Entrepreneurial adolescence

I am so ready for revenue.

My businesses are still in development, dependent on investment from angels and syndicates.  I am very grateful for their support and work flat out, every day, to make the plan succeed and to be one of the minority parts of their portfolio that return cash to them.  But every investment round is finite, every plan has limited runway, and all too quickly we have to be pitching for another round.

So our in-house talk increasingly turn towards what our company looks when its in-the-market, how it would be self-sustaining, and how life might change.  There have been four major themes to the advice I get, four scenarios for possible futures. I think that there are two underlying dimensions in play: what the business sells and how the business grows.

Product Sales: When I pitch the businesses, we always talk about Big Markets with Generous Margins.  With 5% penetration, 10% growth, the business becomes profitable in months, pays back it’s investment within a year,becomes fully self-sustaining soon after.

But the reality is that building manufacturing and distribution channels is expensive; renting them costs half the revenue.  Scaling up to product launch requires hiring people, building inventory, and tackling the know-like-trust barriers.  Substantial time and investment, ten times the development budget, is needed for market entry.

This requires new risks, different skills, and larger investors.  Business that I know who have succeeded in this model are family-owned, decades old, and have achieved eight-figure yearly sales: Cadwell Labs, Mortara, MediPlus, Garrett Tech, MIPM.  It’s a long-term commitment to organic growth of a Mittestand.

Platform Sales: The first product is based on unique technologies that can be leveraged into other applications, opening new markets.  Revenues are re-invested in development, creating variations and extensions, demonstrating feasibility, and introducing new products and services.

Jeff Jarvis has written insightfully about the nature of platform businesses, recognizing that a platform is defined by its users, especially users who create content.  The business isn’t about how you spawn new products, it’s about how you recruit and encourage others to create new products. It’s about how you use networks to build the applications base to critical mass, not the product revenues.

This requires thinking about process more than product.  How do we make the technology accessible; how do we support and promote entrepreneurs who build from our technology?  How do we ensure transparency without losing control, reliability while taking risks?  What are we selling if we are not the ones creating content?  It’s a successful model used by Dow, BASF, AkzoNobel: the business can scale very quickly if it catches fire with developers (holds for materials as well as for software developers) on relatively small investments.

Portfolio Sales: We acquire related technologies or product lines, giving us new revenue sources for existing customers.  Rather than leverage technology we leverage brand and channels, forming a confederation of products and services that build from their proximity to one another, a synergistic growth model.

DuoFertility, another Cambridge medical startup, became Wired’s Startup of the Week; numerous friends mailed me the link.  CEO Shamus Husheer, a friend of mine along the entrepreneurship journey, presses the value of Focus: “you can't be a "portfolio entrepreneur" in the same way that you can be a "portfolio investor". Nobody has the bandwidth to perfectly execute just one good idea, let alone several at once.”

I’m not sure that I agree.  Nobody can spend every hour of every day executing the single track of a single plan.  There are only so many times that a subcontractor needs a call or a developer delivers an update.  You should be thinking broad and long about allied opportunities, and negotiating access to people, products, technologies that grow the business.  It should make the management smarter, the business more resilient, and the long-term risks smaller.  Surmodics and Teleflex are always looking outward for the next great ideas, while still maintaining focus on delivering value to core customers.

Business Sales: Ultimately, we all hope to be acquired or to be able to license our technology and products to  big players who can do the heavy lifting of manufacture and distribution.  Configure the business to mimic their processes, build a portfolio of evidence for them: make your business as easy as possible to slipstream into theirs, so that they can deliver product to market within a year at $10m+ in sales.

This is the dream: sell the business for $30m while you still retain a significant share, then retire to mentoring and philanthropy.  A very few achieve it; it has a knock-on effect of making everyone else think they can do it.  Investors want exits: entrepreneurs see comparables.  Cameron Health presented to my Cambridge class about their $1.3bn exit to Boston Scientific: BEST LECTURE EVER enthused the emails sent back from the students.

That dream lives on. Half of our time is spent on packaging and business development, canvassing industry leaders as potential partners, comparing our processes with theirs, debating what evidence meets which “Log-2” threshold that would attract attention.  It distorts the business, perhaps in a good way: it does force focus on milestones and value creation, licensing and partnerships, that lead to running a business rather than a project.

I am still sorting this all through: Office Days and Travel Days give me lots of opportunities to thrash this through with my business team.  There are also good blogs, like Scott Brinker’s and Andreessen Horowitz, that develop similar themes in slightly different contexts.

I am so ready for revenues, for the change in the nature of the developing business, for the next act.  I must be reaching entrepreneurial adolescence.   It’s a lovely fantasy to think that we’ll all be sitting on the beach in St. Maartens this time next year, but realistically, we need an in-market strategy.  I’m portfolio-oriented by nature: reliance on a single technology, product, customer, or investor makes businesses brittle and increases risks.  But broader strategies require more time and energy to execute, dissipate focus, and worry investors.

“It’s 10% science,” my former research director always advised.   And if it was easy, the beaches would be littered with retired entrepreneurs.

On the road again

I took my new visa out for a spin this week: despite a lot of bad weather and a few bobbles along the way, it as nice to be traveling again.  The route was a broad triangle across the UK and Germany; snow was threatening on Sunday evening, but I set up a combination of planes and trains, grabbed the Nexus and the pink cards, and headed out. 

…but not before attending  The 39 Steps, a very British comedy, before leaving: it is delightful in both pantomime and dialog.  Recommended.)

There were two inches of fresh snow on the ground Monday morning, but the rails services had cleaned up overnight and the trains were on time.  I arrived at the University after two connections only ten minutes off schedule – really outstanding performance in the conditions.  The meetings went well: although we didn’t fully close the deal that we’d hoped, we stayed well in the running. I’m hoping a big player doesn’t simply throw money over our heads to capture it.

    

Then on to Manchester and a late EasyJet to Munich.  The meetings turned out to be off in a village amidst the quiet, countryside an hour out of town.  Picturesque in winter, the snow neatly piled along the roads and at the foot of the MayPoles.  The room was austere in the Bavarian-lodge style, but comfortable (I’m reminded of Arthur Frommer saying that Americans can’t be relied on to judge European hotels.  Rustic to Germans too often means Austere to Americans.

The business was a typical German Mittelstand, a family business, 30 years old, 35 employees, doing very high-quality work in modest volumes.  They had a sophisticated quality control and documentation system that would be a model for any medical device company; lunch included mains and dessert made by the employees.  A really appealing mix: we’ll do this deal.

I’m starting to feel like Davos Man.

There was time for a quick spin through the slush in Munich in fruitless search for gluhwein, then back to Stansted for a quick night.  On the way through Border Security, I grabbed the wrong 'pink visa card.  “Netherlands?” the agent frowned.  Munich, actually.  “The card says Netherlands.”  He waved my Dutch residence card, a close match for the intended UK visa still in my wallet.

Damn.  Quiz night ensued.

 UKTI, the British export assistance agency, organized a seminar on doing business in China the next morning: nobody should start meetings at 9 am in snow when people have to arrive by train.  I caught the 6 am  and barely made it.  The seminar was really good: first-person accounts of setting up business links as a medical startup, the importance of distributors and relationships, the details of moving product and money. 

Finance people, the self-appointed judge and jury of company fortunes, just don’t realize the work that people go through to achieve modest success in fledgling businesses seeking revenues.

On to London, a follow-up meeting to determine how to align with the British requirements for Indefinite Leave to Remain in two years.  It’s too difficult to register a Dutch company with Companies House to do business in the UK, so plan on transferring payments to the Netherlands and back.  Keep good council tax records to prove residency.  Collate receipts with every business trip out of the UK to prove why you left.  Start building visible ties to the community. 

It’ enough to make me wonder if I;m really achieving any competence or success in dealing with the visa process in the Netherlands / UK or if I’m just enduring / thrashing /spending to stumble towards a solution.

And back to a flat tire: a massive phillips screw that I picked up somewhere along the road.  AA came out to change the wheel, courtesy of the Dutch lease.  ‘Think someone was sending you a message? joked the repairman.  At least, I hope it was a joke: visions of someone pounding screws into my tires with a rock, cursing my alleged Duchness, are starting to haunt me.

I took the punctured tire to the Kwik-Fix: “Can you patch this?”  No, but we can plug it.  Cool, whatever.  14 pounds and two hours lost, but I’m back on the road. 

Again.

Midweek themes and proverbs

The part of ourselves that we regard as most exceptional is also our basis for feeling most aggrieved.

We are distinct persons, each with a unique identity.  We define identity and through those parts which are distinct from others, including both intrinsic qualities like gender, age, ethnic and geographic origin, and acquired qualities like skills, affiliations, and appearance.  We value ourselves for those qualities which we think are exceptional: we suffer when those same qualities aren’t respected by others.  Several times this week, I’ve seen people launch into rambling defense of how their group isn’t treated fairly by institutions or society: I think the basis is rooted in identity.

I can always tell people who are seriously studying a language because they have a text and a dictionary close at hand.  I’m currently carrying my Prisma and a book of essays; I smiled at finding a kindred spirit doing the same on the Tube today.  

In mixed groups comprised of people from both native and host countries, expats will feel greater affinity for their hosts.

I attended a business meeting this week with both American and Dutch participants.  Opinions were freely exchanged on the tradeoffs of doing business with the Chinese,.  I felt both less concerned about the issue and more uncomfortable with the dogmatic US position on the topic.

On one level, I know that conservative perceptions of China arise from provincialism,differing economic and political philosophies, and accusations of unfair trade practices.  There’s probably reaction to Obama’s “Asia Pivot” thrown in as well.  But it made me uncomfortable, I thought about how it looked to our hosts (who tweaked him whenever they had the chance by pointing out how his computer and clothes likely came from China).

On a deeper level, I was taking sides with host participants over my native participants, just the opposite of what might be expected.  On reflection, I suspect that as a result of trying hard to understand and integrate into host society, I develop an affinity for their (rather than a simple tolerance) for their point of view in mixed settings.

There is an alternative view that holds that expatriates are escaping their identity by leaving their native country, and would  naturally feel less affinity with their visiting countrymen as a result.

I visited the GSK Bioscience Catalyst research facility this week, and took in all the slogans lining the road from the main gate to the conference center.  I understand the concepts, pioneered by Henry Chesbrough, that if you put a critical mass of diverse talents around a problem, creative solutions emerge from their interactions.  But does it work?

As a research director, I’ve come to believe in the power of grand challenges and insightful individuals.

I found it was most effective to pose a problem without specifying a means for solving it.  Resources (data and tools) and motivation (competitive (a performance “shoot-out”), passionate, or monetary) generally kick-started individuals.  Someone would break through with a really novel and effective idea, which would catalyze others.  Now the collaborative group begins to really achieve something from shared excitement.

But simple co-location, interaction, and brainstorming is not enough.  I wonder how the slogans are working out at GSK?

The hoarfrost arrives

As the snow first falls, it’s really nice. It looks great when flakes drift through the streetlights, sounds nice when the countryside gets quiet, blankets the villages and fields in postcard-ready accents.  But, after a few days, ‘not so much.  It’s a grind scraping and shoveling the car, shivering on windy platforms waiting for delayed trains, cleaning salt off shoes before business meetings.

Things turned sloppy yesterday afternoon as temperature rose above freezing: by evening the fog settled in.  The clear East Anglican skies caused temperatures to plunge, then the moisture started to condense on every chilled surface.

The results, this morning, were magical: there’s a larger album at my Flickr site.