding a new energy drink idea.  And that's OK.

Taking money from whom? How to find private equity.

The private equity markets are really inefficient, and that's why they exist.  One of the great things that Michael Milken did was bring money down to the middle market in the form of junk bonds.  That way if you were running a smaller company you had access to capital.  He did it for a pretty big fee which was extracted from the companies that got the bond proceeds and the fees charged to investors that wanted to allocate capital to that part of the market.  (this is another case of it's easier to get rich selling picks and shovels vs. mining for gold).  The most important part of what he did was he created a market where there are buyers and sellers and you can find both parties.  In private equity, that isn't the case, you have to go hunting really inefficiently.

Here's my basic process for trying to find a company.  I start by asking around through my network if anyone knows a company that 1)  needs capital and 2) needs management or marketing help.  Typically that yields no results.  The next thing  I do is call a few banks to see if anything is in their work out division and that typically yields nothing or next to no results.  I don't know if the brother of the banker typically gets these deals but they sure aren't shopped efficiently from what I can find.  I also look at syndicated networks like angel networks but they were tending to take such a cut out that the entrepreneur lost a cut and then I have to pay a management fee every year on the money invested.

I've found the best way to find good people is online through message boards, forums and blogging.  Getting involved in the community and looking for companies that actually are asking questions and soliciting advice.  Then again, the online market is what I know and am comfortable with.

Link back to this post at Chicago Investors or email me at chicago venture

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