Bill Honnef ’88 Shares His Startup Secrets with Students

Posted on 10/23/2017 12:04:43 PM

On Thursday, October 5, the Eberly College of Business and Information Technology hosted Bill Honnef ’88 as an entrepreneur-in-residence to speak with students about entrepreneurship and building a successful startup.

Bill Honnef '88, third from left, pictured with members of the IUP Student Managed Investment Portfolio team.Honnef delivered a thorough presentation to students and made reference to his entrepreneurial track record. Of course, his journey began as an IUP business student many years ago.

As a student in the information systems program, he found enjoyment in his coursework, coding on a TRS-80, and quickly became involved in student organizations.

After graduation, Honnef held a series of jobs at companies such as Special Teams, Marriott, ExpressGold.com, Inc., and Verasun, some of which he founded. Honnef’s outstanding background can be found on the Eberly Alumni page for the Hall of Distinction.

Given Honeff’s experience with startups, students naturally became interested in the underlying process required to build your own business. Students asked questions regarding the methods of financing, how to pitch to investors, the IPO process, as well as how one manages a company when its success depends greatly on the quality of so many managerial functions. Honnef was well prepared, and delivered an informative outline of the steps to starting your own business. Excerpts from Honnef’s insight are shared here:

The Four Pillars of a Successful Startup

I: Generate an Idea

  • “Find a favorable business sector and leverage your experience to break into it” - This is where a sound education with applicable skills is a huge advantage. Graduates from IUP’s business programs quite often find themselves prepared for real-world challenges such as those described by Honnef.
  •  “Do something difficult” – The greatest successes in business come from hard work and an innovative mindset. If it’s easy to think it and easy to do it, then it’s likely not the most robust business concept. Conceive of something disruptive, something that solves a consumer problem, and expand from there.

II: Build a Diverse Team

  • “Investors want to see a strong team” – If you wish to seek investment from anyone with a checkbook, you had better make certain that you can not only sell your product or service, but that you can sell your leadership team. Companies have good times and bad times, but what keeps them in business over the long term is a solid leadership team rooted in competence, dedication, and a growth mindset. It is important to bring on board individuals with diverse backgrounds who can be a direct value add to the business. Investors are far more likely to invest in a company led by problem solvers.

III: Develop a Plan

Of course, no business can succeed without a business plan. A series of questions must be answered:

  1. What type of legal formation will the company be?
  2. What is its product or service?
  3. How will it be marketed, and to whom?
  4. Why would consumers need this product or service? Does it satisfy a need?
  5. What is the unique value proposition?
  6. Who else is already in the competitive ecosystem?
  7. Who could be?

All of these questions, as well as others, must be fully addressed and a plan of business must be created. It is crucial to the success of the startup that the founders develop a core business model and act on it.

Honnef also suggested the following key elements which must be considered during the planning phase:

  • “Create barriers to entry” – Once you have a plan in place, act on it. But don’t make it easy for your future competitors to emulate your product offering. Be sure to erect barriers that will weed off competition. For example, quickly patent any material which is pertinent to success in that market.
  • “Prove your business concept before seeking capital” – Every business needs money, but before you even begin thinking about capital acquisition and investor support, be sure to fully flesh out your business model and ensure it is sellable, scalable, and profitable. This is where a finance degree from IUP can assist you.

IV: Raise Capital

This is by far one of the most difficult aspects of building a successful business. And it should be. In order for the macroeconomy to work, investors should only be willing to put their capital in productive investments which will earn them the highest return. Accordingly, capital procurement can be challenging, especially for a young company without a strong historical background to showcase.

In light of this, Honnef presented IUP students with a useful visualization of exactly how a business’s maturity can dictate the type of investors which may be the most appropriate for them.

How to Pick the Right Investment Source - Graph

Honnef went on to explain how most startups initially require the founder(s) to put up a significant portion of the capital required for operation. Future investors also like to see that the firm’s managers have significant “skin in the game.”

As the company begins to mature, it may then be time to seek out third-party funding—ordinarily from angel investors or venture capitalists to start. “The typical venture capitalist”, Honnef explained, “will commit between five to ten million to your firm but will require a significant equity stake in return in addition to sitting on the board.”

After the business capitalizes on the outside investment and begins to turn a profit, scalability is often constrained by financial resources. That is, significant capital expenditures are often required in order to scale business operations either domestically or abroad, and such initial investments can be costly or potentially unavailable. This is a good time for strategic investors or private equity funds to contribute capital in the one-hundred to two-hundred-million-dollar range.

More often than not, private equity shops will seek out new startups which have realized short-term success and are at the peak of expanding their business. This is the perfect time for PE investors to get into the game and realize exponential profits, while mitigating some of the initial default risks which angel investors are exposed to. Additionally, given the foundational success of the initial startup, this is also prime-time for strategic investors to seek acquisition of the firm and create operational synergies.

If you’re lucky enough to get to this stage, you are one step closer to securing a successful business enterprise. Typically, after utilizing the funds provided, firms should have scaled their business in such a way that they have turned a profit, increased return on assets and on invested capital, and are now proficiently meeting consumer demand. It’s also a good time to consider whether the business could be marketing their products more effectively and if the operational/production side of the business is able to support sustained growth. Assuming that continue growth is expected, the business will eventually need to take out commercial loans, which banks will be open to offering. The firm may even consider the prospect of going public in coming years.

As these decisions mount, it is typically time for the venture capitalist to exercise their exit strategy. Such a strategy is something which Honnef stressed as a key component to securing VC investment to begin with.

As the firm matures even further, typically an Initial Public Offering is on the horizon. Honnef had a thorough experience with IPO negotiation and the process of interfacing with an investment bank and potential investors during his time with Verasun. Honnef cofounded Verasun, a renewable energy provider, whose IPO sold for two-billion in market cap back in 2006. Honnef shared his background from being on the street making road trips to entice initial investors.

Overall, his personal experience provided students with a robust introduction to the entrepreneurial side of business and the challenges which startup companies face every day. IUP student and Equity Analyst for the IUP Student Managed Investment Portfolio, Christopher Barto, was extremely impressed with the thoroughness of the presentation and felt that it was very beneficial to his aspirations to start his own hedge fund.

Sarah Scruppi, junior operations major, indicated that Honnef’s presentation was intriguing because of her interest in renewable energy. She also noted Honnef’s enthusiasm when offering advice about students timing their business startups. Sarah said, “Bill suggested that students be patient and learn from mistakes.”

Dr. Camp, Dean of Eberly College of Business and Information Technology, Bill Honnef '88, and Dr. Dan Lawson, Finance and Legal Studies Dept. and Student Managed Investment Portfolio team advisor.Not only did Honnef share insight with the students, but the students also had the opportunity to share their experience with him. Robert Schwartz, chief investment officer of the IUP Student Managed Investment Portfolio, and Corey Hough, portfolio manager of the SMIP, had the honor of showcasing their student organization and financial trading laboratory.

The Student Managed Investment Portfolio provides members with hands-on involvement managing university assets of over $1 million. This outstanding program allows members the ability to participate in managing a real portfolio, learn applied investing skills, and gain internship-like experience all while attending IUP courses. Rob and Corey both delivered an overview of the program to Honnef, and explained how the applied nature of SMIP is something that is great for entrepreneurial students as well.

Overall, IUP students had a tremendous experience gaining insight from a successful businessman and innovative entrepreneur. Alumni like Bill Honnef are unbelievably generous with their time towards furthering student development at IUP, and it is truly appreciated.

—Robert L. Schwartz
Chief Investment Officer
IUP Student Managed Investment Portfolio