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Startup City: Solid business plans scarcer than capital locally

Karen Chassin

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This is a series of perspectives from local leaders who support startup businesses and social ventures, or who have started one themselves. Each is invited to envision what a world-class startup ecosystem would look like in St. Petersburg and to share their ideas for how we get there.

As we continue to explore the entrepreneurial ecosystem in St. Petersburg and Tampa Bay, Bruce Lehrman came to mind as a great person to query about the strengths and opportunities of the landscape here.

There are several reasons why his perspective is so valuable. First, he divides his time between St. Petersburg and Cedar Rapids, and is engaged with venture funds and mentors businesses in both communities.

He is also co-founder and CEO at Involta, an industry-leading hybrid IT, cloud computing and data center services company, based in Cedar Rapids. Involta was named nine times one of the fastest growing private companies in the United State by Inc 5000. He draws on his experience as a highly successful entrepreneur and business leader in his work in the St. Petersburg startup ecosystem.

We asked Lehrman what he sees as the biggest challenge facing entrepreneurs and investors in Tampa Bay. He began with the observation that there is insufficient infrastructure for honest coaching and mentoring of business founders.

“The ecosystem needs people who can guide entrepreneurs so that their businesses are fundable and investors have something to work with,” he said. “In my experience, 90% of the businesses I encounter lack a solid business model. Their numbers don’t work. Or they don’t have the right leadership team in place. There is a lack of knowledge and skill in the ABCs of business plan development.”

He attributes part of the problem to a well-intentioned but misguided approach to supporting entrepreneurs. “There’s too much cheerleading and not enough asking the hard questions and solid skills development. Businesses require brutal honesty about costs, revenue and other fundamentals before they can be fundable by any investor.”

Lots of time and human capital are wasted when founders pursue their ideas and get attached to their dreams without proper vetting and mentoring. The ecosystem needs more entrepreneurial support on the front side – the business formation side – of the process.

We asked whether he thinks that there is enough business talent around to guide this process. Could these lessons be formalized and scaled to widen the funnel of fundable businesses? He speculated that the necessary talent probably exists, but if people don’t know where to go, how to help or how to engage, it’s a moot point.

Fortunately, Lehrman shares Cedar Rapids roots and a friendship with Kim Vogel, co-manager of the Greenhouse and VP for Entrepreneurial Advancement and Business Growth at the St. Petersburg Regional Chamber. She pulled him in to the local scene and invited his participation on a committee of funders at the Greenhouse. Lehrman recently met with Tampa Bay Venture Fund, a group that is putting together a $20 million fund, led by Marcus Adolfsson.  

Another issue Lehrman raised is that entrepreneurs are motivated to take advice and accept entrepreneurial support services when they are tied to a potential source of funding. The promise of money carries clout. Yet he admits that fund investors often don’t have the bandwidth to get involved early in the process and tutor companies to develop the right business plan and revenue model from the outset.

“Fund advisory boards tend to get engaged on the back side, the funding side, rather than on the business formation side,” he said. “How do we raise the startup community’s IQ about the fundamentals of a solid business plan and get more viable businesses in the funding pipeline?”  

That’s a great question, and one we will take up with the leaders of local entrepreneurial support organizations in the coming weeks.

Lehrman believes that there is no shortage of financial resources to invest in fundable businesses. “Billions of dollars could be raised,” he said. “Currently there are too many dollars chasing too few viable deals.”

The high failure rate of startups is a big topic of conversation, but there is another way to look at that, he says. Many of these failed businesses were never viable businesses to begin with, but no one intervened or helped them course correct. “There is a lot of passion out there unsupported by know-how. But these are teachable skills,” he added.

“People say that entrepreneurs are huge risk takers. But that is not the case. If you have a good plan and a good team, you will get investment and you greatly increase your chances to succeed. It is that simple.”

 

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