To Revenue

As previously announced, I was at Communitech last Friday to talk with their Product Management group about the key challenges to launching blockbuster tech products. I decided  to tackle the divide between Techies and Biz types, as this has consistently been one of the main hurdles I saw at the ventures I work with. I was a little worried as at first I expected possible controversies over some of the points I brought up, but to my surprise this resonated well and strongly with most people in the room. About half the room were techies and the other biz types, so the distribution was spread nicely in the middle. There were no punch exchanges, mud fights or even light food fights (or food light fights for that matter).

I posted my presentation on Slideshare, so you can find it below. I had two hours at Communitech so this is quite a long deck of 40 slides. It’s all there. For those who attended, note I revamped quite a bit of it and there are several slides I didn’t show during our discussion. So you  can take a fresh look at it.

Slideshare did a poor job with the graphics so, for example, the cover page I was so proud of is all scrambled. Time permitting, I am available to deliver this presentation at other forums and welcome invitations. Rest assured I have unscrambled slides to present.

Blockbuster products, Canadian entrepreneurs, Innovation strategy blockbusters, business plan, commercialization, consultant, Digital divide, divide, fundraising, go-to-market, market hit, marketers, mental models, monetization, Product manager, Revenue model, Science and Technology, techies, venture

I was invited by Communitech in Waterloo to give a talk to their Product Management peer-to-peer group. It will take place next week, on June 26th at 10am. I will test a few themes I have been playing around with, on the topic of launching successful market hits. Here is the blurb, feel free to communicate this widely:

Vampires vs. Werewolves, Pirates vs. Ninjas, Techies vs. Marketers (BETA)

A beta discussion on creating market hits, with Greg Boutin, founder of Growthroute Ventures www.growthroute.com

On my left, mad-science Techies: “One really doesn’t need marketing if the product sells itself. Look at Apple etc.”. On my right: snake-oil Marketers. “It’s all about PR and advertising, not building things in the lab”. A rivalry as ancient as Vampires vs. Werewolves or Pirates vs. Ninjas. Let the fight begin (with Product Managers in the middle?)

Canadian entrepreneurs, Scaling up angels, blockbusters, canada, communitech, market hits, marketers, product developers, product development, product launch, techies, University of Waterloo, ventures, Waterloo

A great post 3 days ago by ReadWriteWeb COO Bernard Lunn on 10 Things to Be Clear About Before You Start a Company. I had the chance to meet Bernard last month at the Web 3.0 conference when we had dinner with a group of Web 3.0 business pioneers (including Alex Iskold of AdaptiveBlue and Andraz Tori of Zemanta). Bernard is one of those unassuming types with a bottomless wealth of knowledge activated on demand. You know, that type of folks everyone likes to have a conversation with, with a good glass of wine to complete the picture.

One of the many ideas that intrigued me in his post is that of checking whether you’re made to grow a lifestyle business, or to pursue a growth company. The reason it caught my attention is that lately I met a lot of tech entrepreneurs who started a business, acquired a few clients and grew revenues, and at that point started to play with the idea that they may need to raise money — and yet are far from clear on what changes this pathway will require from them and their business.

A number of those entrepreneurs, after putting everyone in marching order towards an external investment, end up not taking the plunge. While there are side benefits to preparing for an investment, the collateral damages of not taking it in the end outweigh those benefits. When the founder(s) (and their board when there is one) haven’t done their own groundwork beforehand, and aren’t ready to make the investment leap (of faith, in many cases) after pursuing it and even securing offers, it destroys value, hope and useful resources that could have been better deployed elsewhere. In fact it often ends up destroying the company itself.

That’s not to say a company founder shouldn’t be cautious about protecting her/his interest and that of the company from predators. It is critical to secure the best valuation by putting the company’s operations in order, finding the most attractive angle to document the story for the investor’s pitch, and adopting a systematic approach to raising investment that puts investors in competition with one another and keeps them on their toes. Without it, it’s normal to expect the company’s founder to hesitate.

But often, “doubts” about the potential investors and term sheets hide the darker truth that the founder sees all this as “letting the baby go” (which is often not the reality) and is not ready for it. It becomes an excuse for humming along thinking the sun will keep shining on the business and it “will continue to grow organically if we keep doing things right”. If this is true then don’t seek outside investment in the first place. Market validation has more cachet than any investor’s endorsement.

I wrote above that a founder rarely “has to” let the baby go. Any investor will tell you they’d rather keep the original founder at the helm if that founder shows the right level of flexibility and adaptivity to grow with the company. The trick is to start thinking in terms of “influence” not “control”. The main reason a founder is asked to let the baby go by external investors is that the founder stands in the way of growth by focusing too much on control, and not enough on influence.

There is a huge difference between getting a company to a few customers and taking it over what I’d call the “Growth Company Landmark”: the inflexion point at which most of what the CEO needs to do is managing other people and external investors, as opposed to securing new clients and running R&D. That point differs by type of business but, for many I came across, it was between $1M and $2M in revenue. At that stage, it is obvious to everyone that a huge transformation needs to take place and that the founding CEO needs to adapt, or curb the company’s growth.

Four evenings ago, I met a 52-year-old entrepreneur. As we kept chatting on the parking lot, he confided almost with tears in his eyes that he had once lost a fantastic outside investment opportunity, and regretted not to have been more aggressive in seeking growth and the corresponding financial resources. Now, by his one admission, he couldn’t get any of his three companies above the $2M mark. Such a waste of potential. Entrepreneurs, please, know what you want before you go for it.

Scaling up Bernard Lunn, business angel, growth company, innovation entrepreneurship, Investment, Outside invesment, ReadWriteWeb, tech ventures, venture capital, venture consulting, Zemanta

Canadian Business totally misses the mark in its poorly researched editorial on Ontario’s Green Energy Act and the Emerging Technologies Fund in the June 15 issue.

I support innovative ventures in the cleantech space on a daily basis through my consulting practice at Growthroute Ventures, and I recently co-authored an article entitled “Could Ontario be the Next Germany?” with regard to both the Act and the Fund, published in Renewable Energy World Magazine, the most widely-read magazine on clean energy.

As we all know, Ontario has been pouring money by the billion into the car manufacturing industry and other dinosaurs. It is about time some public support be devoted to innovation in cleantech. The Green Energy Act is modeled after the German incentives, which are recognized in the industry as widely successful. California, which Canadian Business refers to as a great model, has in fact been seriously discussing moving towards the German system. But more importantly, Canadian Business’s assertion that California’s model is significantly different in its support of clean energy — claiming it does so less selectively– is downright incorrect. Among many other examples, the western State pays a premium for 5 years on all solar photovoltaic projects, and offers select incentives to wind and biomass projects. This “winner-picking” approach Canadian Business criticizes is a constant in the energy industry, as a quick look into the huge tax incentives our government is offering for oil sand exploration, or all the public money that has gone into nuclear power R&D, would have told the editor. The support now offered to cleantech is a minuscule fraction of those amounts. If Canadian Business advocates for a leveled field, it should make sure it is looking at the entire field first.

As for the Emerging Technologies Fund, it is again just a drop going to innovation against the ocean of dollars poured into the US car manufacturing black hole. Canadian Business forgets to note that Quebec recently announced the launch of a fund offering over 3 times the amount of Ontario’s fund, and that la Belle Province is increasingly being seen as much more supportive to innovation than Ontario. Dismissing the Ontario’s ETF initiative on the basis that there is little venture capital money to match, and that “most VC-backed investments fail”, demonstrates a serious misunderstanding of how venture capital works. VCs bet that out of 10 investments, nine are going to fail or just get by, and one or two are going to make up in a big way for all the others. The metric that matters here is the investment ROI on the entire fund, not on individual investments. The VC industry raises its money from larger funds, who allocate their investments based on ROI and risk. Until now they had found it quite lucrative to place bets on VC funds.

But Canadian Business argues that VC investments are inherently too risky. Taking the magazine’s logic to its conclusion, it is not advocating against the Ontario fund as such, but against the VC model as a whole, in essence saying that VC investments are bad investments, and that no money should be put into that model. The truth is, the VC model may be under fire, but again, one needs just to take a look at the broader picture to see that is but a flawed assumption: how about the recent financial returns from the securities industry, the car manufacturing industry, or real estate? If we are to invest anywhere, I say putting more money in the hands of VCs (and angels too, by the way) is as good a bet as any. Actually, it is a much better bet.

The VC industry in the US is widely seen as a critical catalyst for the rise of the Silicon Valley. Companies like Google, eBay, Facebook, Cisco Systems and a number of other innovation heavyweights act as vivid proof that the model works. In my daily job, I constantly witness how the quasi-permanent lack of funding for early-stage innovation in Canada stifles growth and highly-qualified employment. I am not arguing against Canadian Business on the importance of letting markets do their magic, and getting out of the way, but at a time when the government is distorting those by throwing money at any moribund dinosaur that can still shout, I say any effort to direct funds to the innovative sector through the existing channels should be encouraged and supported. Certainly, reducing taxes and removing regulatory barriers to all forms of investment is needed (making it easier for US VCs to invest here is a definite need!), but it does not prevent other initiatives that leverage the power of targeted incentive towards sectors of strategic importance for our collective future.

Shame on you, Canadian Business, for popularizing half-baked arguments on the Green Energy and Green Economy Act and Ontario’s Emerging Technologies Fund. You couldn’t serve the purpose of traditional corporate money-grabbers any better, at a time when the job-creating innovative economy is in dire need of your support.

PS. And while I’m on Canadian Business, what is it with its choice for the “25 most influential people in business“? All white male except for one woman! The magazine might want to drink a bit of its own medicine, see their last-page article “Women wanted“, as I doubt there aren’t more females or visible minorities in the top 25…

Related articles by Zemanta

• Green Energy Act: Where do we go from here? (cleanbreak.ca)
• RESCo Energy Applauds Feed-In Tariff Announcement (newswire.ca)
• Utilities energized by the possibilities (thestar.com)
• Polls Show Overwhelming Support for Ontario Green Energy Act (newswire.ca)
• Ontario Gives Green Energy Act the Green Light (newswire.ca)

Canadian entrepreneurs canada, cleantech, emerging technologies fund, fundraising, green energy act, innovation, innovation policy, Ontario, venture capital, ventures

Related articles by Zemanta

• Crash Course in Venture Capital (dividendsandpreferences.blogspot.com)
• Show me the customers! (marsdd.com)
• Ask the VC Live - Raising Venture Capital and Beer (feld.com)
• VC Model Is Not Broken: Insights from Brad Feld of TechStars and Foundry Group (xconomy.com)
• Want VC? Then Be Ready To Go Big (markpeterdavis.com)
• How bad is it for startups seeking financing? (vator.tv)
• Venture fundraising: Going, going, gone? (venturebeat.com)

Revenue model, Scaling up business case, customers, Revenue model, technology commercialization, venture capital

My friend Fred Sweeney of VG Partners pointed me to this interesting call for help by the biotech industry in Canada, whose start-ups are finding it difficult to raise money to survive, let alone thrive. In these times of hardships, the ventures with the least obvious path to commercialization and revenue are the ones who suffer first and most. Given the lengthy development cycles and uncertain payout, biotech ventures evidently stand at the frontline of the crisis.

What all that shows is that a start-up should at all times be able to articulate the revenue model it is proposing to pursue. It should tie all its current efforts to this model, or “reverse-engineer revenue” as per the expression I coined at GrowthRoute. Doing just that provide three benefits: one, you stand in first row against competing start-ups when comes the time for VCs to hand out cash; two, keeping your eyes on the prize helps you identify where to focus your efforts today, and better allocate your current resources; three, spending some time thinking about how you will make money could point to nearer-term sources of revenue you may not have thought of.

Without a destination and a map to get there, you can have a tight ship and yet run it in circles. Better to never count on the government to get you back on track.

Revenue model biotech, biotech industry, business model, canada, commercialization, customers, eyes on the prize, Fred Sweeney, government programs, innovation, innovation entrepreneurship, Revenue model, Technology, technology commercialization, venture capital, vg partners

Jacqui Murphy of Tech Capital wrote a fascinating blog post today, listing the top resources any venture in Canada should be aware and possibly take advantage of in this downturn economy. Quote:

1. There is amazing talent on the street right now. Many of these folks have received severance packages and are approaching the job market with “flexibility” in mind. Reach out to these people and engage with them as advisors, employees who are interested in working for equity, and/or potential co-founders/partners.
2. Map your industry ecosystem, identify strategic partners and customers, prioritize them, and use FREE social media tools (LinkedIn, Twitter) to reach out, ask for introductions, and ask for help — shorten your path to market any way you can.
3. Attend the “unconferences” (StartupCamp, BarCamp, DemoCamp, mesh) to meet people like you who are wanting to roll up their sleeves and help others (and themselves) build companies with limited resources. These entrepreneurs are not waiting around for venture capital, they are building in the absence of financing with customers, value propositions, revenue and profits in mind.
4. Look to existing government programs for support. Make sure you are filing for SR&ED Credits and applying for the Ontario Interactive Digital Media Tax Credit. Introduce yourself to your local IRAP and OCE representatives to see if they have any programs you might qualify for.
5. Reach out to MaRS, Communitech, and OCRI and hook in to their Entrepreneur-In-Residence programs. These organizations are very knowledgeable about tools that are available to entrepreneurs and they know how to efficiently access a number of government programs.
6. Check out the Microsoft BizSpark program for free development resources and support.

Tech Capital Partners Blog, Feb 2009

You should read the whole article.

Related articles by Zemanta

• Canada could lose 325,000 jobs next year: TD Bank (cbc.ca)
• Canada Q3 venture capital investments drop 26 percent (canada.com)

Canadian entrepreneurs barcamp, communitech, democamp, government programs, irap, Jacqui Murphy, mars discovery district, mesh, oce, sr&ed, talent, tech capital partners

Great entry by Jon Worren on Why the chasm still exists, on the blog of Toronto’s innovation hub MaRS. Nicely complements the last post on this blog.

Innovation strategy chasm, hub, innovation, mars discovery district, toronto

What do the Wii, iPod, iPhone, netbooks, Facebook, Rockband, and Twitter have in common?

All of the technology these blockbusters required was available before they were conceived. None of them hinged on any technological breakthrough. What Apple, Nintendo or Asus did was taking clues from the market and reassembling technological bits into one coherent solution for users. And not just coherent, but also simple and easy to articulate. The Wii? A video game console designed to maximize fun for friends and families. The netbook? A lightweight computer that fits in a handbag and lets you surf the web. The iPod? A simple music player that integrates nicely with an intuitive music store.

By reverse-engineering actual user needs, these companies opened up a vast market for people who don’t care about technology, don’t want to see technology, or hear about technology, and only want something that does the job. For the Wii, that would be a video game device that’s fun, entertaining, with a lightning fast learning curve.

It’s worth repeating: customers don’t buy technologies. They buy solutions. That’s even true of B2B customers. If your technology does not fill a specific need in the market, you might get funding for a pilot project, you might even get VC money (many venture capitalists used to be CTOs), but you won’t get replicable, exponential market success. That’s why it is worth wrapping a research effort around a user need that can drive market success.

Market success and competitive differentiation can come from a number of sources, and technology is only one of them. Peter Drucker talked about that extensively in his book Innovation and Entrepreneurship, detailing other systematic sources of successful innovation such as changes in demographics or perception. Drucker offered commercial banking and health insurance as examples. We can lengthen the list at will: in addition to the iPod and the other examples I provided above, take McDonalds, car sharing, or Lego. Technology often is an enabler, but rarely is it the only one, and rarely is it adopted in the market without some significant transformation.

As such, the concentration of human resources into technology, which I witness at a number of start-ups, strikes me as vastly unbalanced, and almost certainly throttling the potential of innovation. The existing venture ecosystem, especially in Canada where I live, reinforces this bias by funding and rewarding technology-driven innovation much more than the other forms of innovation, be it through government R&D grant and tax incentives, commercialization programs and technology-obsessed VCs, or ultimately the self-perpetuating cycle of market-myopic entrepreneurs breeding another cohort of market-myopic entrepreneurs, supported by investors just because that’s the way it’s always been and where the government and VC money goes.

The power is in the last mile. If you’ve figured out how your technology will help someone with something, it is worth a hundred times what it was before you did. Make it a million times more if you figured out how to monetize it as well. That’s why the Apple, Nintendo, or Harmonix (the creators of Rockband - check out this video in which they explain how they centered their development around the idea on togetherness rather than just music creation) of the world focus first on defining that market need. The others focus on developing a technology and then figuring out what to do with it. That succeeds too, at about the same rate one hits the jackpot on a slot machine*.

* unless a government program and/or a VC blinded by their unconditional love for technology bails you out, of course.

Related articles by Zemanta

• Report: Apple May Enter TV Business (technologizer.com)
• Nintendo to launch camera, music-ready DS in Japan (canada.com)
• Google releases Books browser for iPhone (tuaw.com)

Innovation strategy blockbusters, car sharing, growthroute ventures, innovation and entrepreneurship, iphone, market success, peter drucker, rockband, successful innovation, technological breakthrough, Technology, venture capital, venture capitalists, wii

Paul Graham this month writes on the risk of VCs becoming irrelevant as the cost of start-ups “approaches” zero.

I humbly disagree. The cost is just shifting from hardware and software to talent, processes, and marketing programs.

Paul Graham is claiming from what feels like an “entrenched techie” standpoint that I noticed more than once reading his blog - which I do respect and admire - that “the web has made marketing and distribution free”.

Not so fast.

What wizard is going to run your cheap adword campaign (or maybe adword is dead too?) How are people going to find your site? What’s your sale process and have you understood your audience? How are you going to answer those service calls and emails? Are you going to run the next Google on the cloud? There are costs associated with all of that, and, even if they are compressed by technology too, the investments required to keep differentiating yourself are increasing.

What’s worse perhaps is that, with all its focus on IT, Paul seems to forget that not all start-ups are web start-ups. How about biotech, cleantech, robotics? Is marketing and distribution free for those ones as well?

There is, as always, some truth in what Paul is writing - the man is smart - but in my view, VCs are certainly here to stay and scale those start-ups that can make it into serious money machines. What do you think?

Related articles by Zemanta

• Could VC be a Casualty of the Recesssion? (Paul Graham)
• The End Of Venture Capital As We Know It?
• Valuing Innovation: Is a new stock exchange in our future?
• Where Have All the Bold VCs Gone?

Scaling up end of venture capital, growthroute ventures, innovation entrepreneurship, Marketing, Paul Graham, Start Up, Technology, venture capital, Y Combinator