Startups as a CEO Second Act

This is part 1 of a 2-part series. Read part 2 here.

Long-time CEOs looking for a second act in their business lives often tell me that they are toying with the idea of entrepreneurship but hesitate to make the leap. They worry that they’re too much the organization man or woman, not the rugged individualist of startup lore. They fear failure, which they have rarely experienced in their careers. Or they doubt their ability to keep up with the twenty-somethings they read about in breathless accounts of startup success.

If you find yourself similarly stuck on the fence, I would tell you what I tell them: As an experienced CEO, you have so many advantages that already put you so far ahead of the game that it seems almost unfair for everyone else. I know I did when I left a successful and profitable operation to start a company from scratch.

At the time, I was CEO of International Rectifier (the global semiconductor company listed on the NYSE at the time and now a part of Infineon Technologies, a spin-off of Siemens). I had more than 4,000 people working for me in nine countries around the world. We were a profitable global leader in our technological niche; I was highly paid and, I believe, well respected. But I wanted more, and it wasn’t money. I wanted to prove that I could create lots of value on my own, my way, so I started a company called iSuppli. The enormous advantages I enjoyed then are the same great advantages that any sitting or former CEO embarking on entrepreneurship enjoys today. They include:

Knowing firsthand the problem you want to solve. Entrepreneurship isn’t necessarily about dazzling breakthroughs, and innovation isn’t about doing something completely new. It’s about doing something that solves a customer’s problem. Since almost all established businesses do things that frustrate some or all of their customers, there is room for improvement and innovation in every industry, including the one in which you have already risen to the top as a leader.

“As an experienced CEO, you have so many advantages that put you so far ahead of the game it seems almost unfair for everyone else.”

I wanted to help electronics companies, International Rectifier included, better control their manufacturing and inventories by giving them improved tools and visibility into end-customer demand and the status of all the various supply chains on which their operations rely. As CEO, I had constantly asked why things couldn’t be more efficient and why we didn’t have all the information we needed to make expensive investment decisions.

What I wanted to do was complicated, even relative to the highly technical world of the electronics industry. But companies in this complex industry needed complex solutions to manage the billions of electronic parts that moved around the world every day, and I had some clear ideas about how the industry could save billions of dollars in inventory and distribution costs. The problem was real, my ideas were based on high-level experience, and I thought I had a credible solution.

Having broad experience in all the mechanics of a business. I had run operations, sales, marketing, R&D projects and supply chains at one time or another. I had led a large company and I had started divisions from scratch, both close to home and in far-flung places around the world. But even if you worked your way up to the corner office through a single function like finance or operations, your time as chief executive has given you a breadth of general management experience that few people can match.

Knowing people—and people knowing you. If you have a reputation for being ethical, practical and smart, then important people—potential customers and potential employees alike—will be willing to listen to what you have to say. Of course, not everyone simply signed up for iSuppli’s services on my word alone. What I was proposing was expensive and complex. But the ability to get a hearing was still a huge advantage. It also helped me assemble a who’s-who board of directors and board of advisors. And within weeks I was able to recruit an incredibly capable team of individuals widely respected in their areas of expertise.

Having access to capital and knowing how to use it. No issue bedevils entrepreneurs more than the question of funding—or leads them to make more costly mistakes. Of all your many advantages, perhaps none is greater than your savvy about capital: where to find it, whether to raise it through equity or debt, and how to allocate it. Most unfair of all, you are likely to be very well off financially—allowing you to fund the enterprise yourself and maintain control, unlike many entrepreneurs who (sometimes unwisely) take on partners when pursuing their own agendas.

When I started iSuppli, I didn’t need to work another day in my life if I didn’t want to, so I was able to launch iSuppli with my own money. Nevertheless, I did ask some venture capitalists to invest in my company, reasoning that my funds would allow me to retain majority ownership and that I needed to use “other people’s money” to grow faster than any potential competitor who might copy my ideas. We were solving a big, costly problem and it was the middle of the dot-com bubble, when there was ample money available to fund the many other smart, credible people attempting similar solutions. But unless your venture similarly depends on rapid scale-up, you will have the luxury of your own ready cash to invest. And being knowledgeable about capital structure and ownership structure, you will know when it’s time to adjust them to accommodate the evolving needs of your enterprise.

None of these advantages guarantee success. But they will definitely tip the scales far in your favor.