The first time I heard about “entrepreneurialism” as a concept in a way that affected me personally was in the fall of 2012. One of my fellow company commanders at the 10th Mountain Division — we had also been executive officers at the same time in the 173rd and gone through lieutenant and captain training together, in one of those strange and delightful coincidences life provides — was attending Harvard Business School. I’d gone up to Cambridge to visit Greg Ambrosia (a trip that jarred with my Connecticut sensibilities but one I was willing to undertake for a former comrade in arms). He let me sit in on one of his classes — on entrepreneurialism — and explained his interest in the subject.

Since then Ambrosia has gone on to a successful career as a particular type of investor/entrepreneur. Today, Michael Schneider returns on Finance Friday (after having generously ceded his space to me for Veterans Day last week) to highlight some veteran entrepreneurs and founders of whom you’ve probably heard, and explain the conceptual process of beginning a business and finding startup money.

THE BIG STORY

An Instinct for Entrepreneurialism

Veterans of the military go into entrepreneurial roles and start businesses at an impressive rate. What does that process look like?

The world of venture capital and startups can seem intimidating to service members and veterans on the outside looking in. Many service members will seek roles with large corporations as they transition out of the military, and will make positive impacts in these organizations. That’s a comfortable transition — one that is familiar in terms of leadership style, organization, and benefits (though you’ll probably end up making a bit more money in a leadership role).

For those veterans who want to forge their own path and build something new, entrepreneurship is calling. Many of the nation’s largest and best-known companies were started by veterans. These companies didn’t become behemoths overnight. Their success required years of painstaking planning and execution. That might sound similar to your time in the service, and it is. Veterans are uniquely equipped to lead through ambiguity to mission success, and this is one of the many reasons why veterans are a great fit for entrepreneurship and startups. 

Here are a few examples of incredible companies founded by veterans:

• Fred Smith - Fedex

• Bob Parsons - GoDaddy

• Ross Perot - Electronic Data Systems

• Phil Knight - Nike

• Charles Feeney - Duty Free Shopping and General Atlantic

• Charlie Munger - Berkshire Hathaway

• Stephen Schwarzman - Blackstone

And that’s just in the U.S. A look around the world at other companies with proud legacies and heritage turns up similarly impressive lists of companies begun by veterans of their respective nation’s militaries.

Many great companies are founded by someone trying to solve a problem they found that does not have a solution available. For example, if you have ever rented an apartment and found the move-in and more specifically the inspection process tedious and inefficient, you are probably not alone. But now there are multiple companies trying to solve this problem, including RentCheck, which was co-founded by a Navy veteran. That is the basic premise of startups: find a problem that is not being solved and build a product or service to fix it.

When a founder comes up with an idea, he or she should conduct thorough research to validate their business hypothesis (has the business or product been tried before? Is it truly necessary? What’s the likely audience?) before beginning to plan or build on the idea. Once that plan is created and the wheels start to move, VCs come into the picture. 

A founder will likely ask family and friends if they are willing to invest small amounts of money into the company to help pay for the initial costs. Unless they are related to Bezos, Musk or Zuckerberg (in which case please hit me up), at some point the founder will need additional capital to cover the costs of developing the product and growing the business. VCs invest in these companies who oftentimes do not have any revenue or even a fully working product, but who are positioned for exponential growth. It is a risky investment but one that could pay off with a larger return. More on risk and return in a moment. VCs come in all shapes and sizes, from generalist funds to those who invest in specific sectors. Here is a quick overview of the basics.

Startups are inherently risky, and most end up failing for a variety of different reasons. According to research from Cambridge Associates, only 2.5% of all venture deals return nearly all of the profits. For 100 investments, 2.5 of them will be massively successful while the rest fail or generate unsubstantial returns. Both founders and VCs face this risk and it is one of many reasons that the average worker will stay at their day job — risk aversion is a powerful emotion. While I was in business school, my finance professors’ favorite example of risk aversion was to ask the class if they had ever been skydiving, an inherently risky activity. They would always find one or two students who had been tandem skydiving and would applaud their tolerance of such risk. Meanwhile I sat in silence knowing that during the month before I got married I had the privilege of attending military free fall school and chose to jump out of an airplane 30 times with a parachute I packed myself. I share this to say that veterans instinctively evaluate risk differently than our civilian counterparts. So many of the daily activities completed in every branch of service are viewed as risky and extreme in the civilian world. This is just one more example of why veterans are a great fit for entrepreneurship — filled with grit and perseverance, and the experience to battle ambiguity. 

If you are interested in the types of startups veterans have founded, check out the Military Veteran Startup 150 - a list compiled by Context Ventures, a veteran founded and led venture capital firm. This list highlights many of the outstanding veteran founded companies and investors who are involved with this ever-growing ecosystem.

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