The story of the accidental entrepreneur

NEW YORK (Reuters.com) -- The story of the accidental entrepreneur is iconic. It exists in infinite variations, though the theme is consistent: A person of accomplishment is forced from his occupation by a cruel twist of fate. Rather than wallow in despair, though, he strikes out on his own.

Inevitably, after a requisite period of struggle, he achieves success by dint of hard work and ingenuity. Michael Bloomberg may be the preeminent example here, but less grand versions abound.

As a child, I remember my mom's version involved a diamond cutter of great talent who earned a good living until arthritis crippled his hands.

Suddenly unemployed - and unemployable - the former artisan set up an advisory business that put his experience as an elite cutter to work helping jewellers and investors identify which diamonds in the rough had the most potential. Over time, he grew prosperous and came to view God's mischief as a blessing.

It is an inspiring proverb. The mythical figure beckons us: throw off the shackles of our work-a-day lives and find fortune in the unseen. As someone who has lived a modest version of the fairytale, I offer yet another entry to the accidental entrepreneur cannon.

Well, perhaps I ought to admit upfront that, for me, becoming an entrepreneur was not entirely accidental. I had excellent training, you see, for my foray as a bootstrapper. In 1990, at the age of 23, I had the great fortune to join Loan Pricing Corporation as a journalist. LPC was still a start-up company. The company was the brainchild of a talented and charismatic entrepreneur named Chris Snyder.

For five-and-a-half years I had the great privilege of working for Chris. I watched how he developed and sold products, motivated his employees and built his business. It was the education of a lifetime. Eventually, the Street came calling. I was lured away in 1995 by the old Chemical Bank, which, through a series of acquisitions, has grown into the JP Morgan Leviathan.

After three months, Chemical fired me. It was a devastating blow. I was fortunate to be picked up by Bankers Trust, where I spent a year as a consultant.

After spending some time dazed and confused I realised that what Chemical hired me to do - develop a systematic way of tracking and analysing commercial loan information - was a good idea with a broad commercial appeal. And, despite my short-lived, ignominious career in banking, I was still equipped to bring it off.

While still at Bankers I talked the idea around. My many friends in the market were uniformly encouraging. And one of the conversations proved particularly fruitful. Steven Bavaria, who was developing a loan-ratings business for Standard & Poor's at the time saw the potential power in what I was talking about for his own effort.

He persuaded his colleagues at S&P to back me and my partner at the time with a loan and some free space in exchange for a long-term, semi-exclusive, free licence to our products. We raised some additional seed capital from our friends, family and business contacts. With this dough in hand and a couple of clients signed on, we officially launched Portfolio Management Data LLC.

The first couple of years were tough. Despite my excellent mentoring, we made our share of rookie mistakes. But we persevered, working 60, 70 hour weeks, visiting every potential customer from here to Seattle and selling our butts off. Remembering Bob Dylan's formula that "he not busy being born is busy dying" I used three words over and over again to describe our progress in those years: "we're getting there." It drove my wife crazy.

Eventually, though, we got there, selling the company in 2000 to S&P, where I remain employed as a middle manager, still looking after the legacy business, now called Standard & Poor's LCD.

Selling is a tough decision. You are trading away freedom for security, upside for sure winnings. For me it came down to two points. First, the wealth that I had tied up in the business was far greater than anything I had outside of it. Because we were far too small to think about an IPO, selling to a strategic was the only viable exit.

Second, my wife and I wanted to start a family. Therefore, along with financial security, I craved a more balanced work/life mix.

Needless to say, there are many days on which I have seller's remorse. The transition from entrepreneur to middle manager is fraught with difficulty (a topic for another day, perhaps). In the end, though, I'm grateful for the other freedoms that the sale brought my family.

As the years pass, I find myself telling this bowdlerized version of my own tale as a way to console people who have lost their job. It's something I seem to be doing a lot of lately for obvious reasons.

As George Patten famously said: "Luck is where preparation meets opportunity." For some, the opportunity comes in the guise of a pink slip, like it did for me.

To get prepared, I conclude with a list of five principles for succeeding as an accidental entrepreneur:

1. Do what you know. It seems obvious, but everyone I know who has made money as an entrepreneur has done so close to home where their knowledge, rolodex and experience are the deepest.

2. Surround yourself with excellent partners. Last year I got involved in a new start-up business called Black Mountain Systems. I was invited in as a founding investor and director by my friend Mike Zupon of The Carlyle Group. Mike insisted that when we went out to raise money we did so by tapping strategic investors who would be more than a wallet for us but also provide us with (1) a starting list of potential customers, (2) a circle of strong references and (3) an aura of inevitability in the space by tying the business to an A-list board and investor group.

3. Have enough of a cash cushion. Like all entrepreneurs, I hate dilution. But I found with our start-up and the several others I've with which I've been involved, sales come more slowly than expected and collections even more so. There are two times in the life of a start-up where raising money is most advantageous. The first is at the outset when you are dreaming big and dazzling folks with your business plan, your charm and good looks and your potential.

   The next time is when your business is cash flow positive. Between those two events, however, the entrepreneur is playing a weak hand. Venture capitalists and even angle investors can be demanding because without their money you may be stuck. With this in mind, I've come to view it wise to raise enough money at the beginning to weather the inevitable challenges in developing your product, selling it and, most important, collecting receivables.

   Just how much to raise is a complex decision and forces the entrepreneur to weigh dilution against financial wherewithal. In my own experience, raising an amount equal to twice your peak year-one cumulative loss is a good amount to raise - enough to give the start-up a decent cushion without crushing the entrepreneur's initial stake in the business.

4. Be in business. My friend Mike Rushmore is an accomplished entrepreneur and my partner in Black Mountain. When he started up his LoanX business, he used to say over and over: "the first rule of being in business, is being in business." Sage advice indeed.

5. Family support. This last point, I think, is the most important. If you are in a relationship, a committed, supportive partner can make all the difference. Certainly, in my case she did.