things i wish i'd known (entrepreneur)
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CommunicatePage1 Contents 2 Foreword3 Introduction4 Professor Peter Denyer6 Professor Jeremy Stone8 Steve Purdham10 Sherry Coutu12 Marc Moens14 Gwyn Humphreys16 David Tatchell18 Alasdair Rawsthorne20 Dr Ian T Muirhead22 Jed Hurwitz24 Dr Andy Richards26 Alex Hoye28 Ernie Richardson30 Ian Underwood31 Sir Robin Saxby32 Adrian Critchlow33 Acknowledgements
Contents
Thetestimoniesyouareabouttoreadspeakvolumesaboutthelevelofentrepreneurialtalentinthiscountry.Hereare16incrediblesuccessstoriesthatindicatewehavetheappetiteandtheskillsfromwhichtobuildworld-class,innovativebusinessesintheUK.
Theyalsoillustratethatthepathtosuccessisnotaneasyone–thereisalwayssomethingwecouldhavedonedifferently.Theysuggesttheneedforrelentlesspersistencefrom‘theentrepreneur’–persistencethatcanabsorbconsistentlosses,hugeamountsoflonelinessandthepresenceofpeopletellingthemitwon’twork.
Atthesametime,thebestentrepreneursarethosewhodon’tjustheroicallygoitalonebutunderstandtheimportanceofteamworkandcollaboration,especiallywhenitcomestocompanygrowth,andwhobuildastrongnetworkofcontactsandmentorsaroundthem.
Thisiswheregovernment,venturecapitalistsandallthoseinvolvedinsupportinganddevelopingentrepreneurshipneedtoplayabiggerrole.WemustlearnfromtheexperiencesofthosewhohavemadeitandworkhardertobreakdownthebarriersthatpreventevenmoresuccessfulbusinessesfromemergingacrosstheUK.
AtNESTA(NationalEndowmentforScience,TechnologyandtheArts) we’recommittedtosupportingseedstagecompaniesandactivelyinvestinsomeoftheverybestearlystagetechnologybusinessesintheUK.Wehaveaportfolioofover40companiesandareseekingtoinvest£50millionoverthenextfiveyearsintotheseedstage.Wecan’tdothisalone.WeareworkingtowardsthecontinuedimprovementofinvestorsoperatinginthisspacebothintermsoffundsizeandmanagerialexpertiseandwewanttoseemoreindividualswhowillnotonlyreaptheirownsuccessbutbeanessentialingredientinthesuccessoftheUKeconomy.
Ifyouwouldliketocommentonanyofthearticlesorhaveyourownstory,orovertimewouldliketoreadmorelessonsfromothergreatentrepreneursgotowww.nesta.org.uk/hindsight
Jonathan KestenbaumCEO,NESTA
October2007
Foreword
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Ifyou’rereadingthisbookletyouareeitheranaspirantentrepreneurseekingguidanceorinspiration,asuccessfulentrepreneurseeingwhatworkedforotherpeoplelikeyourself,oroneofthemanyspectatorswhoobserveentrepreneurialpeoplewithamixtureofbewilderment,envyandadmiration.Whicheveryouare,wehopeyouwillfindthisbookletofuse,orattheveryleastofinterest.
Entrepreneurialismisaprofoundlyillogicalbusiness,involvingasitdoesprodigioushardwork,enormousstrainsonpersonalfinances,andoftenrelationshipstoo,andwithahighriskoffailurebringingalltheassociatedstigmas.Onanyrationalbasisnobodywouldembarkonabusinessstart-up;particularlyinvolvingnewtechnology.So,whydotheydoit?Because,astheseindividualstoriestell,atsomedeeppsychologicalleveltheyhaveto.
Entrepreneursareastrangeandbewilderingspecies;men&women,young&old,inspirational&perspirational,methodicalandsometimesjustplainlucky.Howeverwhatunitesthemisthejourney.
Whatwehaveattemptedtodointhisbookletistoassemblemanydifferentstoriesaboutentrepreneurialjourneysandhavedeliberatelysoughttofocusontheemotionalratherthanthepractical.Thisisnota“howtodoit”textbook,butwehopeitmightbea“whytodoit”guide.
Weaskedabroadrangeoftechnologyentrepreneurs,manyoftheminvolvedinspin-outsfromuniversities,toprovideashortletteraddressedtoanunknownaspiranttechentrepreneur,offeringinsightintothepersonalaspectsofthestart-upjourney.Wehaveimposednoconstraintsonthecontentofthesecontributions,otherthanapreferencetoavoidanylitigationforlibel!
Thesearetheirownwordsandinourvieweachofthemmakescompellingreading.Webelievetheycontaingenuineandvaluableinsightsintowhatittakestoembarkonthejourney,butalsohowrewardingitcanbeatapersonalandemotionallevel.
Thetitlewaschosenhalfexpectingthatoneortwomightnothaveundertakenthejourneyhadtheyknownthedemandsitwouldmake.Thesurpriseforusisthealmostunanimousviewofallcontributorsthatthejourneymorethanjustifiedthecost.Furthermore,howmanyhavenowembarkedonanotherjourneyinpursuitofanotherprojectthatmaychangetheworldinsomeway.
Wesaluteallthesecontributorsandalltheotherentrepreneurswhosharethisambitionforchange,andwehopethatthisbookletmightmakeasmallcontributiontoencourageotherstotakethefirststep.
Editors
Ernie Richardson Peter Denyer Sherry CoutuOctober 2007
Introduction from the editors
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Professor Peter Denyer
Likeahostofthings–greatfood,forexample–readingaboutitisnosubstitutefordoingit!Besides,writingaboutsomethingsointimateasthecompanyIgrew,andlivedandbreathed,isgoingtobehard,isn’tit?Itturnsoutnottobe–Imusthavelearnedathousandlessonsingrowingandmanagingmybusiness.Belowaresimplythefirstfewthatspringtomind.
Problems
Withoutwishingtomakeitsoundlikeagameshow,lifeasanentrepreneurisacontinuousseriesofchallenges.Lotsofthem.Allthetime.Thatword–challenges–wasn’tchosenforitslinguisticprogrammingeffect;itisactuallyhowIcametoseethings.Thementalprocessisfascinating–somepeoplebelieveitcanbetaught,butIthinkithastobelearned.
Itgoessomethinglikethis:todayakeysupplierhaswarnedyouthatacomponentwillbefourweekslate.Onereactionisthattheskyisfalling,andthiswillbetheeventthatisgoingtofinishthecompany.Analternativeisthatyouhavefacedproblemsonthisscaleeverydayforasfarbackasyoucansee,andguesswhat–youandyourcompanysurvivedthem.Youmaynotbesurehow,butyouseemtohavetheknackofdoingso.Ihavenoidea,writingthis,howyouwillsolvetoday’sproblem,butifyou’vesurvivedthisfar,thenit’shabitual.Therefore,thereisnoneedtoworryaboutsurvival–youdon’thavetowasteanybraintimeonit.
Now,applysaidbraintotheprobleminhand,andtomorrowyou’llbelookingbackonthis,anotherproblemovercome.It’slikeaboathittingawave–thesituationlooksdreadful,butlikefivehundredwavesbeforehand,buoyancywinsagain,theboatbobsup,thewavehaspassed.
WhatI’mtrying,badly,tosayisthatyoucanandmustnaturallylearnhowtocopewithcontinualstress,andtounderstandthatthereisamentalplaneonwhichyoucandothis.
“No matter how hard you try, you cannot communicate enough.”Communication
Nomatterhowhardyoutry,youcannotcommunicateenough.Providedyou’recommunicatingthingsthatmatter,everyoneappreciatesit;suppliers,investors,staff,customers.Inhearingyoudiscussthebusinesssomeofyourenthusiasmwillruboffontothemeachtime.Ifyou’regivingsomeinsightintoaproblemalistenerwillnaturallystarttotakesomeownershipofit;theymayevensuggestasolution.Attheveryleasttheirnewknowledgewillaffectanythingtheydothatmightbelinkedinanyway.
I’manaturallybadcommunicator,anditembarrassesmetoadmitthatIhavetoforcemyselftodoit.ButalmosteverytimeIpushedmyselftocommunicateIgotapositivereturnonit.Youshouldalwaystakeanopportunitytohaveawordwithsomeone;eventhesimplefactthatyou’verecognisedsomeone,andtakenaninterest,cangiveaboost.
Onceyourbusinessreachesacertainsize,perhaps50ormorestaff,it’shardorimpossibletomaintainfrequentpersonalcontactwitheveryone.Analternativethenisaregularupdateofsomekindfromyou.Aweeklystate-of-the-nationemailtoeveryoneinsidethecompanyisonesolution;monthlynewsgetsabittoostale.Thereisnoneedtowasteresourcesinmakingthisglossy–butpeoplereallyvaluebeingtoldaboutdevelopments,andevenaboutproblems.Thisisalsoagreatwaytomilitatetherumourmill.Ifyou’vestatedaposition,oryourview,therewillstillberumoursbutthey’llhavemuchlesscurrency.
Thereisanother,deeplyfrustratingaspectofcommunicationthatInevermanagedquitetogetthebetterof;gettingyourstafftocommunicatewitheachother.Ican’tofferacut-and-driedsolutionhere.Icanonlytellyouthatinaprojectrequiringlotsofcommunicationbetween,say,twodesignengineers,theywillprobablynotcommunicateevenifyouseatthemwithinfivefeetofeachother.Thebestyoucandoistoassumethatcommunication,oratleasttherightdegreeofit,isn’thappening.Trycheckingtoseeifitis.
Peter was the founder and CEO of Vision
Group plc, the Edinburgh-based creator of
CMOS Imager chips used widely in digital
cameras. Vision was a successful spin-
out from his research at the University
of Edinburgh. Peter served as CEO of
Vision from its inception and early stages
in 1990, to its UK IPO in 1995. Vision
subsequently grew as a mainstream
fabless semiconductor company shipping
millions of units, before eventually being
sold to ST Microelectronics in 1999. Peter
is Executive Chairman of recently listed
MicroEmissive Displays Ltd and was the
co-founder and Chairman of Rhetorical
Systems.
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Beforelong(hopefully)you’llhavegrownanexecutiveteam,andtheymustcommunicatealso.Generallythisisn’tsuchaproblem–peopleatthislevelunderstandtheimportanceofcommunication.Aweeklyinformalmeetingisagoodidea–atimeintheweekwhenthetopteamtrytobeinthesameroomtodiscussanythingandeverythingthatishappeninginthebusiness.AsfarasI’mawarethisworkswellforbusinessesaslargeasthelargestFTSE100companies,andassmallasyours.
Gratitude
Anoddtopic,Iknow,butanimportantone.Rather,it’simportanttoknowthatyoushouldn’texpectany.Inmyownbusinessduringitsnine-yearlifetime(exactlytheUKaveragetimefromstart-uptoexit,bytheway),IcancountononehandthenumberoftimesIwasthanked,ever,foranything.Thisisn’tsourgrapes.Ithinknonetheworseofanybodyforit;theysimplydon’tseethingsthatway.Ifanythingtheyaredoingyouafavour,andyourrewardswillbegreatenough(theybelieve).
PerhapsIdidn’tdoenoughthankingmyself,thoughIbelieveItriedandIencourageyoutodoso.Soyou’vebeenwarned,andthat’sallthatisintendedhere.
“For a company to survive and grow, its shape must change quite often.” Organisation (and change)
Foracompanytosurviveandgrow,itsshapemustchangequiteoften.Youshouldthinkaboutreorganisingaboutonceevery12months.Peopleshouldgetusedtothis,andseeitasahealthyprocess,notasapersonalthreat.Thereisnopointhereindefiningaperfectorganisation–itdoesn’texist.Thoughyoucanchangetheexistingoneforthebetter.
Inevitablychangeswillthreatensomeindividuals(thoughthisshouldbetheexceptionratherthantherule).Thiscanbetough,butyoumustlearntofaceuptoitifchangesareforthegreatergoodofthebusinessasawholeand,therefore,forthemajorityofitsstaff.
TheonlypracticaladviceIcangiveisthatnomatterhowbadthenews,whetheritbetheremovalofsomecherishedrole,orevenredundancy,peopleappreciatebeingspokentofacetoface,andbeingtoldhonestlywhyandwhatishappening.Itseemsalmostabsurd,butIhavehadsubsequentlyfriendlyrelationshipswithcolleaguesthatIhavehadtoasktoleavethebusiness.Itsoundslikeaplatitude,butoftensuchamoveisintheirinterestaswellasthatofthecompany.
The most difficult day
Unsurprisinglythereisalotofcompetitionforthisone.Afairlyclearwinnerhoweveristheday,followingnineyearsofexhortationfrommethatitwasus-against-the-world,Igatheredtogethermystafftoannouncethatthebusinesswasbeingsold.Ihopeyouhaveoneofthesedays!
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Professor Jeremy Stone
I“WishI‘dKnown”Iwouldonedaybeaskedtowriteanopenletterlikethis;itwouldhavegivenmesuccourinhardtimesand,believeme,thereweremany.Infact,timesarenotnecessarilyeasiernow,justdifferentinlargepartbecauseanentrepreneurs’mindsetisnotonethatchangeseasily.Theoverachiever-neuroticthrivesontheshort-livedthrillofsuccessandtheterroroffailure.Thestakesandrewardsmaydiffer–thedriversaremostlyfixed.Recognisingone’sflaws,one’smotivatorsandthatoneseestheworldinsometimesdifferentwayscanbereassuring;ithelpspartnersunderstandyoursometimesoddbehaviourtoo
IwishI‘dknownthatnoteveryoneisanentrepreneur,nomatterwhatitsaysontheirbusinesscard.IwishI’dunderstoodbettertheinformalrulesofthegame,ratherthanassumedenthusiasmandyouthwouldtriumph–mostpeopleofferingmoneydon’tdeliverontheirpromise.Incontrast,ittookseveralturnstolearnnotalwaystotakethefirstofferoffunding.Inparallel,Idiscoveredthehardwayaboutshareholderregistersaslongaslimbs.
“I wish I had known that not everyone is an entrepreneur, no matter what it says on their business card.”IwishI’dunderstoodbettertheimportanceofhighquality,trustedprofessionaladvisors–Ruskin’ssayingnevertobuyonpricealoneiswisecounsel.Alawyerwhounderstandsyourquirksandfollies,yetaddsatrulycommercialperspectiveisagodsend.Dittoaccountantsandcorporatefinanciers.Theywouldhavehelpedmeunderstandthatlessisoftenmore–simplestories,welltold,engageinvestors.Equally,sharestructuresandinvestmentdocumentsonlyadvisorscaninterpret,probablysignaltroublesahead.
IwishI’dvaluedmuck-and-brassopportunities–manyhavepassedmebyandbecomesuccesses.Ifellvictimmorethanoncetoegointhisandmanyotherareas–humilityisacoreskill.
“I back the team now first and foremost.”ThepoweroftheteamissomethingIpreachbuthaveforgottenalltoooften.Ibacktheteamnowfirstandforemost.OnstartingoutIassumedtheideatookprecedence.
IwishIhadknownthedangersofthinkingtoowideandtoofarahead,ratherthandealingwithtoday’sissues.Abetterunderstandingofthe80/20rulewouldhavedonenoharmeither–Ihavedelayedlaunchingproductsorservicestoolonginsearchofperfection.
Ishouldhavevaluedmoretheimportanceoflegacyoverfinancialreward–workingforthelatterrarelybringstheformer.IwishI’draisedmoremoneythanIneededandworriedlessaboutthedilution–insteadI’veenduredpainfulrenegotiationswhencashranshortandseenmystakeultimatelyworthless.
“I wish I had learned to communicate better in all directions.”IwishIwaslessseducedbytheideaofanIPO–magicalwordsthatmeancolossalanddistractingworkload,onlytoexposeyourbusinesstoinvestorsandanalystswithoftenscantinterestinanythingotherthantheshorttermandthequickbuck.
IwishIhadlearnedtocommunicatebetterinalldirections,andfeltconfidenttorepeatthemessagewhenIbelieveditwasclear–inequalmeasure.IwishIhadunderstoodthevalueofsimplicityofmessagetofast-growingfirms,overBlueSkystrategy;andavoidmanagement-speakatalltimes.
After an academic hospital medicine
career, research in aviation medicine
and business school, Jeremy worked as
a senior strategy consultant at Gemini
Consulting, Inc. with numerous healthcare
care systems and pharmaceuticals,
before becoming CEO of US-based
global pharmaceutical outsourcing firm,
Snyder Healthcare. Since 1999, he has
created more than a dozen successful
healthcare and investment companies,
including Medical Futures, Mediary®
and Lattice Growth Partners. Jeremy
is Founder and Chairman of Merchant
Ventures Investments Ltd, which is
acquiring niched fund management and
financial service firms to create a next
generation bank. He also recently became
Chairman of Communication Direct Ltd,
the UK’s leading 3g mobile reseller and
HSBC Best New UK Company, 2006.
Jeremy maintains academic affiliations at
the Welsh Institute for Health and Social
Care, University of Glamorgan where
he is visiting Professor in healthcare,
technology and enterprise.
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“The journey is often superior to the destination.”IwishI’dstartedyoungerandIwishIappreciatedhowmuchfamilyandfriendswouldsupportmebeyondwhatwasreasonableorfair.IwishI’dknownitwasOKtohavefunandinsodoingnottakenmyselfquitesoseriously–thejourneyisoftensuperiortothedestination.
Communicate
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Steve is currently CEO of We7 (www.
We7.com), the new free digital music
destination. He originally founded
SurfControl plc, a global internet security
company, which was recently sold for
just over $400 million. Steve has been
recognized by many prestigious business
awards, including: IOD Director of
the Year, Technology CEO of the Year,
Technology Entreprenuer of the Year, and
Techmark Personality of the Year.
Steve Purdham
Ifyouhaveevertriedtoguideateenagesonordaughterthroughtheminefieldoflifeandhelpthemfrommakingthesamemistakesyoumade,thenyouwillknowthattheensuingtantrumandabusequiteoftenleavesyouconfusedandindespair.
“Opinions are like backsides, everybody has got one.”Asaspeciesweseemedtohavedevelopedamentalblocktosuchadviceasameanstoensurethatexperienceistheonlywaytoreallyunderstand.Soventuringintotheworldofsomeoneelse’s“ThingsI’dwishI’dknown”intheirbusinesslifeisimmediatelyfraughtwithproblems,andactuallythatisgoodbecauseIhavetostartmyeulogywithtwowarnings.•Bewareofperceivedwisdom!•Opinionsarelikebacksides,everybodyhasgotone(wewillcomebacktothisonelater)Sothefollowingismypersonalexperienceandyouneedtodismissallorsomeofitasyouseefit,enjoy.So“ThingsIwishI’dknown”,forme,fallprimarilyintotheemotionalaspectsofbusinessliferatherthatthestandardquantitativeandprocessdrivenelementsofbusiness.AllbusinessissueswillfallintothehoppersofPeople,Process,TechnologyandPolicy.Theycanbesolvedandtaughtwithtime,effortandunderstanding(zzzzZZZZ)butformeit’stheemotionalaspectswhicharethingsthatseemtobubbleunderthesurfaceofyourexecutionuntilthereisasuddeneurekamoment.Quiteoftenitturnsout(asalways)tobecommonsensebuthey,someofusaremorecommonthanothers.Solet’sdivein.
Avoid the negative
Inbuildingandrunningapublictechnologybusinessyouarefacedwithreportingyournumbersandstrategytotheshareholdersevery90days.Thisputsyouinfrontoffinancialjournalistsonaregularbasis.Theeurekamomentforthisonecamewhen,afterreportingquarterafterquarterofsuccessforyears,Ibecamefrustratedthatweneverseemedtogetanysignificantcolumninchesinthebusinesspress.SoIaskedthejournalist“Why?”andthereplywasilluminating–“Steve,givemegoodnewsandIwillwriteaparagraph–givemebadnewsandIwillwriteapage.”
Sadly,thisistheworldweliveinandwearesurroundedbyconstantreasonswhynottodosomething,howdifficultitwillbe,you’llneverbeabletodoitthatway,etc.TheBritishcultureseemstoamplifythismorethanmostculturesIhavemetovertheyears.Whetherit’sdowntotheoldclasssystem,whenitwasseenasalmostasintotryandbetteryourselfIdon’tknow,butdespitethemanyfalsesmilesandwordsofencouragement,itisafactthatweliveinanegativeandunhelpfulworldandthatistheworldthatasanentrepreneuryouhavetonavigate.
It’ssimpletotestthis;askanyonehowtheyareandonthewholeyouknowwhattheresponsewillbe–gloomandmisery.Ialwaysanswer“Brilliant–Fantastic”;it’samazingthealmostshockedlookyouget!Tryit!
“Trying and winning is much better than trying and failing, but doing nothing is always a fail.”Failure is acceptable
ThereisanimplicitfearoffailureintheUKandthepotentialstigmaassociatedwithitbasicallyfreezesmostpeopleintoastateofindecisionandparalysis.WhenRobBarrowandItriedtogetfundingforSurfControl,we“failed”foralmosttwoyearsseeingVCafterVCafterVC,NomadafterNomadafterNomad,etc.Failureisnotwrong–ifyouhavefailedyouhaveatleasttriedandthat,inbusiness,isthemostimportantthingyoucando.I’lladmitthattryingandwinningismuchbetterthantryingandfailing,butdoingnothingisalwaysafailsofindthatbeliefandgoforit.
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DecisionsMakethemandrememberthatadecisionisfornow,notforever.Toooftenpeopleeitherdon’tmakedecisions,oriftheydo,theystaywithitforever.Thisisafactformostpeopleandeitheryougetfrustratedoryouhelppeople.
Therealityisthingswillchangeandyouhavetoadapt.IrememberoverhearinganewemployeeinourBostonofficebeingtaughtaprocessbyanexistingemployee.Thenewemployeequestionedthewaywedidthejob,andtheresponsewas“We’vealwaysdoneitthatway”,atwhichpointIhadtointervene;wehadn’talwaysdoneitthatwayasthedepartmentdidn’texistthreemonthsearlier.Thedecisionthathadbeenmadewasrightatthetimebutthatwasthen;thingschangesobeopen-mindedandmoveon.
“Just Do It” – Learn to trust your instinctsOneofthebiggestfrustrationsIhavehadinbusinessiswhythingstakesolongwhenthereisnoreasonforitandIeventuallyrealisedthatthebiggestgapindecidingtodosomethingandthendoingitisthe“justificationperiod”.
Whenpeopletrytomakedecisionsor(eventually)makedecisions,lotsoftimeislostbeforetheythenexecute.Thistimeislostaspeoplelookforallsortsofwaystosupportthedecisionthattheyhaveorareabouttomake.
Ifyouthinkaboutthelastbigdecisionyoumade,yourinstinctwouldgettotheansweralmostimmediately,therestofthetimeisthenspentinjustifyingyourdecision.Ilearntyoucanmakedecisionsfasterandgettothe“justdoit”bitextremelyfastifyouspotwhentheworkyouaredoingisnotforquantitativejustification(whichshouldstillbedone),butratherthanqualitativereasonstomakeyoufeelthatyouhavemadetherightdecisions.Ifthiscanbedoneproperly,youdon’tsavetrivialamountsoftimeyoucansavemonthsoryearsinprojectsandexecution.
“Choose your friends and advisors with great care.”Keep the faith, stay focused and believe
Isaidatthebeginning,opinionsarelikebacksides,everyonehasone.Asyougrowyouwillbesurroundedbyadvisors,consultants,lawyers,NEDs,corporatefinanciers,accountants,etc,etc.Manyareexcellent,butsomemoreexcellentthanothersandtheyallhaveopinions.Quiteoftentheseopinions,bytheirnature,crossthelinefromthefactualadvicethatyouneedtomakeadecision,intothepolarisedviewsofanindividualwhowillprobablyhaveneverbeeninyourshoes.Youmayneedhelpinspecificareasbutyourpositionofcommandrequiresthatyouownthedecisionandyouhavefaithinyourvisionandexecution.Sochooseyourfriendsandadvisorswithgreatcare.
Translating funding speak
OvertheyearsIhavebeeninvolvedwithraisinghundredsofmillionsofpoundsinfunding.ButIwishIhadoneofthoseBerlitzphrasebookswhenIstartedoff.ThetwophrasesIhavelearnttowatchoutforare“GoodLuck,letusknowhowyougeton”and“Greatidea,butwewouldliketoseealittlemoreprogress”.Thefirstisanobvious“no”asVCsdon’tlikesaying“no”justincasetheygotitwrong.Andthesecondgreatfavouriteofmine“Greatidea,butwewouldliketoseealittlemoreprogress”means“Iamnotpreparedtotaketherisk.Goanddowhatyousaidyouwoulddoifyouhadthemoney(butwithoutthemoney),andthencomebackwhenthereislessrisk”.
VCsandinvestorsonthewholedon’tknowthattheyaredoingit,butyoucanendupdoingalotofpointlessworktryingto“MakeProgress”.Therearemanysuchphrases;don’tletthemputyouoff.Justbeawareofthemandrollwiththepunches.
“Always take a moment and celebrate the small achievements for yourself and your team around you.”Sothatconcludesmylittlejourneyofdiscovery.IfyouarestillwithmeatthisstageIassumeyouwillbereadytogivemethe“teenagetantrumandabuse”,butwhateverhappensinyourjourney,alwaysdoonething-alwaystakeamomentandcelebratethesmallachievementsforyourselfandyourteamaroundyou(whoattheendofthedayarethepeoplethatreallymakeithappen).
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Sherry Coutu
Iampleasedthatyouareconsideringstartingupyourowncompany.Ican’tbegintodescribehowrewardinganexperienceitcanbe.Iwouldverymuchencourageyoutoembarkontheroad–assumingthatyouaresurethatitwillbesomethingworthdoing.
“The company you are starting has the chance of solving someone’s problem.”What do I mean by worth doing?
Imeanthatthecompanyyouarestartinghasthechanceofsolvingsomeone’sproblem.Betterifthatproblemisabigone!Excellentiftheproblemisbigandthenumberofpeoplewhohavethisproblemishugeandgrowing!Inmyexperience,ifyouaresolvinga“bigproblem”foracustomer,thenitiseasytoattractpeopletoyourteamandtomotivatethemtofocuson“solvingtheproblem”.Itiseasytobecomeseducedby“anidea”or“ascientificbreakthrough”or“acooltechnology”thathasnoproven(orconceivable)customerdemandforit.“Musthave”solutionsaresomuchmorecompellingthan“nicetohave”solutions.Ithastobesomethingthatyouthinkisgoingtogetyououtofbedinthemorningandkeepyoufromgoingtobedatnightfor,well,thebestpartofadecade.
You need a great team – with one you can achieve the impossible
Successfulbusinessesrequireateam.Bigproblemsrequireateambecauseiftheproblemisworthsolving,itwillsurelytakeabunchofpeoplewithcomplimentaryskillstoaddress.Anotherbenefitofagreatteamisthatyoumakegreatfriendsasyousolvemoreandmorecustomerproblems(andaremoreandmoresuccessful).IamstillworkingwiththefolksfromthefirstcompanyIfounded.Fiveyearsonfromthe“exit”,westillenjoysolvingproblemstogether.SometimestheproblemsweareworkingoutarewithcompaniesIhaveinvestedin,sometimeswiththecompaniestheyhavesubsequentlysetup,sometimeswiththecompaniestheyhaveinvestedin.Solvingproblemsissomethingentrepreneursdo.
“An entrepreneur listens to evidence and then makes decisions based on educated guesses.”If you ‘feel’ something, you are probably right
OneofthebestpiecesofadviceIhadfromoneofmymentorswasthatanentrepreneurlistenstoevidenceandthenmakesdecisionsbasedoneducatedguesses.Hesaidthatthosewhowerecapable,butultimatelyunsuccessfulinbusiness,likedtoanalysethingsfromeverydifferentdirectionandthenreflectforalongperiodoftimeandthengathermoreinformationtocheckbeforeacting.Hesaidthatitwasatransitioneveryoneneededtomakeastheymovedfromtheacademicworldtothe“businessworld”.Thisisalsosomethingthatisalludedtointhebook“Blink”byMalcolmGladwell.Don’tprocrastinate!Justdoit.Farbettertomakeamistakethantomisstheopportunityandletsomeoneelse“win”thecustomer.
Timing the window is critical
SomethingIwastaughtinbusinessschoolandhavebeen“lucky”withsinceistiming.Ifyousetupthecompanyto“sellit”(which,ifyouarereadingthisBVCApublication,mustatleastbesomethingyouareconsidering),thenyoumustbemindfulofwhichcompaniesmighthavean“appetite”forbuyingacompanylikeyours.Youmustalsobemindfulofwhatyourcompetitorsaredoing.Ifallyourcompetitorsgetboughtbythelikelyacquirers,thenyouwill“miss”yourwindowtosellyourcompany.Anotherwindowmightbeaverylongtimeincomingormightnotcomeatall.Keepingacloseeyeonthetargetacquirersandcompetitorsissomethingyoushouldgetfromyourindependentdirectors,VCbackersandangelinvestors.
Sherry pursues a portfolio of interests,
which include early-stage technology
investing and serving on the boards of
companies, charities and universities.
Sherry established and successfully exited
two financial services software companies:
the first was acquired in 1997 and has
operations in more than 70 countries
and the second was floated on NASDAQ
and the London Main Market in 2000
and serves 1.7 million retail financial
customers in the UK.
It takes more time than you will think
Ihadtolaughrecentlywhenafriendofmine(alsoanentrepreneur)reported“Iamontheseventhyearofatwoyearproject”.Hehadfloatedhiscompany,andwasstillverypassionateaboutit.Customersdon’talwaysadoptthingsasquicklyasyouthinktheywill...eventhoughtheyshould! Different investors have different agendas and interests – you need to reconcile them
BeforeIfloatedmycompany,angels,VCsandtradeinvestorshadinvested.IdidnotrealiseatthetimetheextenttowhichtheinterestsofthesepartiescoulddifferortheamountoftimethatitwouldtaketoreconcilethemsothatIcouldgetthecompanythroughthenextstageofitsdevelopment.Makesurethatyouanticipatethisandthatyouworkouthowtopullthemintoalignmentbeforehandsothatthereisnochancetheir“non-alignment”canderailasale/IPO.
Angels/Trade Investors are great! Angels/Trade Investors are horrible!
IhadsometerrificandsometerribleangelsinmycompaniesandthecompaniesIhaveinvestedinsubsequentlyasan“angelinvestor”.Onethingisclear:Angelsarenotcreatedequal!Mybestangelstoryrevolvesaroundoneangelwhohadbeeninvolvedinsettingupmorethan70companiesandhadfloated20ofthem–hehelpedthecompanythrougheverythingincludingtheIPOandsubsequentacquisitionofthecompany.Ihavealsoseensomeangelstoobusyrunningaportfoliooftheirintereststhattheydidnothavesufficienttimetodevotetothecompany.Thesetypesslowdownthecompanyandultimatelyitisbesttoaskthemtoleavetheboard.Thesamethingscanhappenwithtradeinvestorrepresentatives.Lessontolearn:makesurethatthepersonsonyourboardhavethetimeandinclinationtohelpyougrowyourcompanyasquicklyastheopportunitywillallow.
VCs are great (my own) VCs can be terrible (vicarious)
IwasluckywithmyownVCs.Theyweresupersmart,experienced,ambitiousandgreatpeople.Theycreatedallsortsofopportunitiesforthecompanyandhelpedusovercomeavarietyofobstaclesthatareexperiencedwhencompaniesgrowveryquickly.OntheotherhandIhaveavarietyoffriendswhoareentrepreneursandhavenothadthesameexperience.Beverysureaboutthevalueyourinvestorscanaddandmakesureyouasktheentrepreneurswhotheyhavebacked,howtheyaddvalueandwhattheyarereallylikeafterthe“deal”hasbeendone.Therearealsositeswhichhelpyouseewhatotherentrepreneursthink–www.thefunded.com.Anotherthingtobearinmindisthattherearemanypeoplewhowillclaimtheycan“help”yougetfinancing.Bearinmindthatforthem,itisjustadealthattheywillmakecommissionfrom;theywillnotneedtolivewiththeconsequencesfordecades.
“Cash is King.”Forecasting is something that needs to be done all the time – is there gold in them there hills?
Itisevenmoreimportantafterfundingtochecktheinformationyouputinyourbusinessplanforecastsiscorrect.Isthepricingright?Adoptionasyouthought?Whataboutretention?Otherwise,youmayfindthatyourunoutofthemoneyyouraisedfasterthanyouanticipated.CashisKingandyoureallyreallyreallydon’twanttotrytoraisemoneywhenyouareoutofit.Ifyouareagreatscientistordeal-doer,thenmakesureyougetsomeoneonyourteamwhocankeeptrackofthecash.
“Business is a marathon, not a sprint.” It is hard, but not impossible to lead a balanced lifestyle
GiventhatIhavechairedboardmeetingsfromthelaboursuiteofahospitalandIwasfivemonthspregnantwithmysecondchildwhenmycompanyIPO’d,itseemsabitrichmakingthisstatement,butitisimportanttotry.Idon’tthinkitisreallypossibletokeepthingsinbalanceeveryday,buttrytokeepaneyeonit.Youwillalwaysneedyourhealth,familyandfriendsandyouwillbeabletokeepupthemarathonifyoumaintainthem.Businessisamarathon,notasprint.
If you don’t try, you will never know
Itishardtodescribewhatitisliketohavemillionsofcustomersusingtheservicesofacompanythatyoucreated.Itisalsohardtodescribewhatfinancialindependencefeelslike.Itisalsohardtodescribewhatitfeelsliketoknowthatmostofthepeoplewhobackedyoumadealotofmoneyfromdoingso.Justsufficeittosay,itfeelsreallygood.Goon,giveitago!Therearealotofreallybigbadproblemsthatneedtobefixedandyoumightbeinasuperbpositiontomakeareallybigdifferencetotheworldweliveinandwillleavetoourchildrenandgrand-children.Howgoodwouldthatfeel? 11
Marc Moens
Whenyouareabouttostartacompany,justaswhenyouareabouttoinvadeaforeigncountry,thereare,toquoteDonaldRumsfeld,knownknowns,knownunknowns,andthereareunknownunknowns.
“As your company grows, you make sure your skill set grows.” Known unknowns
Thisistheeasiestcategory.Therearedoubtlessalotofthingsyouknowyoudon’tknow.However,whenyouknowyoudon’tknowsomething,that’sactuallyquitegood.WhenIstarted,IknewIdidn’tknowanythingaboutfinancialreporting.ThatturnedouttobelessofaproblemthanIhadanticipated.Asyourcompanygrows,youmakesureyourskillsetgrows.Andthenyoureachapointwherethecompanyisbigenoughtohiresomeonewhocantakeoverthistaskandwhoisproperlyskilledtodoit.Inmycase,wegotafinancedirectorafterourfirstfundinground.Untilthatpoint,Ididthefinancialreportingtotheboardandtothetargetinvestorsmyself,withalotofhelpfrommymentorandourfriendlyaccountants.Itwasn’tabigdeal;itwasaknownunknown.
Soknownunknownsare,kindof,easy.Buttheyareimportant,becausetherearesomanyhelpfulpeoplearound,andyouneedtomakesureyoucallontherightpeopleattherighttimewiththerightquestions.Irememberearlymeetingswithrepresentativesfromorganisationsthatassiststart-ups.Theysaid“WecanhelpyouwithX,Y,andZ.Doyouwanttocomeonacourse?”Isaid“Actually,IneedhelpwithA,B,andC.”Theysaid“Hmm,interesting.Anyway,wecanhelpyouwithX,Y,andZ.Doyouwanttocomeonacourse?”Knowingwhatitisyoudon’tknowandwhereyouneedhelpisimportant.
Known knowns
Thatthereareknownknownsmayseemobvious:perhapsyouaretheworldexpertincoldwaterducts,andthat’swhatyourcompanyisgoingtobeabout.Sothat’saknownknown.
“The only way you can decide whether it is worth giving all this up is by having a clear idea as to why you are doing it.”Butbeforestartingacompany,thereisamoreimportantissuethatIthinkpeopleshouldturnintoaknownknown,andthatisyourreasonforstartingthecompany.Idon’tthinktherearegoodorbadreasons,butyouneedtoknowwhatyourpersonalreasonis.Settingupandrunningacompanyisanall-consumingactivity:youwillspendlesstimewithyourpartnerandyourchildrenthanyouimagine;yourholidaysandweekendswillbedifferentfromthoseoffriendswhoarenotdoingastart-up.Ifyouthinkworkissomethingthatyouhavetodowhileyou’dratherbedoingyourhobby,thenyouarelikelytobecomeunhappyinyourstart-up.Theonlywayyoucandecidewhetheritisworthgivingallthisupisbyhavingaclearideaastowhyyouaredoingit.Itcouldbethemoney,althoughIthinktherearelessriskyandlesstime-consumingwaysofearningreasonableamountsofmoney.Itismorelikelythatitissomethingyouneedtogetoutofyoursystem–provingtoyourselfthatyoucandothis.Oryou’vespentalotoftimethinkingtheoreticallyaboutabunchofproblemsandyounowwanttoshowthishassomepracticaluse.Orperhapsyourcareerhasreachedaplateauandtheonlywayyouaregoingtomoveuporremainsaneisbystartingyourowncompany.Whateveryourreason,makesureitisaknownknown,soyoucanremindyourselfovertheyearswhyyouaredoingthis.
Anotherthingyoushouldmakesureyouhaveveryclear,isknowingwhatyourroleisandwhattheroleisofanyco-founders.Forexample,atechstart-upmightneedatechnicalbrainwhohasinventedversion1oftheproductandisalreadydreamingofversion2.Youmayalsoneedanengineeringgeniuswhocanimplementanddeliverversion1.1andthenversion1.2and1.3,andwhowillmakesuretheproducthas
Marc co-founded Rhetorical Systems in
2005, which developed leading edge text-
to-speech systems. In December 2004,
Rhetorical was acquired by ScanSoft, a
US-based speech company. Marc left
ScanSoft in 2005 and since then has been
involved as an advisor in a number of
IT startups. Marc graduated with a PhD
at the University of Edinburgh where
he ran the Language Technology Group
and worked on information extraction,
text summarisation and other language
engineering technologies.
12
documentationandisrobustandrunsondifferentplatforms.Thispersonisprobablydifferentfromthetechnicalvisionary.Youwillalsoneedsomeonewhocansellthevisionbehindthecompany.Thisgoesbeyondtalkingaboutthebrillianceofthetechnicalinventionortherobustnessofthefirstprototype;youneedsomeonewhocandeliverthevisiontopotentialinvestors,tolandlordswhothinkit’stooriskytorentoutspacetoastart-up,topotentialemployeeswhomightbetakingariskjoininganunknownventure,andtocustomers.Youalsoneedsomeonewhocanturnthetechnologyintosomethingthecustomerwantstopayfor.
Itisunlikelythatasinglefoundercandoallthesethings.Youneedtoknowwhatyouknow,youneedtoknowwhatshouldbeyourroleinthecompany,and,ifyouhaveco-founders,youneedtoknowtheresponsibilitiesofeachofyourco-founders.Thefoundersarelikelytohaveanequalstakeinthecompany,butitshouldn’tfollowfromthat,thatthereisnohierarchybetweenthemwhendecisionsneedtobemade.Inthescenarioabove,youwouldneedtodecideiftheengineeringgeniuscanoverrulethetechnicalvisionary,andwhetherthelattercanoverrulethecustomer-facingevangelist.
“Getting some of these apparently small things wrong can have very visible consequences.”Ifyouarethesolefounder,oryouaretheleaderofateamoffounders,itmaycomeasabitofashocktorealisethatnothinginyourbrandnewcompanywillhappenunlessyoumakeithappen.Thisisn’tjustaboutdesigningtheproductandhavingasalesstrategyandattractingcustomersandshippingaproductontime.It’salltheotherthingsyoumayhavetakenforgrantedinyourcareersofar:havingastaffmanualandapolicyaboutstatutoryholidays,arrangingworkpermitsfornewemployees,makingtravelarrangementstogoseeacustomer,makingsurethereispaperbythephotocopier,andthatthewastebasketsgetemptied.Infact,makingsurethattherearewastebaskets…anddesks…andchairs.Ifyou’reincharge,youhavetomakesureallthishappens.Gettingsomeoftheseapparentlysmallthingswrongcanhaveveryvisibleconsequences.Becauseofthat,thesmallthingsmaystarttakinguptimeandattention,whichyoushouldbespendingonthemoreimportantthings.Somakesureyouhavesomeonealongsideyouwhocanorganisethis,andalotmore,withoutevenneedingtobeasked.
Unknown unknowns
AmongstthethingsIdidn’tknowIdidn’tknow,istheimportanceofhavingamentor.Whenyoustartyourfirstcompany,youneedsomeonewhohasbeenthroughitbefore,whoiswillingtostandbyyou,whowilllistentowhatyouaretryingtodo,whowillstepinwhennecessaryandbeinvisiblewhenthat’sappropriate;someonewhocangiveadviceonsmall,practicalissues,commentonlargerstrategicissues,orofferadviceonlifeissues.Atmyfirstcompany,wewerelucky:wedidn’tsetouttofindamentor,butamentorfoundusandbecameourchairman,orwasitviceversa.It’simportantyoufindthatmentorveryearlyoninyourstart-upprocess.Anddon’twaitforittohappenbyaccident.Makeithappen.
Therewasonemajorunknownunknownatthestartofmyfirstcompany:themarketforourproductwasalotmorecomplexandfragmentedthanIhadanticipated,withanintricateeco-systemoflargeandsmallcompaniesprovidingallorpartofasolutiontowhichweonlycontributedasmallcomponenttechnology.Thismadeitquitehardtogettractioninthismarketortogetlock-inwithcustomers.Wedidwellinturningthisrestrictionintoauniquesellingpoint,butitwasharderthananticipated.
“Education is the path from cocky ignorance to miserable uncertainty.”Inowalwaysrecommendthatpeopletryandunderstandthemarketeco-systemtheyareenteringwiththeirnewproductortheirnewcompany.However,ifIhadknownthenwhatIknownowaboutthecomplexityofthismarketweenteredallthoseyearsago,Imighthavedecidednottostartthecompanyatall.MarkTwainsaidthateducationisthepathfromcockyignorancetomiserableuncertainty.Whenyoustartacompany,cockyignoranceisnotnecessarilyabadasset.
13
Gwyn Humphreys
BradfordParticleDesign(BPD)wasahugeamountoffun,butwasprobablythemost“totalcommitment”activityofmylife–andinembarkingonsettingupandrunningyourowncompany,oneofthekeythingsyoumustbearinmindatthebeginningisthatyourfamilywillneedtobeveryunderstanding,andlong-suffering.Theywillbearthebruntofallthebadthingsthathappen(andtherewillbeplentyofthose,eveninasuccessfulcompany),andalsoyouarelikelytobe“away”muchofthetime,whetheritbelatenightsortravelling.However,thejoyandhugesatisfactionthatcomeswithsuccessiswhatitisallabout–andthecompetitivenatureofacademicresearchshouldstandyouingoodsteadinthisregard!Indeeditisthesuccessthatyoushouldbedrivenby–andinbusinessthatwillbringitsownfinancialrewards,whichshouldreallybeviewedasasecondary,althoughgratifyingresult.
Innoparticularorder,hereareafewofthekeythingsthatIlearnedalongthewayandsomeofthemwerelearnedbydoingthingsthewrongwayfirst.
Setting up the company and negotiating with the university (assuming it is a spin-out company!)
Expectthistobeasurrealexperience.Universitiesarebytheirnaturetotallyrisk-averse–nosurprisethere.However,companiesareallaboutrisk.Youareproposingtotakeahugeriskwithyourlife,familyandincomeandalltheUniversitywillseeisahugeopportunity.Iftheydonotsecurethemaximumpossibleequity,theywillbeblamedlaterifthecompanyisverysuccessful.Equityislikeland–oncethemomentofcreationisdonewith,theystopmakingit.Yournegotiationpositionatthebeginningisthereforeveryweak,butitisworthperseveringandtakingaslongasittakestodoagooddeal.Agood(andthereforefair)dealmustrecognisethenurtureandsupportwhichyouhavehadfromtheuniversity,butalsotheriskandcommitmentwhichyouaretakingon.Intheendbothpartiesarekeenonsuccessandthedealmustnotbesoskewedastode-motivatethefounders,asthiswillleadtofailureinmostcases.
Think and plan ahead for ALL eventualities
Thingsseldomgotoplaninasmallcompany,andwefounditextremelyvaluabletoplanthemainstrategy(onanyissue)butthentoruminateonalltheotherpossiblescenarios.Consequently,whenthingsdidnotgoaccordingtothemainstrategy,wecouldeasilyshiftourplanningandactions.Thisway,asfaraspossible,wewerealwaysaheadofthegame.
“No one person can realistically grow a significant international business. Build a team ethos, and play to each others’ strengths.”Build a close, trusting team around you
Noonepersoncanrealisticallygrowasignificantinternationalbusiness.Buildateamethos,andplaytoeachothers’strengths.Companiesarenotegotripsforthefounders.Yourstaffarekeytothesuccessofthebusiness-makesurethatyoutreatthemfairly.Encouragestafftogrowwiththecompany;theskillsandloyaltyofyourstaffareparamount.However,anequallyimportantpointisthatyouMUSTdealwithdifficultpersonnelissuesfirmlyandpromptly;suchissues(especiallyinsmallcompanies)donotgoaway–andtheytakeupincreasingtimeandenergyanddistractyoufromrunningthebusiness.TakegoodHRadviceearly!
Many of the problems later encountered by small companies are created early in their lives
Forexample;keeporganisationalstructuressimple,untilyouneedtodiversifythem.Avoidtoomanyinternalmeetings–theywillleadto“meetings-lock”,theequivalentoftrafficgrid-lock;peoplegettoperceivethattheyareonlyvaluediftheyareseenatmeetingsandtheamountofactualworkthatgetsdonedecreasesdrastically.Considerrestrictinginternalmeetingstoonlyoneortwodaysaweek.
Gwyn founded Bradford Particle Design in
2005 as part of the School of Pharmacy at
the University of Bradford. The company
developed a new particle-formation
technology using supercritical fluids
allowing the generation of particles of
very defined crystal structure and size.
Focusing on the area of pharmaceuticals,
the company grew rapidly, working with
most of the world’s largest multinational
pharmaceutical companies, eventually
being sold in January 2001 to a Californian
company, Inhale Therapeutic Systems Inc.
14
Make maximum use of all the commercial contacts which you have made during your research career
Youwillhavecredibilitywithsuchcontacts,anditiswellworthtryingveryhardtogetthemtocollaboratewiththenewcompanyveryearlyinitslife.Yourcredibilitywithinvestorswilloftenbegreatlyenhancedbyhavingearlydealswithsignificantcompanies;itvalidatesthetechnologyofyourcompanyanditreducestheirperceivedrisk.Furthermore,earlyrevenuesmayreduceoreliminatetheneedtoseekventurecapitalfunding.Thefirstequityinvestmentwillalwaysbeoneofthemostexpensive,andallrevenueswillhelptolimitthecashrequiredfromtheVCfunding.Inthiscontext,grantsarereallyvaluable,BUTonlyiftheyleadtoyourobjectives,andarenotdistractions,manageriallyand/ortechnically.
Paradoxically,althoughthenewcompanyhassprungfromyourtechnologyandscientificdevelopments,thesuccessofthecompanywillprobablybemuchmoredependentintermsofitssuccessonnon-technicalissues.HR,financialandbusinessdevelopmentaspectsofthecompany,alongwithcarefulnurtureoftheintellectualpropertyresources,arelikelytobethekeyissueswhichwilldeterminesuccess–althoughofcoursethetechnologybaseisafundamentalgiven.
“You will spend too much of your life running the company for it not to be also great fun.”Finally,youwillbeundercontinualstressasyoucreateandgrowthecompany.Youwilllearntocopewiththis,butdoensurethatthecompanyisalsofun.Youwillspendtoomuchofyourliferunningthecompanyforitnottobealsogreatfun.So,asyouembarkonthisnewventure,Iwishyourealluckandmuchfun.
15
David Tatchell
Imustconfesstofeelingalittleuncomfortablewiththisassignment–partlybecauseIdislikepreaching(almostasmuchasIdislikebeingpreachedto)–butmainlybecauseIcanseeadangerofsettingoutself-evidentplatitudesasiftheywerethekeystobusinesssuccess.
IhopethatwhatIhavetosayisnotentirelyself-evident.However,asI’msurehasbeensaidonmanyoccasions,business(likemanyotherthings)islittlemorethanappliedcommonsense.Sodon’texpectrevolutionaryideasorrocketscience!
WhatIpresenthereislargelywhatIhavelearnedoveralmost20yearsoftrying(sometimessuccessfully,sometimesnot)topilotasmalltechnologybusinessthroughaseriesofsuccessesandcrises.AllIcanclaimisthebenefitof20:20hindsight–whichIhopewillbeofsomehelptoanyonenowsettingoutonasimilarjourney.
Keep your vision
Whenwestartedoutalmost20yearsago,we(meandmyfellowfounders)wereoftenasked“Whydoyouwanttodothis?”Asthequestionwasmostoftenaskedbysomeonewhowewereaskingformoney,wefeltthatwemightbeexpectedtoemphasisefinancialsuccessastheprimarydriver.However,wehada“vision”whichwasnotspecificallyaboutfinancialsuccess(Iwon’tsaywhatitwas–youwillhaveyourown)so,inanswerto“thequestion”,thiswaswhatwetalkedabout.
Ilearnedlaterthatthiswas“therightanswer”.Thevastmajorityofsuccessfulfoundersofbusinessesarenotinitprimarilyforfinancialsuccess-theywantto“changetheworld”insomeway,andthegettingrich(ifithappens!)isaby-productofsuccessinachievingtheirvision.
“Keep hold of your visions and dreams for your business, and don’t be ashamed if they are somewhat idealistic.” So,myfirstpieceofadviceistokeepholdofyourvisionsanddreamsforyourbusiness,anddon’tbeashamediftheyaresomewhatidealisticand(atfirstglance)un-businesslike.Theyarewhatwillgiveyourbusinessitsdistinctcharacter,energiseyouandkeepyoufocusedthroughgoodandnot-so-goodtimes.
“Whatever your product offering is, it doesn’t just need to be attractive to customers, it needs to be compelling.” See the world through your prospective customers eyes
Whateveryourproductofferingis,itdoesn’tjustneedtobeattractivetocustomers,itneedstobecompelling.
WhatImeanbythisisthat,inordertogeneratecashflowandsatisfyinvestorgrowthexpectations(rememberthatBusinessPlan?!),youwillneedtogeneratesalesquickly.Butyouwillbeasmallcompanythattheprospecthasneverheardof.Sowhyshouldtheprospecttakeyouseriouslyandwhyshouldtheybuyfromyou?
Youneedtohaveaprettycompellinganswer,orthedangeristhattheprospectwillignoreyou,orequallybad,putoffanypurchasingdecision.Youneedtheprospecttomakethedecisiontobuy,andtobuynow.Ifyoucan’tputyourhandonyourheartandsay“IfIwasthecustomeritwouldbeano-brainer”,thenyouneedtochangeorimproveyourproduct/service,orreconsideryourtargetcustomer(areyoutargetingthebestmarketforyourproduct?).
David founded Flomerics, an engineering
analysis software business, in 1988. It now
employs over 200 people in 12 countries,
and trades on AIM with a market cap of
£12m. Before founding Floremics, David
received a PhD in Mechanical Engineering
from Imperial College, London.
16
“Business is a team game – and you will need a team with the right range of skills, experiences, temperaments, and personalities.”Pick the right team
Businessisateamgame–andyouwillneedateamwiththerightrangeofskills,experiences,temperaments,andpersonalities.
Presumablyyoubringstrongtechnicalskillstotheteam–andpossiblyotherstoo.Youwillneedtoaddothertechnicalpeopletomanagetechnicalaspectsofthebusinessandalsotocoverforyou,asyoufocusincreasinglyonthe“businessleadership”role.Youwillprobablyhavegoodtechnicalcontactsfromyour“previouslife”.However,thefirstchoicesmaynotalwaysbethebestones.Don’tsimplychoosefriendsorpeopleyouhaveworkedcloselywithinthepast–youwillneedpeoplewiththerightpersonalities,managementskills,peopleskills,and“toughness”,aswellastherighttechnicalknowledge.
Plus,youwillneedtoaddpeoplewith“newskills”–sales,marketing,finance,possiblyHR,legal,etc.Tomymindtherightwordhereis“balance”.Youwillneedhigh-levelskillsandexperienceinalltheseessentialareasofthebusinesstocomplementyourtechnicalteam’shigh-leveltechnicalskills–andyouwillneedtotreatthemasofequalimportancetothebusinessasyourtechnicalteam.Infactonecouldarguethatsomeroles–salesandfinanceforexample–aremoreimportant.Theyneedtoberespectedassuch.
Be prepared for setbacks
PerhapsIshouldreallysayexpectsuccess(thisleadstoconfidence,positiveattitudes,therightkindof“buzz”inthebusiness),butbepreparedfortheinevitablesetbacks.
Onedangerofsetbacksisthereactionofyourteam,forexample,thefeelingthatthisisthefirstsignofthingsgettingmuchworse.Youmayfeelthisway.Whetherornotyoudo,itislikelythatsomeofyourcolleagueswill,andtheymayspreadthisnegativitytotherestoftheteam.Thereactiontothesetbackcanthenbecomeabiggerproblemthanthesetbackitself.Yourchallengeasleaderwillbetocounteractthis.
Itstartswithyourreaction.Youmaybethekindofpersonwhocanbouncebackveryeasilyfromsetbacks.If(likeme)you’renot,thenyouwillbenefitfromhelpfromotherstogiveyouperspectiveandregainabalancedviewofthesituation.Identifypeoplewithinoroutsidethebusinesswhocansupportyouincircumstanceslikethis.
Theninfluencetherestofyourorganisation.First,byopencommunication;givinganhonest,balanced,viewofthesituation–andmakingitclearwhatisbeingdonetoresolvethesituation,andhowindividualscancontribute.Second,byexample–byreflectingapositiveoutlookinyourinteractionsandyourdemeanour.
Inotherwords(asIhaveoftentoldmyselfduringtoughtimes),itisnotthesetbackthatistheissue,itishowwereacttoit.
It’s all about other people
Ithasbecomeaclichétotalkabouta“peoplebusiness”,butitisnonethelesstruethateverythinginbusiness(andultimatelythesurvivalofabusiness)isallaboutotherpeople,insideandoutsidethebusiness.Howthesepeoplefeelaboutyourbusinessandreacttoitwillgovernitssuccessorfailure.
Ihavecometoapproachthisbytryingtoseethesituationfromtheotherperson’sperspective,andtotrytobehaveaccordingly.Forexample,ifIwereastaffmember,howwouldIliketobemanagedandtreatedbymycolleagues?Ifacustomer,howwouldIliketobesoldto?IfIwereauserofoursoftware,howwouldIliketobesupported?Itseemstomethatifeveryoneinacompanytriestoliveuptoidealsofthiskind,thentheyarebuildingexactlythekindofpersonalandbusinessrelationshipsthatwillensuretheircompany’slong-termfutureandsuccess.
17
Alasdair Rawsthorne
IfoundedTransitivealmostsevenyearsago,basedonthefruitsoffiveyearsresearchattheUniversityofManchester.HereareafewthingsthatIwishII’dknownbackthen!
It takes longer than you think
Whenwestartedtheoriginalresearchprojectbackin1995,wealwaysknewthatifweweresuccessful,wecouldprobablyfindamarketoutletforthetechnology.Originally,wewouldhavebeenveryhappylicensingthetechnologyforafewhundredthousand,butasweengagedwithpotentialcustomers,ourhopesbecamemoreambitious,notbecauseanyoneofferedusmoney,butbecausewebecameincreasinglyconvincedthatwecouldsolvereal,meaningfulindustryproblemswithourtechnology.
Butitthentooktwoyearsfromthestartofourserioussearchforinvestmentuntilweclosedourfirstfundingroundandstartedthecompany.Itthentookanothertwoyearshardgraftbeforewesignedourfirstmeaningfulproductioncontract.Thiswassomuchlongerthananyonehadoriginallythoughtorplanned.IwishI’dknownjusthowlongittakestoconvincecustomers,evenoneswhoarewillingtobetonnewtechnologies.
Smart Money is worth more than what you pay for it
HavealookatForbesMagazine’s“MidasList”ofthetop100technologyventurecapitalists(http://linksviewer.com/MidasList/Pages/MidasList_07-09.html).Nowworkouthowyouaregoingtogetoneofthosepeopletoinvestinyourcompanyandsitonyourboard.
Thecommonperceptionoftop-tierVCsisofpeoplewithlargeaddressbooks,whocancallinfluentialpeopleinyourindustryonyourbehalf.Thatwasmine,too.Butwhenyouhaveoneofthesepeopleonyourside,youactuallygetfarmore.
Theydon’thavetomakephonecallsonyourbehalf;theyareroutinelyengagedwithallthemoversandshakersinthetechnologyindustry,andeat,breatheandsleepthedynamicsinthewholeindustry.Youmaybedeeplysteepedinyourbusiness,buttheyaredeeplysteepedintheindustry,andhaveabreadthofexperienceandbusinessinsightthatwillsaveyouliterallyyearsofexploringblindalleys.
Youmayfinditdifficulttoattractthesegiantsintheearlystages;youmayneedtoconsciouslybootstrapyourselftothatlevel.Youmayfind,withsometop-tierVCsthatyouenduppartingwithmoreequitythanalessdemandinginvestormightbehappywith–butit’swortheverypercent.
Be prepared to start letting go
Ondayone,youownthevisionofyouroperation,andyoualsoownallofitschallenges.IwasTransitive’smarketing,sales,CFO,VPofengineering,headofHR,officemanager,ITspecialist,andahundredotherthings.Asthecompanygrows,youhandovermanyofthosetaskstootherpeople.Makesureyourecruitpeopleintothoseroleswhocandothembetterthanyoucan!Butasthatprocesscontinues,youwillfeelyourjobgettingnarrowerandnarrower,hopefullytoapointwhereyoucanconcentrateonthethingsyoudobetterthananyoneelse.
Butsometimes,justsometimes,youwakeupwithafeelingofnostalgiaforthedayswheneverysinglethingthathappenedtoyourbabyoperation,happenedwithinyourattentionspan.Andyoufeelasenseofbereavementthatthereisstuffhappeningthatyoudon’tevenknowabout!
If it feels wrong, it might possibly be wrong
Youholdthevisionforyournewcompany.It’syourdream,andyou’veputalltheingredientstogetherandyouhavesettheinitialdirection,bothstrategicallyandtactically.However,youhavealsoassembledateamofstrongpeople,eachwiththeirownideasofwhat’srightandwhatneedsdoingrightnow.
Hopefully,you’veappointedrealexpertsinallofthedifferentareasthatyouneed,soyoucantrusttheirjudgmentandgivethemtheautonomyandresponsibilitytheyreally
Alasdair spent 20 years in research at
the University of Manchester focused on
microprocessors and microcomputers,
and their associated operating
systems, device drivers, compilers, and
development environments. In 1995, with
a team of graduate students, Alasdair
began development of the Dynamic
Binary Translation software that launched
Transitive in October 2000.
18
needtobesuccessful.Occasionallyyouwillseethingshappenthatcauseyoutothink“holdon,that’snotright!”Youwillbetemptedtotrustthejudgmentoftheexpert–butoccasionally,theymaymakedecisionswhich,althoughsensibleandjustifiedindividually,starttodepartfromyouroriginalvision,strategyoryourproductpositioningwhentakentogether.Learningwhentostepinandchallengethesedecisions,andwhentotrustyourexperts,isthehardestthingI’vedone,andIthinkI’vegotitwrongontoomanyoccasions.
It still takes longer than you think
Apple’sannouncementoftheproductthatusesoursoftwarewasahugemediaeventinJune2005.ThefirstproductswereintroducedinJanuary2006,toravereviews,andthelastofthepreviousgenerationwerereplacedjust7monthslater–anextraordinarilysuccessfultransitioninthecomputerindustry.
Sonow,everythingshouldbeeasy!Oursuccessstoryshouldproceedahead,andeveryoneelseintheindustryshouldbelookingatouringredientinApple’ssuccessandsaying,“Iwantapieceofthat,too!”
Wrong.Ourothercustomerseachoperateinadifferentsegmentofthecomputermarket,andeachisconvincedthattherequirementsoftheirend-usersaresodifferentthatourtechnologycan’tpossiblyworkforthem;computerserversaredifferentfromApplelaptops,andembeddedsystems,andhand-portablesystems,anddefencesystems,andsoon.Everyoneineachofthesedifferentsegmentsneedstobeconvinced,point-by-point,thatwecandeliverthemrealvalue.Weknowwe’regettingclosertothe“tippingpoint”,whengreedwilldriveourcustomersmorethanfear,butwestillhaveawaytogo.
19
Dr Ian T Muirhead
WhenfirstaskedtorecallthingsIwishI’dknown,Ithoughtofmanythings.Butafterfurtherthought,therearetwowhichifIhadknowninmyearlieryearswouldhavemadesubsequentsituationsaloteasier.ThefirstistheneedtohaveIPassignedtothecompanyattheoutset.ThesecondistheimportanceofunderstandingwhereaVCisinitsfundinvestmentcyclewhenitmakesitsinitialinvestmentinyourcompany.
Assigning IP
Thestartingpointformostacademicuniversityspin-outcompaniesisthenegotiationofthelicencetothetechnologythatthenewcompany(NewCo)isgoingtobebuilton.
IPassignmentisoftenthemainpointofcontention.ItisveryimportanttogetthiscornerstoneoftheNewCoright,ifthecompanyistobeattractivetopotentialinvestors.Youneedtoavoidhavingtore-negotiateaspectsofthelicenceagreementdownthelinebeforeanyVCinvestorwillputtheirmoneyintothecompany.
EveryuniversityhasitsownapproachandviewsontheroutesoflicensingtheirIP.Iftheprincipalofaspin-outcompanyhasbeenagreed,anditisknownthattheNewCowillrequireVCfundingtogrow,thencertainparametersneedtobetakenintoconsideration;IPassignmentbeingoneofthem.Thereisnoblueprintonnegotiatingtheassignmentbutindustryormarketsectornormsforroyaltyonsalesoftheproductareagoodstartingpoint.
Allpartiesarelookingforafairandequitablereturntakingintoaccount;(i)therelationshipbetweentheexpendituretoestablishtheIPpositiontodateanddefendingitinthefuture;(ii)theexpenditurerequiredtodeveloptheIPtoamarketableproduct;and(iii)areturn(thoughtheirpositionsmaydifferonwhatthatmeans)ontheseinvestmentstakingintoaccounttheassociatedrisksinvolved.
Parametersworthconsideringwhennegotiatingvarioustrade-offsinthelicenceagreementwouldinclude:
•Whatisitsperceivedvalue,i.e.howfundamentalistheIPthatisbeinglicensedtotheproductandmarketsector?
•WhatequitywilltheuniversityholdintheNewCo?•Whatroyaltyonsalesoftheproductwilltheuniversityreceive?•WillfutureIPdevelopedattheuniversity(bytheoriginatorsorothers)beaccessibleto
theNewCo?ThiscouldbethroughdirectaccessonequivalentroyaltytermsorrightoffirstrefusalforemergingIPinthesameproductormarketspaceastheNewCoisoperatingin.
•Assignment;atwhatstageandunderwhatterms(themostfundamentalbeingatwhatprice)willtheIPgetassignedfromtheuniversitytothecompany?
•Isthereanendpointtotheperiodofroyaltypaymentsand/oristhereanagreedformulatobuy-outfutureroyaltypayments?
Oftentheselasttwobulletpointsdonotgetsufficientlydefinedattheoutsetofthelicence.ManyVCshavehadbadexperiencesofdealingwithassignmentofIPjustbeforeatradesaleorIPO,where“thecompanyisheldtoransom”andthishasmadethemparticularlysensitivetotheseparameters.
Thelicencenegotiationprocessisfurther“complicated”bythefactthatthefoundersareoftennegotiatingwiththeuniversity(theiremployer)onbehalfofthemselvesandonbehalfofNewCo.EquallyifthemechanismfortheIPassignmentisnotagreedattheoutsetthentheuniversityinduecoursewillfindtheyarenegotiatingwiththeNewCoasbothownerofthelicensedIPandshareholderincompany.Thiscanleadtoconflictsofinterest.ThiscanbeavoidediftheassignmentoftheIPisdealtwithupfrontatthetimeofnegotiationoftheoriginallicence.
UniversitiesareoftenreluctanttoassignIPtoearlystagecompaniesforfearthattheIPwillnotbedevelopedandcommerciallyexploited,eitherthroughthecompanyfailingorbecausetheIPisshelved.TheVCsdesiretohavetheIPassignedatthetimeofinvestmentoftenincreaseswiththeamountofmoneytheyneedtoinvestinNewCototaketheproducttomarket.ScenariosandtimingofIPassignmenttoNewCocaninclude:
Ian is currently VP of Business
Development at Biosensia Ltd, Cork,
Ireland. In addition, Ian works as an
independent Business Consultant
specialising in early stage technology
spin-out companies from Universities.
Previously, he has held director, senior
management and business development
posts in a range of companies, including
CEO of Terahertz Photonics Ltd, and
Business Development roles in the
multinational ST Microelectronics and
VISION Ltd, a company which went from
university spin-out to IPO.
20
•Atthetimeoftheinvestmentoratatimewhenanagreedsumhasbeeninvestedinthecompany•Afteranagreedtimeperiod•Afteranagreedminimumroyaltyorequivalentmonetarysumhasbeenpaidtotheuniversity•Whenthecompanyhasreachedanagreedvaluationpoint
IhaveencounteredthislastsituationmorethanonceandmyrecommendationwouldbetogetalicencenegotiatedattheoutsetwhichhasaclearandworkablemechanismforassignmentoftheIPtothecompanyandhascappedroyalties(byvalueortime)oranagreedmechanismfortheirbuy-out.Thiswillreducetheneedforare-negotiationbeforeaVCfundwillputmoneyintotheorganisation.
Fund Investment Cycle
ThesecondpointistheimportanceofknowingwhereaVCfundisinitsinvestmentcyclewhenitmakesitsinitialinvestmentinyourcompany.
Theidealscenarioistobeanearlyinvestmentinanewlargefundfromaninvestorwithindustrysectorexperience.ToreduceaVCsriskofsubsequentdilutioninfuturefunding,theyalwaysprefertobeabletofollowontheirinitialinvestmentshouldthatberequired.
Theriskprofiletheinvestmentfundwilladopttendstobehigheratthestartoftheirfundinvestmentcyclethanmidwaythrough.Howeverifafund’sportfolioofinvestmentsisdoingverywell75%ofthewaythroughtheinvestmentcyclethenthisriskacceptabilitycanriseagainforlaterinvestments.Thisisprovidedthefundhassufficientmonieslefttofollowonitsinvestmentshoulditberequired.
ProblemscanarisewhenyourchosenVChasinvestedinyourcompanyfromonefundandwantstoaddtothatinvestmentfromoneoftheirlaterfunds.Most,ifnotall,VCfundsaresetupwithcleardefinedrulesabouthowtheycancrossinvestinportfoliocompaniesfromdifferentfunds.
TypicallyonefundcannotinvestinacompanyalreadyinvestedbyanotherfundfromthesameVChouse,withoutathirdpartysettingtheprice.Thisisdonetoavoidtheoriginalinvestorusinganalternativefundtheymanagetoshoreuptheirinitialinvestment.Thisinprincipalsoundsfineaslongasathirdpartyinvestorcanbefoundinthetimescalesrequired,andthatthethirdpartyinvestorsetsavaluationonthecompanythatisacceptabletothecompanyandtheoriginalinvestors.
Myrecommendationsarewherepossibletakeyourinvestmentfromafundthatisattheearlystageofitsinvestmentcycle;wherethisisnotpossiblethengointoitwithyoureyesopenandtrytofullyexplorethepossiblescenariosoffutureinvestmentroundsandhowtheVCwouldhandlethem.
21
Jed Hurwitz
Ienteredthesemiconductorfieldslightlybyaccident,graduatingwithageneralelectronicsdegree;Ifacedachoiceofcareerpathsasdiverseaspowerstationstomicroelectronics.Iwentwith“chips”partlybecauseafriendwasofferedajobbythesamecompany,PlesseySemiconductors,andpartlybecauseIthoughtitwouldbefun.IwishIcouldsaythatmydecisionwasmoreinformed,butIreallydidnotknowthatmuchaboutit–sometimesyoujusthavetogowithyourinstincts.
“Invest in people, identify their potential and make them feel that they are part of the success.” Iwasfortunateinmyfirstjob,tofindmyselfattractedintoCMOSanalogdesignandtohaveaboss,IanPhilips,whotaughtmetwogoodlessonsthatItrytocarrythrough,ineveryendeavourthatIenterinto.Firstly,technologycanbeappliedtoanythingto“improve”itsfunction;itisjustaquestionofinformedimagination–youjustneedtoidentifywhataretheactualproblemsthatneedtobesolvedinordertomakeabetterproduct.Secondly,investinpeople,identifytheirpotentialandmakethemfeelthattheyarepartofthesuccess–financialrewardisnottheonlyfactor;externalrecognition,trainingandresponsibilityareoftenequally,ifnotmoreimportant.However,makesureyoudoitbyconsultationandoccasionallybysurprise-itismuchmoremotivatingthaniftheyhavetoask.Icannotre-iteratetoomuch,howimportantitistobeactivelyinvolvedinthefutureofyourteammembers;ifitisdonerighttheywillrepayyou10timesover.
Whenyoubuildateam,itisvitalthatyougetagoodmixtureofskillsandbackgrounds.Thereneedstobepeoplewithindustrialexperienceaswellasthosefromacademia.Foraproducttoreachmarket,itisnotaboutmakingonenearperfectdemonstrator,itisaboutmakingmillionsreliablyandwithhighyield.Peoplewhohavedoneitbeforeareinvaluable.ItakeasharpintakeofbreathifIhearthatastart-upconsistsof9PhD’sand1nonPhD.Youshouldalsomakesureyourteamconsistsofamixtureofinnovatorsandfinishers,commercialisingtechnologyisnotjustabouttheideas,itisalsoaboutprecisionexecution,ifyou’reextremelyfortunateyou’llhavesomepeoplewhoareabletodoboth.Finallythereneedstobeacommercialandfinancialbalancetoyourteam,unfortunatelymanytechnologistsfeeltheydonotneedthesepeople...yet.Buttheyarewrong.Youneedspecialistsintheseareastoprovidebalanceandensureyourplansarereasonable.
“A classic mistake is to assume your technology is the centre of the world.”Thisleadsmetomynexttheme–itisreallyimportanttoanalysetherealvalueofyourtechnologyandthemarketopportunityproperly,don’tjustfitthetechnologytothe“best”market,buttrytoanalysewhataretheapplicationfundamentals,whataretherealtrends,whotherealstakeholdersareandwhy.Aclassicmistakeistoassumeyourtechnologyisthecentreoftheworld.Youneedtounderstandwhatroleitplays,whatthealternativeis(oftentheincumbentsolution)andmostimportantly,whatthingsyoucandotoenhanceyourvalue.Sometimesyouneedtotakeastepbackandbecriticalofyourownsolution.Don’tjustlookatwhataspectsitimproves,butlookatwhatareitsweaknesses,orwhatmightchangetoenhanceorweakenyourposition.
Thereisanaturaltendencytobeblinkeredbyyourowntechnologyandyourownexperiencesofthealternativeapproaches,youneedtobalanceyourenthusiasmforyourapproach,rememberyourcompetitorsandcustomersarecapablepeopletoo,andthebesttechnologydoesnotalwayswiniftheotherfactors–commercial,manufacturabilityandstrategic–arenotsatisfied.Customerswillnoteasilybackthemselvesintousinga“proprietary”solutionifthereisnotasufficientdifferenceinprice/performance,astheygenerallyhavemoretogainfromamultiplesourcestrategy.Thiscanbefrustrating,butthisisthereality,andyoumayneedtoconsiderasecondsourceorlicencestrategytoeventuallyaddressthisconcernandensurethereisabigenoughmarket.
Justasitisimportanttoreleaseyourtechnologyfortherightreasons,totherightpartners,attherighttime,youalsoneedtobecarefulaboutdevelopingNIH(Not
Jed is CTO and VP Engineering of Gigle
Semiconductor, a semiconductor company
creating high performance system-on-chip
integrated circuits for home networking
applications. Founded in 2005, Gigle has
centrally-located offices in Edinburgh
and Barcelona, with plans to establish a
worldwide presence.
InventedHere)syndrome.Ifitisnecessarytoadoptanotherapproachyoushouldbebraveenoughtodoit.
Anothertoughdecisionwhenbuildingatechnologycompanyistotrynottokilltodayfortomorrow,ORtomorrowfortoday.Ingeneral,youwillstartasanR&Dcentricorganisation,andthenwhenyougetthefirstmarkettractionyouwillmoveintoamodewhereyoutrytomaximisethereturnfromthefirstgenerationofyourproduct,butpleaseensurethatyouarealreadyplanningtodesignitoutwithyoursecondgeneration.Ifthemarketisbigenough,andyoudon’tdesignyourselfout,somebodyelsewill.
“Although you need to make sure your plans are aggressive; they must also be realistic and achievable.”Althoughyouneedtomakesureyourplansareaggressive;theymustalsoberealisticandachievable.Youwillbejudgedbyyourinvestorsandyourcustomersonyourexecution–thetoughestthingtodoistodeliveraprojectontime,inbudgetandtothecustomer’srequirements.Ifyourplansaretoooptimisticorhavetoomuchfat,theywillnotbeachievableorsurvivediligence.Therearethreethingstowatchoutfor:
•Beingtoooptimisticaboutthetimetobuildyourteam,andtheoverheadsofgettingthemfunctionalandperforming.Includemilestonesthataremeasurableandthatde-risktheproject,butalsomotivatetheteam,andprovideevidenceofprogresstotheoutsideworld.•Nothavingsufficienttimetovalidateorstabilisetheproductbeforelaunchingittomanycustomers,willcauseyouproblemsandmaydamageyourreputation–thatwilltakemuchmoreefforttorecover.Soitisbesttorestricttheearlycustomerstotheminimumstrategicneeded,andthosewhoarealreadyfamiliarwiththetechnologyorarestakeholderssomehowinthetechnology.•Relyingonthehockeysticksalescurves.Itisineveryone’splans,butIhaveneverseenitactuallyhappen.Customersdon’talwaysmoveatthepaceyouwant,andoftenthereareseasonaleffectstothemarketsorcustomerdesigncyclesthatyouneedtorespect.Makesureyouknowwhatyourcontingencyplansare.Ifonemonthkillsyou,itisnotagoodplan.
Finally,I’lltouchonthequestionoffinance,togetfinancingtherearefourelementsyourproposalmusthave:
•Thereneedstobeasignificantmarket,andthatmarketshouldbegrowingratherthandeclining.•Thereneedstobesomethinguniqueaboutyourofferingthatcanbeturnedintosomethingsustainable,andcanbemappedintothefundamentalneedsofthetargetmarkets.•Thereneedstobegoodpeopleintheorganisation,bothtechnicalandmanagement,ideallywithtrackrecordsofsuccess.•Thereneedstobeaplanforaproductthatthemarketwantsthatis‘justmadenough’–ifitistooeasyyouwillnotbeabletoanswerthequestionofwhycan’tthecompetitiondoit,ifitistoodifficultyouwillnotbeabletojustifythatyoucandoit.
Eventhen,therearemanyotherhurdlestocross.Youwillbefundedtokeepyouleanandmeanuntilyouprovethatyoucanmanagethemoneyandtheprojectsuccessfully.Makesurethatyoucommunicateeffectivelywithyourinvestors,andworkatmaximisingyourvaluewhilemanagingtheriskanditwillworkoutwell,andtheywillhavetoensurethattheymaximisethepotentialinthenextroundoffunding.
IhopethatbynowIhavenotdisillusionedyou.Ishouldhavestressedthatalthoughitishardworkandattimesverystressful,beingpartofatechnologystart-upishugelyrewarding.Yougettoattempttochangetheworld,tomaketheseeminglyimpossiblebecomepossible,yougettobuildateamandatechnologyfromscratch,andhopefullyyouwillgettheunexplainablepleasurefromseeingyour“baby”reachtheshelves(andgetsignificantfinancialreward).Icanvouchthatafter20yearsofbeinginvolvedinsilicontechnologies,andthelast12yearsofbeinginvolvedinstart-ups,itisstillfunandIthinkImadetherightdecision,allthattimeago.
23
Andy is a serial Biotechnology
entrepreneur and business angel.
He is currently a director of several
companies, including Cancer Research
Technology (commercial arm of CR-
UK), Babraham Bioscience Technology,
Aitua, Pharmakodex and is Chairman
of Altacor. Andy was a founder of
Chiroscience and an executive director
through to the merger with Celltech in
1999. Since then, he has been founding
and investing in new biotechnology
companies, including Arakis, Geneservice,
Cambridge Biotechnology Ltd, Amedis
Pharmaceuticals, Sirus Pharmaceuticals
and Daniolabs, all of which were
recently sold. He is also a director of the
Bioindustry Association (BIA), a founder
member of the Cambridge Angels, a
founder investor in Library House, and an
advisor to Toscana Life Sciences.
Dr Andy Richards
LettertoapotentialEntrepreneur–“ThingsIwishI’dknown…”(orsomeonehadbotheredtotellme!)
Euan,myson,IamwritingyouthisletterbecauseIbelievethatonedayyoucouldbeanentrepreneurandthatIthoughtyoumightforgivemyindulgencebypermittingmetotellyousomeofthethingsthatIwishIhadknownwhenIsetoutonmyjourneyintotheworldofbusiness.
Today,beinganentrepreneurisverytrendy,almostasfashionableasbeingacelebritychef.Itwasnotalwaysthisway,andIdaresaythatitsstatuswillchangeagaininthefuture,butfornowitis“in”andthereforedeeplyattractivetomany.However,despitethisnewfoundcacheandthefactthatanentireindustrythathasbeenbuiltitselfwiththeintentofteachingentrepreneurship,wearetoldthattherearestilltoofewgenuineentrepreneurs.
Quiteobviously,noteveryonecanbeanentrepreneur;infactitisaprivilegereserved(ordeserved)forthefewratherthanthemany.Ireallystruggletodeconstructtheessenceofthosethatmakeit.Mostattemptstodefine,catalogueorcharacteriseentrepreneursseemdoomedtofail.Certainly,ifIlookatmyowncircleofentrepreneurialfriendstheyareaprettyheterogeneousbunchwithsignificantlylessincommonthanmore.Soitisperhapseasiertodefinewhatdoesnotmakeanentrepreneurratherthantheconverse;anditisironicthatalmostanyonewhohasbeenonacourseandtriedtotraininentrepreneurshipismostlikelynottobeone!
Sowhattrainingandeducationdoentrepreneurshave?Well,sooftentheentrepreneurswhoareheldupbythemediaasrolemodelshave“trainedattheschooloflife”.Theyaredepictedas,andarecelebratedfor,beingtoughambitiousgeneralistscapableoftacklinganybusinessopportunity.Theysitintheirdragon’sdenandhireandfireonawhim.Butthesearerare(andoftenlessthanpleasant)beasts.ManyoftherealentrepreneursthatIrespectmosthavebuiltupdeepexpertise,aspecialismandacorecompetencetobuildon.Soyoucanbeanexpertandanentrepreneurandinmanywaysthisisafarbetterecologicalnichetobein.Theseentrepreneursaremorecomfortablewiththemselvesandmorepleasanttobearound.Soifyoucanbearit,bepatientandbecomeanexpertinasubject,askill,acapabilityavaluechainorasectorbeforeyouembarkonyourjourney.
Icanseesomanycharacteristicsandqualitiesinyouthatweseemtoshare;youtakerisks,yourthinkingisquirky,manyfindyoucharismaticandothersthreatening;youarefullofenergyandhavealoveofthenewandapassiontoachievewithinyourratherperverseviewoftheworld.YouvaluemostwhatyoucansucceedinandIknowyouarehungrytogetstarted.Butdon’tbeovereagerandgetsuckedintothewrongopportunityandthewrongjourney.Here“wrong”ismorelikelytobeaboutthewrongpeopleorthewrongtimingratherthansomedrybusinessfallacies.Rememberaboveallelsethatsuccessisthejourneyandnotaboutreachingthedestination–soenjoythejourney.
Ihadtolearn(andinmanywayslearnlate)thatIhadtremendousstrengthsandequallysignificantweaknesses,andittookmealongtimetolearnenoughaboutmyselfandhowothersreacttome.Isuspectthatforyou,likeme,ideasarecheap,sodon’twaitforthatonegreatidea.Findgoodideasandtestthemonothersandgaugehowtheyreact.Letthatbethemeasureofwhatyoutrytoexecute,andwhenyouexecuteitandmostimportantly,whoyoudecidetoexecuteitwith.Buildingbusinessisallaboutthepeople-theyaretherawingredientsthatmakethemaincourse,nottheideaortheplan,soaswellasunderstandingyourselfyouhavetounderstandthemandgatheraroundyouthosethatyoulikeandtrustbuthavedifferentandcomplementaryqualities.Everyoneisnotlikeyou….andthankgoodness!Youhavetolearnhowtheytick;howtheyaremotivatedandhowtoalignyourinterestswiththeirs.Evenwhendealingwithbigcompaniesrememberthatbehaviourismoretodowiththemotivationoftheindividualswithinthanoftenwhatmakesbestsenseforthecompanyasawhole.
Understandothers,butmorethananything,learnaboutyourselfandhowyouinteractwithothers.Learnhowyousell–andthentrytounderstandhowyouleadandhowyoumotivate.Thefirstoftheseisthesimplestandprobablytheonethatmostentrepreneurs
learnfirst.Ithinkallentrepreneurshavelearnedhowtosellormoreproperlyhowtheysellbest,andeveryonedoesthisdifferently!Youhavetotrustyourinstinctsanddoityourway-don’tgetdrawninbythestereotypesandtheself-helpbooksandthecourses.
Thebigsellisthenapplyingthisandsellingyourdream/visiontothoseyouwanttoworkwithyouandjoinyouonthejourney;themotivatingandtheleading.Ihavealwaysbeentootrustingandthishasbeenbothastrengthandaweakness.Otherswillletyoudownbutdon’tlookbackwards;thereisnopointincultivatingenemies,revengeissimplyadishbestneverservedatall.Contrarytothemediastereotype,youdonothavetobeabastardtosucceedandclawingoverthebodiesofyourcolleaguestogettheretendstodetractfromthejourney!
ThereissomethingveryDarwinianaboutfastgrowthbusinesses,theyevolveundertremendousselectionpressuresand,ofcourse,evolutionisnotaboutsurvivalofthefittest,butmoreaccurately,survivalofthosemostadaptabletothechangingenvironment.Thebusinessenvironmentisallaboutchange.Trueentrepreneurshavearealfeelandsenseforchangesintheenvironmentandtheyrespondearly.Theyareatthefrontofthewaveandgettheirtimingright.Beingluckyisoftensynonymouswithgettingonestimingright.Businesshasitsfadsanditsfashions,especiallywithintheinvestmentworld.Insomanywaysweareallsheep,andweacceptbusinesstheoryorstrategicdogmasthatspreadwidelybutwithhindsightareclearlyflawed–lookoutforthese,buthesitatetoshoutthefallacyfromtherooftops.Thebusinessworldlovesitsdogma’sandsoyouwillhaveto“talkthetalk”andgivelipservicetothecurrentbusinessaxiomstobeanacceptedmemberofthetribe.Butknowthatwhenbusinessseemscertain,changeisusuallyunderway.
YouandIlovetoexperiencethenewandthismakesushyper-sensitivetonewideasandconcepts.Weseetheseearlyandoftenthinkthempasséwhentheyarestillyoung.Manysaythatsuccessinbusinessisaboutluckbutmorethananythingitisabouttiming.Ideasarerarelygoodorbadbuttimelyandthetimelyideaisoneworthactingupon.
Perhapsthemostperplexingthingaboutsuccessfulentrepreneursisthataswellaslikingchangetheyhaveadoggeddeterminationandperseverancetoseethingsthrough;theyarenotquitterswhentimesaretough.However,becauseofthisthebiggestdangerisoftenoverstayingyourwelcomewhenthingsaregoingwell;rememberthatsuccessisthejourneyandmovingon,or“exit”asitistermed,ispartofthejourneyandtoberelished.Allbusinesstheorygoesonaboutexits,butforyoutherealexitrouteismoreimportantthanforanyoneelse.Itreallyisworthplanningforandnotworthworryingoverlossofcontrol,orpurpose,orstatusoridentity;orworryingaboutlettingotherstakeonwhatyouhavestarted.Gettingyourtimingrightby“gettingout”isevenmorecriticalthanyourtimingongettingin.Exitisagloriouspartofthejourneyandalmostalwaysthestartofanewone.
Enjoythejourneyandwhateveryoudodon’ttaketheadviceof[pompousoldfarts]tooseriously.
Love,
Dad
25
Wekeptourcomposureonthelift,throughthefoyer,andoutofthelawyers’officesonawetOctobernight.Then,coastclear,wethreeco-foundersturnedtoeachotherwithawhoop,ateamhigh-five.Thenextobjective-findaplacetoopenthewarmbottleofchampagnewehadluggedaroundformonths,waitingforthisday.Wehadjustsignedthelastdocumenttoget£5,000,000inthebanktofundourfledglingcompanyanditseemedthattheworldwasouroyster.
Itwasmyfirstmaterialstart-upandwethoughtwe’ddonemuchofthehardwork–monthsofbootstrappingoncreditcards,officespacewithweek-to-weektermsthekeyattribute,cold-callingthroughthephonebooktogetthatfirstcustomer,ridiculouspizzasessionstofindauniquename,endlesspitcheswithVCs,angelsandtargetedkeyemployees…thewholelot.Withmoneyinthebankandbigmomentum,fromhereonitwouldbesimple…orsowethought.Ofcourse,thevoyagehadjustbegun.
Wewerenaïveatthetimeaboutthechallengesahead,butinhindsight,celebratingachievementofkeymilestonesislikeahitoftheentrepreneurialismdrug,andthosehighmomentsthatmakeupforsometoughslogginginthemiddle.
BelowIhavesomewhatunscientificallyidentifiedwhatarehopefullysomenuggetsofhard-earnedwisdomtohelpmakethesloggingpartalittleeasier.
“The importance of alignment among the core team is hard to overstate.”Co-founding is like a trust fall
Today,asaninvestor,Isometimesseeteamswhoarenotinsynch,notseekingthesamegoals,andwhoareobviousaboutit.Theimportanceofalignmentamongthecoreteamishardtooverstate.Itisoktodisagreeattimes,butformajormatters,disagreementshouldbedoneinprivateandconstructively–withanagreedclearconsensusuntilthenextcloseddoorsessionrevisitingthestrategy.It’slikeaplayinsports–evenifsomebelieveadifferentplayshouldbecalled,whenyouareonthefield,youexecutetheagreedplay.Thisservesmultipleends.First,itmeansthattheteamiscomfortabledividingresourcestogetthingsdone,knowingthattheirinterestsareservedacrosstheboard.Second,itensuresthatthebroaderstaffisnotdistractedbyinternalsplitsandisfocusedonexecution.Finally,youbecomeyourownsupportgroupandinsuchanenvironmentyoucanobjectivelyseektherightanswers.Wehadamantraonourfoundingteam,“Bemorehonestwithoneanotherthanwewerewithourselves”,atellingcommentwhichgotusthroughsometoughdecisions,boldmoves,andgreattimes.
“The attitude and mood of the entrepreneur has a startlingly impressive impact on your organisation.”Keep your head up
Theattitudeandmoodoftheentrepreneurhasastartlinglyimpressiveimpactonyourorganisation.Thatmeansstaffaremorelikelytowhistlewhiletheyworkifyouarebeamingor,conversely,quietlybrowsejobwebsitesifyoustormmoodilyoutofaboardmeeting.
Communication and people, people and communication
Ibelievethatiftwopartiescomeuponthesameconcept,onebrilliantbutunabletoharnesstheenergy,imaginationandcapitalofothers,andasecondlessbrilliant,butaneffectivecommunicatorandmanagerofpeople,thesecondwilleventuallywinoutthroughsheerscale.Itisinpartforthatreasonyouoftenhearinvestorssaythattheyinvestinamanagementteam,notaproject.Idonotmeantoimplythattheconceptitselfisnotimportant–inacompetitivemarket,itisveryimportant.Butitisthebeginning.Heck,sometimesit’seventhemiddle.
Buildingacoreteamofpeoplewhoworktogetherwellandcommunicateclearlyiscriticaltogetinitialfinancing-theliftunderaconcept’swings.Afteraprojectgetsofftheground,hiringcapablepeople,whichintheearlystageinevitablymeansgettingtheirbuy-intothevision,keepingclearcommunicationoftheobjectivesofthecompany–changeastheymight–isthejetpower.
Alex co-founded GoIndustry plc, bringing
it from the product development stage
through to its current state as a publicly-
listed global company. Alex brings
analytical, restructuring, finance and
business development experience from
McKinsey & Co. and Disney, having
worked in the UK, Germany, US, and
Latin America. Alex received his BA from
Stanford and MBA from Harvard and is
a trustee with The Venture Partnership
Foundation. Since leaving GoIndustry in
2006, Alex is working on a variety of web-
related and clean tech projects.
Alex Hoye
26
Thebiggerthecompanygrows,themoreimportantitistostructurallyensurethateveryonefromtoptobottomisawareofandsharesthecoreobjectivesofthecompany–andIdon’tmeanWal-martsize,Imeanthatthecommunicationneedsaremorethan10xwhenyougrowfrom5to50!
You can’t focus ahead constantly looking over your shoulder
Wespentimmenseamountsoftimeworryingaboutthehundredsofmillionsofpoundsininvestmentthatourcompetitorswereraisingandwhattheyweredoing.Marketintelligenceiscriticalforanybusinesstobeeffective.However,welearnedovertimethatitismoreimportanttohaveacohesivestrategyandexecuteitwellthantodebateeverytacticalmovethatourcompetitorsdid.
Inafast-movingbusiness,youcouldeasilyspendallofyourtimebeingreactive,butitgetsinthewayofmovingyourbusinessforward.Someofthekeydecisionswemadebuckedindustrytrends,andafteroverabilliondollarswaspouredintodozensofstart-upsinourmarketspace,threeyearslatertherewerefewerthanahandfulleftandweweretheonlyonestoIPO–preciselybecausewedidafewthingsdifferentlythantheothers.Humanshaveaherdmentalityhard-wiredintous,andoneofthecoretenetsofsuccessfulbusinessesisrealisingintimewhentheherdismovingoffacliff.Youcanonlydothisifyoukeeptoyourowncompass.Ofcourse,itisalsoimportanttoensurethatyourowncompassisnotdrivingyouoffanevenbiggercliff,butthat’sanothermatter.
Simplicity wins
Everybrainstormingsessioncomesupwithadozenservices,features,widgets,optionstoaddtoaproductorpartnershipstochase.Inevitablyonlyafewreallymattertothecustomerandeachdetractsexponentiallyfromtheabilitytodeliver.Focus,focus,focus.
Caveat Emptor
Stakeholderswillactaccordingtotheirinterestsinapinch,it’snotmeanorunfair,butitisreality.Everyoneisfriendlygoingintoadeal,contractorfinancing,butthinkhardaboutthepotentialdownsidescenariosbeforeyousignacontractandthinkaboutwhatanadvisor’sstakeisbeforefilteringwhatyoudowiththeadvice.
Fund-raising is massively disruptive
Financeislifeblood,butitishelpfultorealiseforplanningpurposesthatfundraisingisamassivelydisruptiveprocess.Nearlyeveryoneinthebusinesswillbeaffectedbeitforfactsanddocumentation,pullingtogetherclientandsupplierdetails,HRrecords,andmostobviouslyanythinglegalorfinancial.Wefoundtwoimportantfacts–first,thatwehadaclearoperatingplansothatthebusinesscouldchugaheadasusualwhenmostofmanagementwasdistractedpullinginformationtogetherfortheprocess.Second,knowingwhatmostofthecorequestionsare–andtheydonotdifferdramaticallybetweenSeriesBtoIPO,theyjusthavemoreandmoreexpensivepeoplesigningthemoff–wekeptasmuchofitaspossibleloggedandtrackedaswewentalongbetweenfinancings.
Necessary evil
Good–andreasonablypriced–legalcounselisanecessaryevil.Strivetogetcounselwithsensibleviewsonoutstandingpaymentswhencashflowisvariable,andoneswhodon’ttrytowincontractclausebattlesattheexpenseoflosingdealwars.
“Business is a serious thing, but people work harder and better together when it’s fun.”Have fun!
Businessisaseriousthing,butpeopleworkharderandbettertogetherwhenit’sfun–otherwise,we’dalljustbebankers…
Thoseareafewthoughts,buttherearemorethanonecanrecountandthebestwaytofindmoreistolivetheexperience.Mostofall,IwishIhadknownhowgratifyingitistolookatateam,abusiness,anindustrychangecatalysedbymyinvolvement.Itisimpossibletogobacktoa‘dayjob’afterhavingdoneso.
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Ernie Richardson is CEO of MTI,
an investor in young technology
businesses in the UK and USA.
MTI’s overriding motivation for
investment is a company’s potential
for commercial success, determined
by the quality of its technology,
potential market, and the calibre of its
management. Ernie is a director of a
number of technology companies in
which MTI has invested.
Ernie Richardson
So,you’vedecidedtogoforit.Despiteallmyscepticismyou’regoingtostartupyourtechnologycompanyandgiveup(oratleastputonhold)youracademiccareer.IhavetosaythatItakethisnewswithamixtureofenormousadmirationanddeepforeboding,butsinceyou’reintentongoingdownthisroute,canIsharewithyouafewthoughtsthatmighthelpoutwhenthegoinggetstough;asitwilldo!
“There needs to be something inside you that burns to do this, because when the going gets tough, it’s that sense of illogical ambition which will sustain you.” Entrepreneurialism is a profoundly illogical activity
Iwouldexpectyouasanacademictoappreciatethat.Inyourcaseitinvolvessuspendingapromisingacademiccareerinfavouroftremendoushardwork,nervoustension,strainonyourfinancesandyourpersonallifewith(statisticallyspeaking)arelativelypoorchanceofsuccess.However,ifthereisn’tanelementofillogicalityinwhatyou’redoingthenyou’reprobablyonthewrongpath.Thereneedstobesomethinginsideyouthat“burns”todothis,becausewhenthegoinggetstough,it’sthatsenseofillogicalambitionwhichwillsustainyou.
Success has many fathers and failure is an orphan
Aftertheinitialeuphoria,yourprojectwillmeetdeepandingrainedscepticism,particularlyintheUK.Thepeopleinlargecorporates(whowillultimatelybuyyourproduct/business)willgothroughanumberofphases:
•Firstlyignoreyouridea,ordismissitastrivial(“wecoulddothatanytimewewished”)•Thenattackit(“itwon’twork;tooexpensive;threatensourinstalledcustomerbase”)etc.•Thengrudginglyadoptit,butonlywheretheyhavenoalternative•Finally,whenyourrouteisself-evidentlythewaytogo,absorbit(“wealwaysknewthat…”)
Howeverintheeventthatfirsttimerounditdoesfail,thentherewillbeatorrentof“wetoldyouso…”Nobodywillthankyouforprovingthemwrong.Rathertheacknowledgementthatyouwererightappearsinthesizeofthebusinessyoubuild.
It’s better to be rich than right
Oneoftheattitudesthatafflicttheacademiclifeistheneedtobeprovedright.Incontrastinthebusinessworld,decisionsaremadeonamuchlessrigorousbasis.Forexample,theworldoftechnologyispopulatedbysecondclassproductsthatdominatemarkets–WindowsOSvsOpenSource;PCvsMac,etc.etc.Thepointhereisthatinanymarketthereisapointwherethequalityofthetechnology(beingright)isnolongerthedeterminingfactorinitsadoption–atthispointalltheblackartsofsalesandmarketingcomeintoplay.Technologyhastobegoodenough,butfairlysoonissueslikeprice,easeofuse,marketaccesstotheproductbecomemuchmoreimportantthantheunderlyingtechnology.Twoimportantmattersfollowfromthis:
•Firstly,themarketdecidesonwhatisimportantandwhatisn’t,notyouoryourdevelopmentteam.ThethingthatMicrosofthavealwaysexcelledatisgettingproductintothehandsofusersquickly,listentowhattheyhavetosayandthenincorporateit;evenifitcutsacrosstheviewofthe“beauty”ofyourproduct.ThisiswhyvirtuallyallMicrosoftproductshavetogothroughseveralversionsbeforetheyareanygood.•Secondly,alwaysgoforgrowth.Again,themarketwilldecidethevalue(price)attributabletoyourproduct,notyou.Sothechallengeistocaptureusers,listentothemandthendrivecostoutofyourproduct(andyourbusiness)suchthatitbecomeswidelyadopted.
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“The voyage that you’ve embarked on with your project is new; nobody has ever been there before.”Experience is valuable, but not invaluable
Thevoyagethatyou’veembarkedonwithyourprojectisnew;nobodyhaseverbeentherebefore.Suresomepeoplehaveundertakensimilarjourneysandsomepeoplehavebeentoplaces(markets)thatarelikeyours.But,nobodyhasevertakenyourjourneytoyourdestination.Thisiswhytheadvicetheycanofferandexperiencetheycanbring(includingmine!)hasvaluebutnobodycantellyouexactlywhattodo.Iftheycanthenyou’reonthewrongjourneyandyoushouldstopandfindyourownjourney,becausemost(ifnotall)ofthevaluehasalreadybeenextracted.
Oneofthestereotypical(andflawed)assumptionsamongstpeoplewhooperateintheareaoftechnologyentrepreneursisthatfoundersareOKuptoapointbutthenthe“grownups”shouldtakeover.Insomecircumstancesthismayberight,butgenerallywhenthegoinggetstough,it’sthefounderswhowillhangoninthere.Hiredhandscomeandgo.However,thekeyisthatthedecisiontohandoveranydegreeofcontroltoanincomingmanagershouldbeyoursandshouldbedoneonthebasisofdemonstrableaddedvalue.Ifyouendupfailing,itmightaswellbeforyourmistakesratherthanforthemistakesofsomeoneyoubroughtintothebusiness.
Learn how to sell
Probablythemostfrequentmistakemadeintechnologystart-upsistooverestimatethevalueoftheunderlyingtechnology.Ingeneraltermsthecontributionmadetoanysuccessfulbusinessbyitscoretechnologyisprobablynomorethan10-15%.Whatreallydoesaddvalueistheapplicationofthattechnologyinthehandsofusersfacingrealbusinessissues.Thereafterit’sallaboutsalesandmarketing,andthisisprobablythemostimportantcontributoryelement.
Anotherstereotypical(andflawed)assumptionamongstacademicentrepreneursisthatsalesandmarketingissomehowasecondrateactivityandthatacademicentrepreneursmakepoorsalespeople.Thisisdrivenbythe“footinthedoor”,slicksalesmanpicturethatmanyacademicentrepreneursstillcarry.Infact,mostbusinessesstartedupbyacademicsarebusinesstobusiness,highaddedvalueoperationswherethepersondoingthesellinghastoknowasmuchaboutthetechnologyashiscustomer;whoisprobablyahighlyqualifiedtechnologist.Inthissituationthesalesprocesslendsitselftosimilarlyqualifiedsalesandmarketingpersonnel.Finallygoodsalesandmarketingpeopleareverywellorganisedandarefollowingasystematicsalesprocesswhichanyacademiccanrecogniseandquicklyadopt.
Soenoughofthesagewords.Attheendofthedayyou’veembarkedonthisjourneybecausesomewheredeepdownyouhaveto!Iapplaudthatandevenifitdoesn’tworkout,duringthisprocessyouwilldiscovermoreaboutyourselfandaboutbusinessthananynumberofMBAprogrammes.GoodluckandmakesuretosendmeaninvitetotheIPOparty.
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Ian Underwood
OnMay7th1959,C.P.SnowdeliveredtheRedeLectureentitled“The Two Cultures” inCambridge,England.Histhesiswasthatathereexistedagap(orevenachasm)betweentwoofthedistinctculturesofsociety–thoseofthesciencesandthehumanities-aconsequenceofwhichwasabreakdownincommunication.Theendresultwasasignificantbarriertosolvingtheworld’sproblems.But,thisarticleisnotaboutthesolvingtheworld’sproblems–onlyaboutsolvingthecompany’sproblems.
By1997IwasamoderatelysuccessfulacademicinaverygooddepartmentinaverygooduniversityintheUKwithlittlerecentexperienceoutsideofuniversityresearch.Twoyearsfurtheron,in1999,Iwastheco-founderofahigh-techspin-outcompanypresentingitselfasadeveloperofinnovativeproductsbaseduponnewtechnology.InthecourseofsecuringseveralroundsofVCfundingoverseveralyears,thecompanyhadconsideredbusinessplansbasedonlicensing,partneringandstand-alonemanufacturing,finallysettling(correctly,inmyopinion)onthelast.Thecompanyhascomealongwayfromitsconceptioninthemindsoftwouniversityresearchers.ThroughaphaseasanorganisationfocusedondevelopmentemployingprimarilyPhDsitistodayamaturingorganisationmanufacturingproductsandemployingmorethan50staffinseveralcountries.
Despitemyownpersonalculturalbaggage,theonethingIknewintheearlydaysofthecompanywasthattheteamwehaddidn’t know it all.Ifthecompanywasgoingtofulfilitspotential,alongsidedevelopingitsearlystaff,itwouldhavetohireinmuchofwhatitdidn’thave.Tofocusonaspecificexample,intheearlydayswewere-likemanyuniversitytechnologyspin-outs-acompanywithalargestaffofresearchscientistsinwhichno-onehaddirectexperienceofvolumemanufacturing.Andwewouldneedatsomepoint–andthesoonerthebetter–toimportsomeofthatmanufacturingexperience.
Now,scientistsarebyinclinationprimarilymotivatedto,anddrivento,understandhowandwhythingswork.Whilethisisnearlyalwaysbeneficialinthelongterm,itcanresultintheperceptionthattheyarenotfocusedonsolvingurgentproblemswiththenecessaryexpediency.Scientistsarenecessarytothelong-termbenefitofthecompanyastheyarethedevelopersofnewtechnologyandproductsonwhichthecompany’sfuturerevenueswilldepend.Thetoolsetofthescientistincludestechniquessuchasanalyticalmodelling,computersimulationanddesignedexperimentation.
Incontrast,manufacturingstaffarebydefinitionmotivatedanddriventomanufactureandshipproduct.Theywanttokeepthingsmoving.Theywanttosolveproblemsasquicklyaspossible.Whilethisisnearlyalwaysbeneficialintheshortterm,itcansometimesresultinshorttermfixesoracombinationofsequentialfixesthat,bysteppingbackandpondering,havethepotentialtobeimprovedupon.Manufacturingstaffarenecessarytotheshorttermbenefitofthecompanyastheyprovidetheoutputonwhichthecompany’srevenuesdepend.Thetoolsetofmanufacturingincludesstatisticalanalysisofhistoricalandrecentproductiondataand,sometimes,theopportunitytodesignandrunprocesssplits.
Inthecaseofatechnologyspin-outcompanythechasm,betweentheculturesofscienceandmanufacturing,canbeamplifiedasthetwoculturesareoftenfurtherseparatedbyhistoricalenvironment–theincumbentscientistsfromPhDandpost-doctoralresearchstudyinuniversitiesandtheincomingmanufacturersfrommatureindustry(suchasaCMOSwaferfoundry)-andbotharestrugglingtocometotermswiththeneartotallackofinfrastructureandsupportinthestart-upenvironment.Otherpossibilitiesincludeverticalchasmsofculturesuchasthosebetween“directorsandemployees”or“managementandtheshopfloor”,orhorizontalchasmsofculturessuchasthosebetween“MarketingandEngineering”,ormyownpersonalfavourite-“FinanceandSales”.
Inthiscontext,the“thing I wish I’d known”isjusthowwidethegapbetweenthesetwoculturescanbeandjusthowsignificanttheconsequencesofanygapcanbe.Andthereforejusthowworthwhileandimportantistheearlyinvestmentoftimeandeffortintoensuringthatthetwoculturesquicklycometosetasidemutualsuspicion,appreciateoneanother’sworth,learnoneanother’slanguage,understandoneanother’sstrengthsandweaknessesandlearntoworkeffectivelytogetherforthecommongood.
Ian is a co-founder and currently CTO of MicroEmissive Displays (MED) and co-inventor of its P-OLED microdisplay technology. He has been a fellow at several prestigious bodies, a Photonics Spectra Circle of Excellence designer, a Ben Sturgeon Award winner, Ernst & Young’s Emerging Entrepreneur of the Year, and, as Gannochy Medal winner, recognised as Scotland’s Top Innovator. He was listed by the Herald newspaper in 2006 among the “twenty Scottish scientists changing the world we live in”, but is most proud of MED’s Guinness World Record for producing “the world’s smallest colour TV screen”.
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Sir Robin Saxby
Itwouldbepossibletofillavolumewithallthethingsyoushouldandshouldn’tdowhenyoustartabusiness,butthesearejustafewofthethingsthathaveservedmewell…
“A team is only as strong as the weakest link.” Skills
Noonepersonknowsitall,sowhereyoudon’thaverealbusinessexperienceinsales,marketing,communication,HR,legal,globalawarenessorfinance,makesureyouhavepeoplewiththeskillsessentialforyourteam.Ifyoucan’taffordtohirefull-timepeople,usethebestpart-timeadvisorsuntilyoucanaffordthem.Andremember,ateamisonlyasstrongastheweakestlink.Soidentifytherealstrengthsandweaknessesofeveryteammembertoensurealltheessentialskillsetsarecovered,andthenplaytothestrengthsandopportunitiesyoudiscover.Butdon’tforgettocorrectweaknessesandminimisethethreats.
“Mistakes will happen; learn from them.”Plans and operations
Businessplansarenotjustaboutraisingfinance.Youneedtobuildoperational(shortterm),tactical(mediumterm)andstrategic(longerterm)plans,andthencontinuouslycheckyourprogressagainstyourplans,andasyougathermoreexperienceanddata,changeandimproveyourplans.Doanassessmentagainstallglobalcompetitionthatyoucanfindoutabout.Readandinquire.Haveabaselineplan,afall-backplanandanupsidebusinessplan,tohelpwithemployeeheadcountplanningandcostcontrol.Thiswayyoucanbepreparedforwhetherthingsgoreallywell,orreallybadly!
Runthebusiness“meanandlean”andincentiviseyouremployeestocontrolcosttoo,butdon’tforgettoalsorewardthemforlong-termsuccess.Mistakeswillhappen;learnfromthem.
Telling it as it is
Alwaysunder-promiseandover-deliver;berealisticandhonestaboutyourproductandyourcapabilities.Besensibleabouttimescales,butsetchallengingandstretchinggoals.ItisnevertooearlytoevolveaglobalPRandmarketingstrategy.Butkeepthecommunicationsimple;charts,picturesandgraphsspeakathousandwords.
“Hard work and fun are essential ingredients of success.”Getting the thinking right
Hardworkandfunareessentialingredientsofsuccess.Businessis10%inspiration,90%perspiration.Ifyou’renotpreparedtoworklonghoursandabletorecoverquicklyfromafall,don’tgetstarted.
Bereallydrivenbyhowyourdevice,product,ideacanchangetheworld;passioncountsmorethananyideato“makeafastbuck”.
Rememberbusinessismuchmoreaboutcustomer-pullthantechnology-push,sotalktootherswhohavedoneitbeforeandseektheirhelp.
Finally,thinkbeyondthepossibleandbackofftoreality.
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Adrian is Co-Founder and Director of AlertMe, a home security technology company, and is responsible for overseeing the commercial development of the company, helping to communicate and establish the brand, and build business partnerships. Adrian has founded several successful companies, including ActiveHotels.com, Europe’s No.1 online hotel reservation system, which became the fastest growing company in the UK in 2003 before being sold a year later for £90 million, delivering a 16 fold return to investors. Adrian recently founded Sawston Hall, a 16th century hotel located near Cambridge, which is being converted into Europe’s first carbon neutral hotel.
Adrian Critchlow
WhenIsetoutinbusinessIwishIknew“pricingisanartnotascience”.Thereisnoblackorwhitewhenitcomestopricing.
Tosellanythingyouneedtohaveaprice.ThismaysoundobviousbutearlyonwhenIwasrunninganeducationalsoftwarecompanywehadthreeproducts,eachwithanindividualprice.Thenoneeducationauthorityaskedforalicensefor300schoolsitelicenses.IagonisedfordaysastowhatdiscountIshouldgive.Ireallywantedtogetitrightandindoingsonearlylostthesale!Withoutapricetheycouldn’tplacetheorderandIquicklydiscoveredthatthewrongpricewasbetterthannoprice–Theprobabilityofgettingtheorderwiththewrongpriceisalwaysgreaterthangettingitwithnoprice(i.e.probability=zero!).
Sowhyispricinganart?It’sanartbecausepricingisaboutperception.Doyouwanttobeperceivedtobe“fair”,“lowcost”(Ihatethewordcheap!),“luxury”;perhapsyouwanttobealittlebettervaluethanyourcompetitors,orperhapsyouwanttopriceabovethemsoyouareperceivedasa“better”moreexpensiveproduct,aswedidonce.Thereisobviouslysomesciencethatcanbeapplied.Youcanstartfromthebottomup‘costplus’,asit’sknown,andaddthemarginyouwantontoyourcostprice,oryoucanworkon‘marketpricing’andchooseapriceyoufeelthemarketwillbear;alternativelyasmostcompaniesendupdoing,youcanuseacombinationofthetwo.Butattheendofthedayitcomesdowntoproductpositioningandperception,whichencompassesmuchmorethanjusttheprice.
Itmayseemobviousthatyouneedapricetosellaproductbutinthiseraof24/7internetshoppingit’samazinghowmanyproductsarepromotedwithoutapriceora‘buy’button.About50%ofproductsIlookatontheinternetasaninterestedready-to-buy-consumerIendupnotpurchasingbecausetheywon’ttellmehowmuchtheycost.‘Callusforpricing’or‘seeyourdealer’alltoooftenresultinalostsale.Worsestillarecompaniesthatlinkyoutoaresellerwhohaszerostockandpointsyoutoacompetingproduct.Maybecompaniesareworriedaboutappearingtooexpensiveorbeingjudgedbytheirpricingbutattheendofthedayiftheyareproudoftheproducttheyshouldbehappytodisplaytheprice,the‘wrong’priceisstatisticallymorelikelytogetthesalethannopriceatall.
Withregardstothescience,Ionceranapricingexperimentwitha£39product.ItwasasoftwareCD,soithada95%+grossmargin,sowedirectmailedto1,000customersanofferpriceof£39;1,000morewereofferedat£29;1,000at£19;andfinally1,000at£9.95(eachofferspecifiedtheRRPas£39).Theresultswereveryinteresting.Witheverypricepointreductionitnearlydoubledthenumberofsaleshighlightingthatitisalwaysworthconsideringvolumeasakeyfactorinyourpricingdecisions!
Finally,thisexponentialrelationshipleadsmanycompaniesinthelow-promotion-cost-internet-worldtorealisethatinordertomaximisethesalesvolumesandtheviralwordofmouthpromotionopportunity,thebestpricepointis‘free’!(NoteapriceofzeroisobviouslynotthesameasNOTsittingonprice!).Thishoweveronlyworksifyourproducthasrealvalue,isperceivedasvaluableandyouquicklyfindawayofmonetisingitthroughadvertising,salesofdata-mininginformationorupgrade/addonsalesetc.Afterall,thefirstlawofentrepreneurshipstillapplies“CashisKing”andgettingyourpricingstrategyrightisakeypartofachievingit!
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Acknowledgements
ProductionofthisbookletwouldnothavebeenpossiblewithoutthefinancialandadministrativesupportoftheBVCAandNESTA.Wewouldalsoliketothankallthecontributorsandtheeditorsfortheirtime,effortandgenerosityofspirit;inparticularErnieRichardsonofMTIPartners,fororiginatingtheideaandthendelegatingallthehardworktoeverybodyelse.
BVCA
TheBVCA-TheBritishPrivateEquityandVentureCapitalAssociationistheindustrybodyfortheUKprivateequityandventurecapitalindustry.Ourmembershipofwellover400membersrepresentstheoverwhelmingnumberofUK-basedprivateequityandventurecapitalfirmsandtheiradvisers.TheBVCAhasover24yearsofexperiencerepresentingtheindustry,whichcurrentlyaccountsforaround60%ofthewholeEuropeanprivateequitymarket,togovernment,theEuropeanCommissionandParliament,themedia,regulatoryandotherstatutorybodiesathome,acrossEuropeandaroundtheworld.Wepromotetheindustrytoentrepreneursandinvestors,aswellasprovideservicesandbestpracticestandardstoourmembers.
Copyright
Thegreatestcarehasbeentakenincompilingthisdocument.However,noresponsibilitycanbeacceptedbythepublishersorcompilersfortheaccuracyoftheinformationpresented.Theopinionsexpressedarethoseoftheauthor’sandthesedonotnecessarilycoincidewiththeviewsoftheBVCAorNESTA.Anyinformationpresentedinthisdocumentmaybereproduced,buttheauthorsassertthemoralrighttobeidentifiedastheauthorsoftheirworkandanyreproductionsmustincludecompletedetailsoftheauthor,theBVCAandNESTA,fullysourcedandacknowledged.
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