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Can Money Cramp Your Style?

Does the promise of huge financial payoffs cramp the creativity of Silicon Valley entrepreneurs?
November 1, 2007
URL: http://www.entrepreneur.com/article/185544

While that may seem like a far-fetched question, longtime entrepreneurs and observers in the high-tech hotbed say that, as the rebounding market for IPOs raises the bar for startup company exits, the answer isn't so clear.

Some entrepreneurs can let big money get in the way if they focus on the wrong people when they're coming up with business ideas. "If you're looking to design or build a product or service for an investor, both the investor and the consumer will see through it," warns Kristin Johnson, regional director of the Northern California Small Business Development Center Network. Many of the dotcom startups in the late '90s made just that error, Johnson says, resulting in a lack of creativity and viability.

Businesses that are founded and managed with the objective of getting funded or exiting during a hot market may also suffer from creativity hamstrung by the need for speed. "When you're going after an IPO or obtaining VC, everything has to happen more quickly," Johnson notes. "A funding timetable doesn't have to push creativity out of a company, but it often does."

When financing capital is readily available, it also tends to dilute entrepreneurs' control of their companies--and their ideas. "Creative people like to have ownership of what they're creating," Johnson says. "If somebody else has money in the game, it's not as much of a pure creative environment."

One veteran entrepreneur agrees that creativity can be affected by the presence of money, but says capital isn't necessarily the only factor. Rick Clark, 43, founder of Aptare, a data storage management software company in Campbell, California, says a decline in the use of stock options in Silicon Valley and the increased ownership stake demanded by VCs are important elements in the current climate for creativity.

"When I came to the Bay Area, joining a startup was really exciting," says Clark, who arrived in the region from his native New Zealand in 1987. "You got stock options and felt as if you owned the company and were part of something." Today, employees get higher salaries and fewer options, and Clark suspects that this doesn't help creativity.

Investors still smarting from the bust in 2000 demand larger shares of the companies they invest in today, which can lead to a culture in which employees don't feel a sense of ownership and aren't driven to innovate. "The outside investors are taking too much of the pie, leaving very little for the founders and employees in general," Clark says.

Not everyone agrees that big money equals a lack of creativity. "I'd argue it has the opposite effect," says Lou Hoffman, 41, founder of The Hoffman Agency, a 110-employee PR company. Hoffman, whose company is based in San Jose, California, has worked in Silicon Valley for more than 25 years. "When there wasn't the chance for big money right after the meltdown and IPOs were few and far between, there was less creativity," he says.

For Hoffman, who had many young companies as clients and potential clients before, during and after the bust, the connection between financial gain and business creativity is pretty clear. "The worst period was right after the meltdown, from 2001 to 2005," he says. "We weren't seeing anything in the way of creativity when it came to ideas to build companies."

Hoffman describes the business and technical innovation that's going on in the Valley today as different in kind more than quantity. "During the dotcom mania, some of the creativity definitely came under the silly category," he says. "A company that's going to sell pet food over the internet--I couldn't call that creative."

Whether you think there's more creativity or less in Silicon Valley today, it's clear that creativity is more grounded in business reality, serving customers instead of appealing to investors and seeking to create viable business models rather than seductive slideshow business plans. And as long as investors exercise discipline and bona fide entrepreneurs aren't overwhelmed by opportunists, Silicon Valley will continue to be a global center of innovation--but not without at least the prospect of significant financial gain from the whole endeavor. "You can say what you will about our society, but money is the fuel for this whole thing," Hoffman says. "That's what causes people to quit their day jobs and work nights and weekends for two or three years."

Say (Grilled) Cheese

Today's restaurateurs are using a timeless classic--grilled cheese sandwiches-- to pull on customers' heartstrings and bring them in. In fact, entrepreneurs are creatively redefining Americans' nostalgic relationship with the comfort food. The Grilled Cheese Factory in Cherry Hill, New Jersey, caters to children by using cookie cutters and branding irons to give the age-old favorite some new looks. Meanwhile, Chedd's Gourmet Grilled Cheese in Denver is going upscale with its selection of 35 Wisconsin cheeses and 12 breads, and has plans to expand nationally through franchising. If offering only grilled cheese doesn't appeal to you, consider simply adding this staple to your menu. For once, customers will enjoy it if you string them along. --Sara Wilson

Go Go Gadgets!
Since the iPod's debut in 2001, companies have been pumping out accessories, such as speakers, headphones, cases and chargers. And with this year's release of the iPhone, many are counting on similar success. But is there opportunity in this still-young market? Jen O'Connell, an independent wireless expert with 12 years of experience in the industry, thinks so. "Where there's a market for a device, there's a market for accessories," she says, citing several factors: Some of the iPhone's features require different accessories than the iPod's, and the phone's upcoming launch overseas will create global opportunities. As 68,000 people sign up for new wireless service daily, the accessories market will only get bigger. --Lindsay Holloway