The media will have you believe that all successful entrepreneurs are high school drop outs. None of them ever went to university because they weren’t academic. Instead they possessed some intangible sort of “street savvy” that you cannot learn, but have to be born with. They all started out very young selling sweets to other kids at school and were probably dislexic.

Doug Richard finished high school, went to university and never did anything entrepreneurial until his mid 20s. He was seriously disadvantaged, he jokes. And yet, despite all the odds being against him, he still managed to create a software company and sell it to IBM several years later for £710 million.

Doug Richard, former star of BBC’s Dragons’ Den, while plugging his School For Startups, spoke like Dr House on business, about where his ideas come from, his biggest mistakes and how to know if your business idea has what it takes to make you millions.

Entrepreneurs Are Mostly Made and Not Born

Doug insists that the media image of entrepreneurs is total bull. The idea that entrepreneurs are born and not made is completely untrue.

“Are violinists born and not made?” he challenges in a strong Californian accent, “Do they come out of the womb with a little bow in their hands? Maybe the one at the Royal Albert Hall has something special about them but the vast majority of violinists are taught a set of skills that allows them to play the voilin. Why is entrepreneurship any different?”

Anybody can learn the skills required and become an entrepreneur. And what Doug’s School for Startups aims to do, is teach wannabe entrepreneurs what these skills are and how to learn them.

The Story of Simply 3D

Getting into the software industry in California essentially meant you were either going to develop software for the military or for film makers. And since there was little chance of meeting girls making software for the military, Doug opted to make special effects software for film-makers.

As it happened, it turned out to be a decision that he had not thought through. An important question you need to ask with regards to any business idea is “Is there a buyer/seller power?” which means, is your ideas’ success dependent on another product or company?

In the case of software, computers to run them are this power. After wrting software for two years, having Intel phone up and say their computers weren’t going to market for another year meant the software was essentially useless.

But adaptation and the ability to change direction in an instant can save you. They could no longer sell to industry so they were going to have to go to the consumer market. They stripped the software down, taking out anything that did anything and ended up with a “demo” that basically looked impressive but didn’t do anything, and took it to a trade show.

Because they were late, they ended up in the smallest booth at the back of the biggest exhibition hall. Doug had to attend meetings that day and left the booth in the very capable hands of somebody known to me only as Kevin.

Kevin was instructed to give away the demo CDs and try and elicit interest in the product to find people to invest more money into producing it.

Doug returned after his meetings to find a crowd of people all waving money in the air engulfing the booth. Doug pushed through to the front, dragged Kevin being a curtain and said very politely, “What the darn heck are you doing?” But he used a shorter word. That rhymes with duck.

Kevin seemed pleased with himself. He was selling the demo software for $50 each.

“But Kevin. It doesn’t do anything!”

“Who cares? It’s only $50.” Kevin replied, asserting that in the software industry, if it doesn’t cost much, it doesn’t have to work, which I think back in the 80s and 90s was true.

“Kevin I can’t believe you.”

“Doug, this is not what you should be worrying about. The largest software distributor in the country has placed an order for several thousand units.”

The program, called Simply 3D became the biggest selling software of the year, and the company was worth $710 million when it was acquired, which would have been great, but then Doug made what he considers his biggest mistake in business.

Doug Richard: My Biggest Mistake

When Simply 3D was sold it was sold not for cash, but for shares in the company that was acquiring it. And Doug had to wait 30 days to sell the shares and cash out.

“The company was doing things they shouldn’t have been doing,” he remembers, “And the share price fell 99% in four weeks which meant my shares were worth nothing.”

The Million Dollar Question: Are You Making/Selling/Doing Something People Will Want?

As an investor, Doug evaluates whether or not to invest in a business by having the entrepreneur answer 20 questions. Based on the answers, he can tell whether the business is likely to be a winner or a loser. The questions, in order to save him time, are arranged in order of importance.

The first question you have to answer regarding your idea is this: “Am I making/doing/selling something people will want?”

He gives an example of a Dragons’ Den contestant who tried to convince him to invest in a dog blanket. The guy walked into the den and opened with, “Who here has a dog?” Several of the dragons raised their hands.

“Your dog stinks!” he said. Then he introduced his dog blanket. From the opening, Doug had come to the conclusion that the blanket could remove from the dog its smell, while after explanation that it in fact had the significantly less impressive property of simply not acquiring the smell from the dog. As it were, a dog blanket you never need to wash.

The entrepreneur insisted there was no competition at all in the market. Doug put him straight by telling him that, in fact, the competition was called a washing machine.

The entrepreneur insisted he’d asked everybody he knew and they all said it was a great idea. He called this “The Ugly Baby Principle”.

There’s no nice way to say this but some babies are ugly. And when some friends or relatives of yours have a baby and you see it for the first time you say, “Awww. Isn’t he cute?” It doesn’t matter if the baby looks like Quasimodo, you’re not going to be honest. You’re not going to walk up and say, “Oh my God! That baby sure is ugly!”

You’ll probably say something like, “He looks like his father” or “He’ll grow into that nose”.

If you want an objective opinion, ask strangers. Strangers don’t give a shit.

I will be attending Doug Richard’s School for Startups on January 19th 2010 at the Royal Institution in London. I’ll let you know how it goes…