Imagine you are the father and major breadwinner of a family of eight children, half of whom are teenagers. Your startup is about to go into the weeds and you aren't sure if you are going to be able to pay your staff of several dozen people, let alone figure out how to feed and clothe your family.
That was the situation faced by Bob Lozano 17 years ago during one of the most stressful periods of his life. "I didn't know where the money was going to come from. I asked my family for their advice," he told me in a recent interview. His son, Gabe, 14 years old at the time, remembers that day very well. "I told him not to worry, and if this company didn't work out, he should keep trying until he found something that would. That was the moment that I realized that I was going to become an entrepreneur just like my dad."
Bob Lozano took his son's advice and started several companies, but his family is just one of many inter-generational families that have spawned numerous startup tech companies. You may have heard of the Draper family (father Bill and his son Tim are big venture capitalists in Silicon Valley, and Tim's children are now starting their own tech companies). There is the Lee family that has owned Samsung for generations. And there are many other less-famous families that have long been involved in IT startups.
So what do these and other tech entrepreneurs do to encourage a new generation of tech innovators (a.k.a. their kids)? Here's some common advice:
Provide unfiltered, honest feedback
The Lozanos talk about how important honest feedback is, and how not mincing words was so critical to both of their successes. "My wife told me to start my first company because at least I could hire myself," Bob Lozano says. "She knew that I was going to be unemployable and was miserable at my last corporate job." Since then, he went on to start Paylinx (which had a $130 million exit), and holds five cloud computing patents along with the founders of another start-up (Appistry). Bob Lozano also talks about firing his own brother and several friends: "You have to do what you have to do." Other entrepreneur families agree. The mother-daughter team of Susan Elliott and Elizabeth Niedringhaus of managed services provider SSE had a similar experience: "We had to be extremely candid with each other," says Elliott.
Offer a shoulder to cry on
Quite literally, having mom or dad around can help calm a young entrepreneur's nerves and provide some needed sympathy at just the right time too. Gabe Lozano talks about the time, just days before his wedding, when things looked bleak for his current startup Lockerdome (which has since raised more than $8 million). "I didn't have any customers, I had a terrible product, and I had exactly one potential backer. My dad talked me through it and told me that worrying is destructive, and just slows you down. One investor was always better than none. I went on to get this investor to write us a check, although I had to miss one of our pre-wedding parties to finish the paperwork."
Do the right thing, even if it's unpopular
"You have to convince people to join your venture, and to do that you have to have confidence in yourself and in your own value system," says Bob Lozano. "Also, when you screw up, you have to come clean immediately so both your kids and your employees will maintain their trust in you."
"My parents bought the book on how to raise a strong-willed child when I was three or so. I was the only one of my eight siblings where they needed that advice," says Gabe Lozano. Certainly, being persistent pays off. "I learned two lessons from my dad," says Brooke Ross, who started geriatric health care management company ElderNav.com last year. "One is to work hard and play hard. Dad found time to coach soccer even when going through his IPO. The other was not to lie to yourself, and know when you need to get out of a situation when you are sucking wind." Ross's dad is Rich Becherer, who started the first for-profit HMO and now teaches entrepreneurship. He made her look at 50 different cars when she was 15 before she was able to buy it, and then it only lasted a month before she totaled it. "We were always hustling, and being aggressive was a desirable quality in my family," she says.
The same can be said for the mother/daughter team of Elliott and Niedringhaus. "I was determined not to work for SSE," says Niedringhaus. "I moved to San Francisco and even used a potential opening at SSE to double my salary before deciding to come back and start learning mom's business," she says. "I had a real rebellious streak in me. But my mom taught me to have this incredible work ethic from the earliest days." Neidringhaus is now SSE's president.
Bill Frezza, a Boston-based VC, tells the story of his son Brian who is about to come out of stealth mode with his own biotech startup: "Two weeks before his doctoral thesis defense Brian decides to drive to Silicon Valley and seek his fortune. I was literally screaming at him over the phone telling him that he was crazy, that no VC in their right mind would even listen to his wild ass ideas, much less give him any funding." Dad's advice was just more motivation for his son, who was successful at getting several VCs to back his venture.
Common (mistaken) start-up assumptions
Tech families weigh in on some of the more common, and often wrong, assumptions about how a start-up becomes a reality:
Assumption: It's about using mom or dad's connections. "You would think my dad's connections would have helped me with starting my company," says Gabe Lozano. "But that wasn't really true. It was more about the mindset of being an entrepreneur and the feedback that he gave me."
Assumption: It's about teaching your kids how to write a business plan. "Today's companies don't need business plans and huge capital requirements," says Bob Lozano. "With cheap hosting, development tools and ubiquitous Internet infrastructure, you can build a startup in a matter of days." To prove his point, he is close to launching his next startup in this fashion. "I don't even have a name for the company, but have two potential customers already."
Assumption: Kids automatically go to their folks for startup capital. It's true that there are many situations where parents invest in their children's businesses. The Draper family has actually turned this into their business: father Bill and his son Tim are both very active in investing in dozens of tech startups over the past 40 years. And according to an interview in Forbes, Steve Katz invested $50,000 in his son Marc's CustomInk business when Marc was 23 years old. But he didn't think much of his son's business plan although admitted "It's amazing what you can do with a mediocre idea extremely well executed." The elder Katz has been behind several startups, including SEI Corp., Premier Systems and Automated Catalogue Services.
But oftentimes having a parent as an entrepreneur means that the family is living right on the edge, so providing ready seed capital can be touchy. That doesn't mean that the family homestead can't serve as a handy startup incubator. Gabe Lozano never asked his father for an investment in Lockerdome, but he did live and work out of the family home for nine months before the first investor came onboard.
And sometimes the seed capital comes at unexpected times or in interesting ways. For example, Brooke Ross' dad offered her a $3,000 gift to renovate her house; instead she decided to use that to start her own company. This was after working for more than a decade in various healthcare positions. "I needed to gain more experience: in this field, you can't be an expert when you are 25 years old."