Business School of Hard Knocks | Book Review | Chicago Reader

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Business School of Hard Knocks

Barry Moltz's health and finances have suffered, but he sure knows a lot about start-ups.

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Barry Merkin, who teaches classes in entrepreneurship at Northwestern's Kellogg School of Management, says that not long ago one of his best students tried to avoid him at graduation time. He finally cornered the student and asked about his plans. The student acknowledged shamefacedly that he wasn't going to be starting his own business--he'd accepted a job with General Motors. Merkin surprised him by hugging him and saying how happy he was that he'd figured out that going it alone wasn't for him and that he'd found a good job.

The American reverence for loners, from Daniel Boone to Erin Brockovich, makes us think we're failures if we settle for anything "less" than being a private eye, a crusading journalist, or a resourceful entrepreneur. But Merkin, who came to his academic job after 30 years in business, knows this is a fantasy, knows that it takes all kinds.

To help him make those points to his students, he asked Barry Moltz to talk to his class on entrepreneurship in early October. Moltz, who lives in Chicago, has just published You Need to Be a Little Crazy: The Truth About Starting and Growing Your Business, a book Merkin says does the best job of any book he's read of discouraging people who really shouldn't be entrepreneurs.

Moltz doesn't exactly debunk the fantasy. He's still in its grip, but he knows it. Over the past 15 years he's started three businesses. He lost two and managed to sell the third for a profit. Even though he promised his wife in 1999 that he wouldn't start another one for five years, he's kept his hand in. He does business consulting, gives talks, invests, and participates in Prairie Angels, an investor club whose members focus on technology start-ups. In short, he writes, "I am an entrepreneurholic. I am powerless to control myself. This is how I get my kicks."

He also gets his kicks by telling more personal stories than is customary in the world of business books. Few books that explain how best to fire an employee will add, as Moltz does, that he never fired anyone without first getting sick and wondering how their families would take it. In this genre that's a breakthrough. And a lot of the usual boilerplate is left out of You Need to Be a Little Crazy--on purpose. This has to be the only start-your-own-business book in which the phrase "business plan" doesn't appear in the index or the table of contents. Plans are worthless, says Moltz, echoing Dwight Eisenhower, though planning is essential. No plan can really prepare you for the unexpected. Have a plan, he says, but count on chance to shred it and force you to improvise.

Moltz's unconventional advice squares with the findings of researcher Amar Bidhe, author of The Origin and Evolution of New Businesses, who told Inc. magazine in February 2000 that improvisation is "the natural, logical outcome of the sorts of opportunities that [entrepreneurs] pursued." It doesn't square with the popular books nestled next to Moltz's at Borders, like The Small Business Start-Up Guide: A Surefire Blueprint to Successfully Launch Your Own Business. That book downplays the likelihood of failure and feeds the fantasy with a list of "eight steps to start-up success," an approach that infuriates Moltz: "Regardless of what popular books say, there is no single way to achieve the personal success that you seek."

Moltz values all three of his start-up experiences, but he talks and writes more about his failures than his subsequent success. Not boasting is realistic, as he sees it. He knows how much he learned from his failures--and how lucky he was to succeed.

Moltz went to work for IBM in Chicago straight out of college. He enjoyed working there as a marketing manager and moved up steadily in the organization. Then in the late 1980s he read Paul Hawken's inspirational book Growing a Business. As he recalls, it filled him with "hopes, dreams, and fantasies of a perfect culture." He didn't want to leave IBM--in fact, he'd aspired to become its president. But he wanted to do something more. Along with his girlfriend (now wife) Sara Shafran, best friend Zane Smith (an attorney), and Smith's wife, Joan, he started Lincoln Park Publishers on the side.

In those days before the Web the only way to find which restaurants or dry cleaners would deliver was to spend a long time searching through the telephone book. Lincoln Park Publishers put out a free guide called "Yes, We Deliver," which was supported by business advertising. "I prepared feverishly for its launch," Moltz recalls, "diagramming every part of the operation. I built the business perfectly on paper and dreamed about how much fun it would be for all of us."

Moltz expected that his new business would move steadily, if slowly, upward--not unlike someone riding an escalator or rising in the IBM corporate hierarchy. The experience turned out to be more like riding an overpowered and badly maintained roller coaster. It was "a lot of work, unbelievable hours, but at the same time it was fun," recalls his partner Smith. At one point "we realized that we were spending more money on Chinese food than on office supplies."

Moltz had kept his day job, and found it hard to stay on top of everything. Now there was more to stay on top of than ever, right down to cleaning the bathrooms and hauling full mailbags to the post office. The partners expanded too fast too soon, adding neighborhoods to the north and northwest before they were ready. The $5,000 they'd invested wasn't enough to allow them to hire full-time salespeople. Nor was it much of a cushion when the advertisers--mostly restaurants with cash-flow problems of their own--didn't pay their bills on time.

Lincoln Park Publishers failed. "We ran out of cash," writes Moltz. "I was shocked and disappointed. I did not know what hit me except I was now $5,000 poorer." A friend at IBM told him that he was a good businessperson, and he'd be really good once he'd failed some more. Moltz had no idea what he was talking about.

He still wanted more responsibility and less structure. In 1990 he left IBM and became director of sales for the small consulting firm Whittman-Hart, a job that served as a halfway house on his way out of the big-business world. He was working for Bob Bernard, who'd been a customer of his at IBM. Bernard taught him a lot about dressing well, and a lot more about the difference between a big firm and a small one. The pace was faster, the rule book thinner, the sales harder to make. Many of his old IBM contacts didn't even return his calls. The unpleasant realization dawned: They hadn't been buying from Barry Moltz. They'd been buying from a dependable giant firm that was a household name. "Even though I was selling a service that could solve a problem they had, they did not know this company Whittman-Hart and forgot about me."

In retrospect, Moltz thinks Whittman-Hart's pace may have been a bit too fast. The company made the same mistake he had: having done well in Chicago and Indianapolis, it opened new offices in California, Virginia, and Alabama. "Press releases and chest pounding followed," he recalls in the book, but the offices proved expensive failures. Whittman-Hart wasn't well-known in the west or southeast, and jetting its consultants around the country was expensive and time-consuming. After a year sales were down and Moltz was fired. "I was the director of sales," he says, "so I took the bullet."

He decided he'd had enough of working for someone else. It was 1991, a recession year, but in the classified ads he found two people seeking capital and a partner. Their references checked out, and their business idea seemed certain to be the next big thing--integrating existing components to make voice-activated computers and selling them to manufacturers to use in quality control. What could possibly go wrong with a great idea like that? "I invested all my family's savings, which included all the money from our wedding gifts, and money my wife had received when her father had died in a car accident. I even got some of our friends to help fund the company."

As Moltz likes to say now, until you find your first customer you don't have a business, you have a hobby. When he demonstrated the voice-activated computers, audiences were awed. Some people wanted to invest in the company. But very few were willing to entrust their own businesses to the company's expensive and unfamiliar product.

Moltz loved the technology but soon realized he couldn't stand his partners. Since the other two had been friends before he met them, he was always the odd man out. "I thought I could single-handedly make the business successful despite my partners. I was wrong about everything." Then things got worse. After a year they abruptly kicked Moltz out of the company. In anguish, he took to his bed for a week. Another friend had put $25,000 into the business, and when it eventually tanked she quit speaking to him.

At this point, in 1993, Moltz's father begged him not to indulge his addiction again. With a wife and a baby on the way, he could earn a steady living--he'd had a good job at IBM for nine years. Maybe the company would take him back?

Moltz listened to his father's advice, but he didn't take it. Instead, he huddled with a longtime friend who had a comparatively boring business idea--selling existing but often hard-to-find mathematical and statistical software, mostly to universities, federal research labs, and large corporations. The recession was still on, and Moltz didn't see any other options.

By now he knew to expect a roller-coaster ride. He would be on it with someone he respected and could communicate with, but he knew that wasn't enough. In his book Moltz describes business partnerships as "marriage without sex." When partners first meet everything looks rosy, and the very suggestion of a prenuptial agreement is chilling. But his experience in the voice-activated computing business persuaded him to take a friend's advice, and the new partners entered into a formal partnership agreement so they'd have a civilized way to break up if it came to that.

Moltz still had his Hawken-inspired dreams of doing things right, but "right" often gets fuzzy when every sale counts. When their first prospective customer asked to visit, he recalls, the company had no employees and no office furniture. "So a few days before our customer came to visit, we purchased a lot of furniture on a credit card with a 30-day return guarantee," he writes. "We had our computers dial our phone system to make it seem like we were a busy company receiving a lot of calls. I also 'hired' a few good friends for the day to make it seem like we had at least a few employees." They landed the customer, but venturing into an ethical gray area is never so simple. "The customer wanted to come back a month later to visit us again!"

On another occasion a Fortune 500 customer sent their firm a check for $58,000 to pay a $950 bill. After some consideration, Moltz deposited the check, then asked the company whether it wanted to maintain a credit balance of $57,050 or have the money back. It took the company six months to ask for a refund, and in the meantime having that much cash on hand helped Moltz's company survive.

During the mid-90s, Moltz says, he became so absorbed in riding the roller coaster that even when he was with his family he wasn't really there--until he had to be. In May 1995 he woke up one morning and couldn't see clearly. The doctor told him he had diabetes, though he was rail thin and had no family history of the disease. His response was to severely limit what he ate, reasoning that if he didn't eat, his blood sugar wouldn't go up. That was true, but he lost so much weight friends thought he was dying of AIDS. He spiraled into depression, and for six months his partner ran the business alone. He climbed out of the hole, he says, only with the help of family and friends and "some great pharmaceutical drugs."

Good luck played a part in the business too. One of the companies in their catalog asked to place an ad next to its listing. Neither Moltz nor his partner had thought of that, but in time those sales would make up a quarter of their revenues.

In December 1998 a larger company expressed interest in buying their business, and within a few months Moltz and his partner accepted their offer, with relief. But they hadn't climbed off the roller coaster just yet. "Months of due diligence followed," Moltz says, "where they found flaws in our business that I did not even know existed." The deal was called off. Negotiations began again with the same company, and the sale was made at a lower price late in 1999. Moltz won't say what the company sold for, but it was more than enough to pay off the $1.3 million he and his partner owed the bank.

Moltz and his partner celebrated by participating in an all-night Chicago bike ride. They were really celebrating their survival--and their luck. The business, Moltz says with uncharacteristic understatement, "would have been worth much less if it had been sold today rather than in 1999."

Entrepreneurs are "a little bit crazy," according to Moltz, because they defy the odds, often without knowing or caring what the odds are. They're more like aspiring actors or artists who do what it takes to follow their calling than like the human calculators who figure prominently in economics textbooks. Like actors and artists, entrepreneurs don't expect to fail, but most of them do. According to Small Business Administration figures, over half of all start-ups close their doors within four years. "I certainly had no idea when I started my businesses what the level of risk was for myself, my health, my family, and my family's financial assets," writes Moltz. "I wasn't taking a calculated risk. I was dreaming of what I could build." It's not about the money. "If you want to have your own business for the money, then forget it--go get a job."

It's certainly not something you do for your health. Moltz's stories repeatedly turn on health-related incidents, both metaphorical and real. "Running a business will bring out the best and the worst of who you are," he writes. "The highest highs and the lowest lows possible will be part of your daily business life." Sounds like a description of bipolar disorder. His experience with diabetes and depression only hints at the prevalence of stress-related disorders. He tells of a colleague who used to enjoy relaxing in a spa when she was a lawyer; now that she's in the business of running a spa herself "she feels sick all the time." He used to go to the beach at South Haven, Michigan, where "successful guys walk around with their shirts off," and he swears that "80 percent of them had a scar down the middle of their chests from open-heart surgery."

Religion plays almost as important a part as health in Moltz's view of business. He writes of his own Jewish faith and his fascination with Zen Buddhist ideas, and there's an almost Calvinistic fatalism in his emphasis on the importance of luck and timing: "An important part of being an entrepreneur is to be able to accept the role that serendipity plays in any business outcome." Hard work, planning, preparation, and learning from your failures may help, but Moltz insists that no one succeeds without luck and timing--just as no good Calvinist is saved except by undeserved grace conferred randomly.

To sum it up, entrepreneurs strike out on their own because they're driven to, not because they calculate risk and reward with a sharp pencil. In any case, whether they succeed or fail is largely a matter of luck. The main lesson is to value people and be humble, because "you meet the same people going up and coming down." Is this a how-to book or a philosophy of life? It's certainly not the fantasy so many budding entrepreneurs imagine themselves at the center of.

When Moltz speaks to business owners, he says, he sees a sea of nodding heads. People come up afterward and say, "That's like what happened to me." But audience members who are thinking about starting a business resist the dark and contrarian parts of his message. When Moltz spoke at Northwestern the students pressed him on everything. Are luck and timing all that important? "Yes," he said. "You should work hard because you enjoy working hard. Failure sometimes happens for no particular reason. It just stinks." Is business really only about people? "If not, then what is it about?" Do successful entrepreneurs really put themselves in the hospital with stress? "Your experience could be totally different, but I bet you'll find this." Aren't business-school graduates more successful than others? He paused. "I'm unsure. It's a piece. I got my MBA at Northwestern at night while I was at IBM." Did you ever fire someone because you didn't like them? He paused again. "Probably I have. I also fired people I loved."

Moltz acknowledges that you have to be a little crazy to do what he's just done: write a book addressed to people who, by his own account, act like delusional compulsive gamblers. What would he tell someone who came to him in person, starry-eyed and repeating the eight-step cliches about starting a business that's certain to generate riches?

"I don't think you can tell people that much," Moltz says. "You can give your opinion. You've got to be honest with them. But many of them won't be satisfied with their life until they've tried it."

You Need to Be a Little Crazy: The Truth About Starting and Growing Your Business by Barry Moltz, Dearborn Trade Publishing, $18.95.

Art accompanying story in printed newspaper (not available in this archive): photo/Robert Drea.

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