Silicon Insider: So You Want to Be a Tech Entrepreneur?

Feb. 23, 2006 — -- Ever had dreams of starting your own high-tech company?

Well, historically the best time to be a tech entrepreneur is when venture capitalists are drowning in too much money, angel investors are back in the game, and the entire electronics industry is just at a cyclical peak and about to tip over into a brief downturn to give you cover as you ramp up to market.

In other words, right about now.

OK, but even if your timing is right, there is still the little matter of actually coming up with the right business idea -- not to mention the right executive team, the right market, the right first product, and, of course, the right investors.

Then, of course, if you pull all that off and actually get funded, there's still the hundred-hour work weeks, the race to market, the unexpected competitors, the fights in the hallway with the other founders, the divorce, etc. But, of course, if you fretted about all that minor stuff, you wouldn't be entrepreneuring in the first place. You think those worries hampered Bill Gates or Steve Jobs or Michael Dell?

So let's ignore all those peripheral matters and get down to the tough question: What should your new company do?

Well, there are two answers: build stuff or do stuff.

Knowing Your Market as a Manufacturer

To build stuff, i.e., become a manufacturer, you need to have a very deep understanding of the technology involved. In other words, to design and build successful high-tech products you basically already have to be doing that for someone else. You need to know not only where the basic technology is at and where it is going next but also who is competing in that market, the established distribution and retail channels, current patents and intellectual capital, marketing strategies and pricing. And it never hurts to have an extraordinary understanding of the customers for this product.

In other words, if you are sitting in Enid, Okla., with an MFA in classical Greek and you have a clever idea for a new electronics gizmo, the reality is probably one of the following:

1. Somebody else has already invented it, patented and failed with it.

2. Nobody at a major company is going to respond to your pitch letter with anything but a lawyer-written full-release form (just in case you do have a great idea that they are also working on in some supersecret lab project).

3. VCs are going to put your idea in the dead-letter file because they know that a real "product" is less about the product itself and everything about the stuff around it. They are, contrary to the myth, in the business of building companies not handing out prizes for clever inventions.

Still, if you believe your gizmo is the greatest thing since the iPod, then build one, file for patents and show it to someone who has experience in the industry. If that person agrees with you, team up with that expert and a few others with similar resumes, and then go back to the venture capitalists. That's how even inexperienced people occasionally make a billion dollars. On the other hand, your odds may be better with Lotto.

Doing Stuff May Be Lower Risk, Reward

If you want to do stuff -- that is, create a service company -- then your near-term risk is much lower … though the long-term payoff is likely much lower as well.

The best thing about a service-oriented business is that you can bring your existing skill set to it -- and you don't have to have a doctorate in some technical field, only a working acquaintance.

Here, the challenge is not so much coming up with a brilliant new business idea -- the cost of entry is so low in most tech-service businesses that whatever brainstorm you are having right now is likely going off in the heads of a thousand other people -- but your speed and execution in getting your business off the ground and established before others do.

Once established, new tech-service businesses fill up rather quickly and suffer a shakeout soon after. The winners are those firms that not only get into the market early and reach a critical mass of customers but that also have enough funds to start gobbling up competitors (and their market share) as those firms begin to totter.

So the trick is to extrapolate both the industry and the technology a couple years into the future, spot an emerging market opportunity, and dive in early.

Finding Your Niche, Beating Your Competitors

Are there any emerging new tech-service industries visible right now? Sure, though I should caution that if I had any sort of gift at identifying these things I'd be a hot entrepreneur right now, not merely writing about hot entrepreneurs. And keep in mind, having identified these potential business opportunities, you now have several hundred thousand potential competitors:

1. E-Auction Aggregator -- Though you probably have never heard of any of them, there are hundreds of very successful companies out there that could best be described as glorified junk dealers. That is, they buy used commercial and industrial components and equipment at either auctions or on eBay, clean them up, categorize them, warehouse them, and then sell them at much higher prices to companies desperate for that one obsolete part that will get their factories running again.

Unless you have an unequaled knowledge of rheostats or 1960s power supplies, this junk business isn't for you. But servicing it might be: these guys are what might be called eBay power buyers -- and eBay, PayPal and the other big players are entirely oriented toward power sellers. As a result, the most successful junkmen are hitting a wall because they just can't keep up with the paperwork required to deal with all the online, one-off bidding and payments they have to make. Find a way through software or service to help them, and you will have a nice little business.

2. Promoting the Blogosphere -- The Blogosphere is the biggest business opportunity out there. Just imagine: an estimated 20 million-plus blogs, and not one has yet figured out how to effectively monetize its product. A shakeout is coming. The blogs that succeed will be the ones that figure out how to generate revenues through some combination of advertising and subscriptions. Both of those revenue sources largely depend upon traffic. Traffic is driven by visibility, and visibility is largely the product of promotion. And bloggers are learning that sending today's screed to Instapundit in hopes that he'll mention it, or waiting around for CNN to call, won't cut it. Put simply: the Blogosphere needs PR, and lots of it.

The problem is that, except for a few large aggregator sites such as Pajamas Media, few individual blogs can afford to put even a single flack on the smallest of retainers. So, follow the lead of Hollywood agents: Aggregate your own stable of several core bloggers, have each pay you a very small monthly retainer, and make your bones with volume. Learn about them, group them by theme, search for interesting feature stories, and pitch them like crazy to the media. It'll be a good living -- and if one breaks out big, you'll get big too.

3. Marketing the Blogosphere -- OK, here's another blog-world opportunity. As I just noted, of those millions of blogs out there, the ones most likely to survive are those that nail down some serious advertising -- more than the current run of T-shirt makers and art galleries. Someday General Motors will place ads on Lileks, Kos and Little Green Footballs, but not for a while (most newspapers will have to die first).

The big, established advertising agencies are sticking to what they know best -- placing ads in the mainstream media -- stuff they know their advertisers read and trust, and where there are established reader profiles and metrics. Still, sometime in the next five years, hundreds of millions of advertising dollars are going to shift over to the blogosphere. Find yourself a place in the middle brokering that shift. Aggregate blogs, develop reader profiles and demographics, put together realistic rate sheets, and pitch, pitch, pitch. You'll starve for a while, but if you are good and can survive, when the big agencies finally come knocking, you'll enjoy one handsome buyout.

4. Home IT -- Been to a stereo store lately? We are currently in the midst of one of those once-in-a-decade consumer electronics explosions -- with all of the attendant confusion over standards, compatibility and competing formats. Should you buy a player with one of the new DVD formats? Or just convert everything to MP3? Is an iPod good enough to power a home stereo? Sirius or XM? Do you need one of those new 10 G byte home controllers? Flat screen or plasma, regular or HD? The whole thing is a confusing mess, and whenever you finally do buy something you just know as you walk out of the store that you've been screwed, that the player in the box is already as obsolete as an eight-track.

What we all need are consumer electronic filters and packagers, just like the IT guys at the office -- or more precisely, just like the consultants who set up high-end media systems in the homes of rich people. Not that expensive, of course, but just an outfit that for a couple hundred bucks comes out to the house, custom designs a system to your price point -- $500, $1000, $1,500 -- and installs it. If it doesn't work, they come out and fix it. If you want to upgrade later on, they do that too and keep you updated in-between with occasional e-mails or letters on the latest offerings. And best of all, they aren't in the pay of one vendor or another. I'm sure there are people out there doing this -- but where are the regionals? The folks that can get discounts on those components from suppliers? In the meantime, we remain at the mercy of store clerks or our own teenagers -- a nightmare scenario either way.

There you go. That's four million-dollar ideas, each capable of holding several hundred companies -- and each worth as much as you paid for them. Now just form a team, write up the plans, add spreadsheets, get money, quit your current job and prepare to give this project every second of your life for the next three years.

Do not, repeat, do not mortgage your house to fund it. If the plan works, give me credit someday in the official corporate history. If it doesn't, don't blame me. I will state right now, for the record, that your business will fail horribly -- and that I don't even know you. Oh, and if you do decide to go pitch venture capitalist or investors with one of these ideas, don't tell them I sent you.

Good luck! And see you on the Forbes 400!

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone, once called the Boswell of Silicon Valley, is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury-News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is best-known as the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public-television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com "Silicon Insider" columnist since 2000.