Entrepreneur's Course: Navigating Both Calm And Choppy Seas

Arden Kelton has developed his sea legs as an entrepreneur by riding out high and low tides. Kelton, who holds a Ph.D. in medical physics from the University of California, Los Angeles, is founder and president of Lamplighter Industries Inc. The Yanceyville, N.C., firm uses a ceramic technology invented by Kelton's partner, engineer David Emmett, to manufacture electronic display lighting for instrument light panels. During recent weeks, Kelton has been scrambling to do something that for a lot of people would be monumental, but for the founder of a startup venture is close to routine--come up with more than $1 million to meet a pressing need for machinery and operating capital. Despite his recent financial problems, Kelton has not lost his entrepreneurial spirit. "Money doesn't matter an awful lot; it's really the project's meaning," he says. "I believe in the company's future, and I do have confidence that if the financing fails, we'll come up with a buyer. "There's a creative process in starting a business. You could say that I enjoy starting a business more than running it, yet I have no intention of leaving Lamplighter unless it's a good move for my employees and my investors." Kelton's course as an entrepreneur is fixed, it seems. Lamplighter is the fourth company he has started; he even looks forward to launching his next venture, probably in biotechnology. But not all scientists who become entrepreneurs yearn for another voyage. Garland Marshall, for example, once was at the helm of a company that reached a safe harbor, yet he's now a confirmed landlubber. As a professor of physiology and biophysics at Washington University School of Medicine in St. Louis, Marshall developed a software prototype for molecular modeling and design, and he wanted to see his creative efforts put to the test in industry. When he found that pharmaceutical companies were unwilling to invest their own resources in developing the software he was willing to give them for free, he decided to start a company that would do the necessary R&D. Thus was born the St. Louis-based Tripos Associates Inc. "I found it interesting that what you couldn't give away, you could sell," muses Marshall. Although he talked often to venture capitalists, Marshall was never willing to relinquish control to people who were not scientists just because they had money. "So we did it the hard way," he reminisces. In 1979, Marshall used $800 of his family's savings for the fees to incorporate the fledgling company. By transferring consulting fees to the company's coffers, Marshall was able to hire an employee and solicit corporate support. Nine years later, Tripos' annual sales were about $4 million, and the company had an office in Switzerland and a distribution/marketing partner in Japan. When Tripos merged with Evans & Sutherland Computer Corp., the Salt Lake City-based developer of computer graphic and computer-aided design systems, some $5.5 million of Evans & Sutherland stock was transferred to Tripos' roughly 25 employees. Most people would rate Marshall a stunning success as an entrepreneur. But Marshall, who is director of the Center for Molecular Design at Washington University's Institute for Biomedical Computing, says he's had enough. "In the last three years," he says, "I have probably had a minimum of 20 discussions with venture capitalists who were more than willing to supply me with significant amounts of money to start a company. Some would have paid me personally 20 to 30 times the salary I make at the university. But I'm a scientist, and scientists do what they do because they don't care about wheeling and dealing." Marshall no longer maintains a business association with Tripos. "I've learned to realize what it is that I enjoy doing," he says. "Dealing with bankers and accountants and lawyers is not on my list. I think that being a scientist is about as close to heaven as most of us are going to get." But Diane Herson and Katherine Baker, partners in Environmental Microbiology Associates Inc. (EMA) of Newark, Del., relish being entrepreneurs, even though it means juggling multiple roles. Herson, who is also an associate professor of microbiology at the University of Delaware in Newark, acknowledges that she "gets very tired, but I do enjoy it all." Baker, the mother of a two-year-old, has a lab at her home in Harrisburg, Pa., and travels twice weekly to EMA's headquarters. Although the 180-mile commute is arduous, Baker doesn't regret leaving her position as assistant professor of biology at Millersville University of Pennsylvania, where she had a heavy teaching load and little opportunity to pursue research, which she loves. "Starting a business was my only option," she says. EMA, founded in 1989, charts a course navigated by few others. Herson and Baker develop waste treatment plans that usually involve bioremediation--using bacterial strains that specifically metabolize the toxic products in a contaminated site. Baker says that "we didn't want to be a general-services corporation, owning bulldozers and air strippers. We hope by specializing in microbiological treatments that we don't compete with waste treatment or engineering companies." Baker, who was Herson's graduate student some 20 years ago, says that they're "learning not to be too large too soon." They hope EMA will become well established in the Pennsylvania-Delaware area. So far, the company has completed five projects and has four in progress. Wayne Fritsche, a chemist-turned-business strategist, also finds his partnership satisfying. In 1981, he joined forces with Wayne Pambianchi, who has a background in business, to form Fritsche, Pambianchi & Associates Inc. (FPA), a Somerville, N.J., firm that helps businesses in science and health fields develop plans for mergers and acquisitions, divestiture, and capital formation. They added partner N. Coleman Owen, an industrial engineer with training in business management, when they opened a West Coast office in Del Mar, Calif. The three entrepreneurs had worked together in strategic planning and corporate development at the Raritan, N.J.-based Ortho Diagnostic Systems Inc., a division of Johnson & Johnson. Creating FPA, which now has 22 employees, was easy, says Fritsche, but he quickly adds that "I wouldn't want to do it in today's economic climate or without a partner." Because of his scientific training, says Fritsche, "I tend to be the more scientific of the two, but I'm comfortable with the finance. Pambianchi tends to be much more financially oriented than I. The thing that's made us a success is we are very much different but complementary." Fritsche says that when they started their business, they had no competitors: "I wager that even today there's not another company like ours. Our niche is that we're operating consultants, but we also start companies. "Our goal is to identify promising new technologies. If we are truly excited about the technology, and if the company for whom we're doing the forecast doesn't act, we may put together the deal and raise the money." In his role as a consultant, Fritsche finds that scientists who are entrepreneurs will balk when he advises them to increase expenditures for marketing and decrease their spending on research. "But that's often what you need to do in today's economy," Fritsche notes. He also says that scientists who enter industry from academe tend to regard the science as the ultimate goal, irrespective of commercial considerations: "The science overshadows the business opportunity, and the scientist loses sight of what the realistic business opportunity is." Some scientists do not have the foresight to see ultimately where the science is going to lead, to get beyond the technology and see into the future. "Many scientists tend to be revolutionary instead of evolutionary," Fritsche says, "but most of the time it is evolutionary tactics that win, not revolutionary ones. And this is particularly true in the case of startups. "Venture capitalists are no longer enamored with just the science. It's the integration of science, marketing, finance, and negotiating capabilities that drive a business forward," says Fritsche. Although scientists may eschew the business aspects of running a company, they are often very bad at judging who are good businesspeople or marketers, says Fritsche. "In our business, you better be conversant in the science, but scientists don't usually have an appreciation for marketing or business planning," he says. "And they don't have a sense for what is a realistic, limited application for their product." As an example, Fritsche cites a report he's preparing for a company that wants to market a blood cell growth factor. "The principals think they're going to have the greatest product going, for any hematopoietic [blood-cell-forming] disorder or any immunocompromised patient," he says. "Their business plan talks about using the product for everything from wound healing to total body radiation. But the world doesn't work like that. I can't point to anything in medicine, except for laser surgery, for example, that is rapidly embraced from technology." But there are some things, in Fritsche's view, that scientists contribute to entrepreneurial success: "Scientists have very good logic capabilities and very good interrogatory capabilities. They realize, unlike many marketing folks, that you just can't `will' things to happen. And the good scientists tend to be very good at forecasting the future." Brian Atwood, a cofounder of Glycomed Inc., an Alameda, Calif., biotechnology company specializing in the use of carbohydrates as therapeutic agents, agrees that deal-making is the key to success: "The unsung part of being a successful business is getting the money, particularly when you're marketing an abstract product. It takes a lot of faith to ask investors to wait 10 years for a product." Since 1987, Glycomed has raised nearly $23 million in three rounds of financing. Most businesses, including those started by scientists, founder because they don't pay attention to the customer, says Fritsche. "Businesses are in existence to sell something to somebody," he says, "and that's where the rubber meets the road. You need real-world marketing experience, not `book' marketing." This may explain why Garland Marshall avoids another entrepreneurial effort. Although Tripos' success is largely attributable to its customer responsiveness, Marshall says that "the problems with running companies, in my experience, is dealing with customers. They want things that I'm convinced will not help them solve their problems. "I think that if you've got a useful tool, and people can't buy it from anybody and you can get people to perceive it's useful, then that's the basis of success. An awful lot of companies are started without any aspect of uniqueness, particularly those financed by venture capitalists." Glycomed's Atwood, who earned an MBA after getting a master's in ecology, has participated in several startups. He says he's unsure of what it takes to succeed as an entrepreneur and can't describe what it is that drives him. "A lot of people talk about startups as being risky," he says, "but it never bothered me to leave a secure job at Cetus Corp. [in Emeryville, Calif.] I always had faith that things would work out." Ron Unterman, a biochemist who also left a secure job (at General Electric Co. in Schenectady, N.Y.) to help found Envirogen, a waste management firm in Lawrenceville, N.J., declined three times when he was approached by principals who were discussing starting the company, which specializes in the removal of hard-to-degrade wastes like PCBs. "I told my wife after I said no the third time that I felt I was making a serious mistake," remembers Unterman. "I feared eventually ending up a middle manager at GE and picking up the Wall Street Journal one day and reading about this successful company that I didn't go to. I really never thought of leaving GE for Envirogen as a risk." Gary Hewett, a founder of the Hayward, Calif.-based Cholestech Corp., which manufactures diagnostics and is developing pharmaceuticals to measure blood cholesterol, has been involved in five startups. One of these, Cetus Instrument Systems (CIS), was backed by money from a large corporation (Cetus Corp.) rather than by venture capital. Hewitt cites several advantages in starting a company, like CIS, that's a spinoff from a larger one: a lot less time is spent raising money; there's no independent stock, which prevents the trauma of going public; and the entrepreneur's job future is secure. But on the downside, "you live and die by the whims of the larger company," says Hewett. "The big company's board can change their minds about the small company's future at a day's notice. And the upshot is, you can't win big. If you're a blazing success, the company gets rolled into the larger one; and if it's a disaster, it doesn't matter anyway." Envirogen, which went into business in June 1988 with three employees, now boasts about 20. Leaving GE to start Envirogen was desirable, says Unterman, because it's much harder to start a new business within a larger infrastructure, especially one doing only $25 million to $30 million in business annually. "You're insignificant at that level and can get lost in the noise," he says. "This is where being a small, entrepreneurial firm backed by equity has a distinct advantage." In the past 2 years, Cholestech has raised $24 million, and has no plans to go after additional funding. Hewett says that starting a company today is not much different from his experience as an entrepreneur in the mid-'70s. "Things did get easier in the mid-'80s, but now it's tougher," he says. "There's less `dumb money' out there; more people are asking you hard questions before they give you money. The open windows of the initial public offering have closed, making things more difficult." Hewett, like most of the scientists interviewed for this article, did not have any special training or mentoring in his entrepreneurial efforts; he jokes that, to supplement his dual undergraduate degrees in neurophysiology and engineering, he has "an MBA of hard knocks. I've learned by doing; the frustration of making other people rich makes you learn quickly." He's also averse to sacrificing his personal life, or the lives of his employees, by adopting 100-hour work weeks as routine. "I have no problems being people's boss," says Hewett, "but I do have problems being their brother or father." Sometimes, scientists are roped into becoming entrepreneurs when they start out as faculty members whose outside interests become overwhelming. Garland Marshall, for example, always intended to remain a faculty member at Washington University. To that end, he made sure his relationship with the university remained "scrupulously clean." He licensed Tripos' software from the university, and he didn't hire anyone from the university to work at Tripos. He says that a conflict of interest is unavoidable for an academician who starts a company, because doing research at a university is a 24-hour-a-day job: "I didn't take any graduate students for six or seven years because I didn't think I could give them the attention they needed." Saying that he found it intolerable to be both a scientist and an entrepreneur, Marshall notes that "if there's a chance your company is going to fail, that places both your employees and your customers in jeopardy. And that really consumes all your attention." Marshall says that eventually all his efforts focused upon divesting himself from the day-to-day running of the company. "It's a lot easier to start running a company than it is to stop," he says. Suzanne Hagan is a St. Louis-based writer specializing in science and medicine.

Entrepreneur's Course: Navigating Both Calm And Choppy Seas

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