Serial Entrepreneurs Are Still a Mysterious Breed

By George Berkheimer, STAFF WRITER



Once you're lucky; twice you're good - so goes the conventional adage commonly applied to serial entrepreneurs.

In terms of their potential economic impact deriving from factors such as job growth, tax revenue and other benefits, serial entrepreneurs contribute considerably to the quality of life of a given region or community, yet little is known or even tracked relating to their overall significance.

And while having a proven track record would seem to be enough to smooth the road for their future endeavors, serial entrepreneurs find that's not always the case.

A 2008 study by Paul A. Gompers, Anna Kovner, Josh Lerner and David S. Scharfstein of the Harvard Business School confirms that experienced entrepreneurs have a leg up in terms of success potential. The study looked specifically at venture capital-financed firms, but did not include self-funded companies or businesses financed by other means.

Titled "Performance Persistence in Entrepreneurship," the study found that successful serial entrepreneurs have a 30% chance of success in their next venture-backed company compared to a 20% success rate for entrepreneurs who previously failed and an 18% success rate for first-time entrepreneurs.

The study also found that experienced entrepreneurs are more adept at choosing the right industry and the right time to start new ventures.

"Performance persistence ... is usually taken as evidence of skill," not luck, the authors wrote, explaining that customers and vendors alike appear to be more willing to commit resources to serial entrepreneurs based on their track record.

The same can't always be said for venture capitalists or banks, however.



What Counts

Even given a proven track record, past experience is no indicator of future potential, particularly if a new venture lies in a different sector from previous ventures.

"Markets are different, and technical sectors are different from the normal business-to-business scenario," said Vic Hess, the Howard County Economic Development Authority's (HCEDA) entrepreneur-in-residence.

According to serial entrepreneur Shirley Collier, CEO of Ellicott City-based Optemax, a provider of mobile optical wireless network technologies, banks want to see a track record of success, whereas venture capitalists are more concerned about leadership.

"They want a seasoned CEO," she said, and aren't so impressed when all they see is a successful business that can be attributed to little more than luck.

"They're more impressed by people who have experienced the ups and downs of the economy," Collier said. "In their eyes, if you've only built a successful business during good times, you haven't really earned your stripes."



Itching for Success

Optimally, serial entrepreneurs have an easier go of things if they are able to self-fund new startups, either with their own wealth or with the profits made from selling or spinning off initial successful businesses. David Buscher of Clarksville did just that after he and two other business partners sold off their Solipsys aerospace software business to defense contractor Raytheon in 2002, churning out a series of fashion retail, restaurant and niche businesses.

Among his new ventures were NautOps, a maritime security service, and a collection of Krav Maga self-defense training centers. Not all were successful, but they scratched an itch.

"[The sale] gave me an opportunity to actually pursue all of my interests that I otherwise wouldn't have had," Buscher said in an earlier interview with The Business Monthly.

Inventor Robert Fischell of Dayton, Md., has founded numerous companies to produce and market some of the more than 150 medical devices he's designed, which include coronary stents and a magnetic pulse device that helps relieve migraine symptoms. His success has enabled him to establish a bioengineering department bearing his name at the University of Maryland's A. J. Clark School of Engineering.

As exemplified by Buscher and Fischell, personal fulfillment is a big motivator for serial entrepreneurs. But so is boredom, acknowledged Julie Lenzer Kirk, a serial entrepreneur and business consultant who heads up the University of Maryland, Baltimore County's ACTiVATE program that trains women to become technology entrepreneurs.

"I'm a creative person, not a maintaining person," she observed. "I got bored [with my first company] and sold it when it wasn't fun anymore."

Funding was never a problem for Kirk, who acknowledged that her first two companies were customer-funded. "They paid us to develop the products," she said.

But when it came to getting a line of credit from the bank, she discovered "it was all about relationships."

What helped her most was company leadership. "It was really helpful to create a really strong advising team that [understood] the points I didn't, that added a lot of credibility," she said.

Her first company, Applied Creative Technologies, was an information technology solutions firm focusing on manufacturing operations and inventory control. Kirk is currently the CEO of Path Forward International of Rockville, which helps entrepreneurs, companies and communities leverage innovation to drive economic empowerment.



Just Scratching the Surface

The impacts of serial entrepreneurship are difficult to measure because the landscape is constantly changing, and most agencies, including HCEDA, the Anne Arundel County Economic Development Corp. and the Maryland Department of Business and Economic Development, do not bother.

The authors of the Harvard Business School study acknowledged that they did not address a number of interesting and important issues related to serial entrepreneurship, in particular the determinants of serial entrepreneurship.

"We conjecture that the very best and the very worst entrepreneurs do not become serial entrepreneurs," they wrote, speculating that the best are either too wealthy or too involved in their businesses to start new ones and that the worst are unlikely to receive venture funding again.

Another topic they did not broach was how past performance affects the valuation of venture-capital backed startups, to include terms of financing and whether track records result in higher valuations and less restrictive covenants.

For many serial entrepreneurs, that information might be immaterial, provided they can manage to find ways to keep scratching their itches and enjoying the benefits of self-determination that entrepreneurship brings.

It's addictive, Kirk said. "Once you get bitten by the entrepreneurial bug, you can kiss employability goodbye."