building success into a high- tech start-up feature by j t preston -who has helped start nearly 100...

Building success into a Building success into a high-tech start-uphigh-tech start-up

Feature by J T PrestonFeature by J T Preston

-who has helped start nearly 100 -who has helped start nearly 100 companies as an enterprenuer, companies as an enterprenuer, venture investor, and director of venture investor, and director of technology development and technology development and licensing at the MITlicensing at the MIT

Brief introductionBrief introduction

• Technology based entrepreneur needs more Technology based entrepreneur needs more than an innovative product, typically requires than an innovative product, typically requires

1.1. Right attitude , people and actions make a Right attitude , people and actions make a bigger contribution than a novel ideabigger contribution than a novel idea

2.2. Series of actions from securing patents to Series of actions from securing patents to moving high quality product to market moving high quality product to market quicklyquickly

ATTITUDESATTITUDES

• MIT’s Hoo-min Toong helped pioneer the personal MIT’s Hoo-min Toong helped pioneer the personal computers and on advisory board of IBM and his computers and on advisory board of IBM and his student Mitch Kapor was on developing 1-2-3student Mitch Kapor was on developing 1-2-3

• IBM refused to take exclusive license after repetitive IBM refused to take exclusive license after repetitive suggestions and had to purchase Lotus company for suggestions and had to purchase Lotus company for $3.5 billion$3.5 billion

• Its because of old way of thinking, IBM missed an Its because of old way of thinking, IBM missed an opportunity to take advantage of a radical innovation opportunity to take advantage of a radical innovation that was offered to it that was offered to it

Cont…Cont…

• Other famous example was of short sightedness of Other famous example was of short sightedness of Goliath Corporation president who refused to buy Goliath Corporation president who refused to buy telephone patent for $100,000 and describing it as a telephone patent for $100,000 and describing it as a “scientific curiosity” that would never has practical use“scientific curiosity” that would never has practical use

• Many examples of market leaders trying to sabotage the Many examples of market leaders trying to sabotage the radical innovations. Eg: safety of alternating current, an radical innovations. Eg: safety of alternating current, an innovation of George Westinghouse was discredited by innovation of George Westinghouse was discredited by Edison, who used alternating current for electric chairEdison, who used alternating current for electric chair

Management teams Management teams

• Too many innovators underestimate the need for Too many innovators underestimate the need for excellent management team and acc. to author first-rate excellent management team and acc. to author first-rate management team with average technology is better management team with average technology is better than first-rate technology with second rate than first-rate technology with second rate management teammanagement team

• Entrepreneurial behavior succeeds more often when Entrepreneurial behavior succeeds more often when performed in teams and it is not an individual behaviorperformed in teams and it is not an individual behavior

• Success increases dramatically with team size until you Success increases dramatically with team size until you get up to four or five entrepreneurs with get up to four or five entrepreneurs with complementary skills to perform bettercomplementary skills to perform better

Passionate behavior Passionate behavior

• People who lack passion often use the first barrier People who lack passion often use the first barrier they encounter as an excuse for failure and high they encounter as an excuse for failure and high passion people will do whatever it takes to overcome passion people will do whatever it takes to overcome those barriersthose barriers

• What we achieve in life depends on a number of What we achieve in life depends on a number of thingsthings

i.i. how hard we workhow hard we workii.ii. How smart we workHow smart we workiii.iii. How much leverage we have on the workHow much leverage we have on the workiv.iv. How much courage we have in pursuing goalsHow much courage we have in pursuing goals

Cont…Cont…

• How hard we work is tied to how passionate we are How hard we work is tied to how passionate we are • Wide shareholder ownership is one of the best ways Wide shareholder ownership is one of the best ways

to stimulate passionate behavior because they no to stimulate passionate behavior because they no longer behave like employees but like ownerslonger behave like employees but like owners

• Eg: pilot, co-pilot and and flight attendant of Eg: pilot, co-pilot and and flight attendant of southwest airlines which has high percentage of southwest airlines which has high percentage of employee ownership, clean up trash to save money on employee ownership, clean up trash to save money on cleaning crewcleaning crew

• Share credit for success also improves passionShare credit for success also improves passion

Investors Investors

• Quality of investors and the pace at which money flows Quality of investors and the pace at which money flows into the company are keys to determining its successinto the company are keys to determining its success

• Besides cash investors can also provide significant Besides cash investors can also provide significant leverage in successleverage in success

• Companies that have investors with “deep pockets” will Companies that have investors with “deep pockets” will succeed more oftensucceed more often

• Eg: Venrock which invests Rockefeller family money is Eg: Venrock which invests Rockefeller family money is most successful vanture capital firm, in part because it most successful vanture capital firm, in part because it has incredibly deep pockets and has staying power to has incredibly deep pockets and has staying power to help ensure the success of companies in which it investshelp ensure the success of companies in which it invests

Investment timingInvestment timing

• There are two different investment scenarios, with a There are two different investment scenarios, with a net flow of money as a function of timenet flow of money as a function of time

i.i. Putting small amounts of money over long period of Putting small amounts of money over long period of timetime

ii.ii. Aggressive entering and capturing the market in Aggressive entering and capturing the market in small timesmall time

Cons of first strategyCons of first strategya.a. Management often spends toomuch time raising Management often spends toomuch time raising

money instead of building businessmoney instead of building businessb.b. Wide window of opportunity for competitorWide window of opportunity for competitor

Cont…Cont…

• The second one is optimal curve to make more The second one is optimal curve to make more money in the short term using fewer assets and money in the short term using fewer assets and for share holders point of viewfor share holders point of view

• The entrepreneurs with too much money might The entrepreneurs with too much money might end up with ‘taj mahal syndrome’, fancy tomb end up with ‘taj mahal syndrome’, fancy tomb of their businessof their business

• The extravagant spending often increases The extravagant spending often increases overhead costs and makes the company less overhead costs and makes the company less competitivecompetitive

Series of actionsSeries of actions

• Once company is organized and financed, it must Once company is organized and financed, it must also pursue a course of actionalso pursue a course of action

1.1. Intellectual propertyIntellectual property

2.2. Speed of innovationSpeed of innovation

3.3. Time to marketTime to market

4.4. FlexibiltyFlexibilty

5.5. Location and clustersLocation and clusters

6.6. Risk toleranceRisk tolerance

Intellectual propertyIntellectual property

• It is important to consider intellectual property It is important to consider intellectual property protection at the founding of the companyprotection at the founding of the company

• If you do not have strong intellectual property If you do not have strong intellectual property position, others might simply appropriate your position, others might simply appropriate your technologytechnology

• Strong patent position will solve potential Strong patent position will solve potential partner and financial problemspartner and financial problems

Speed of innovationSpeed of innovation

• Innovations go through cycles in which there is Innovations go through cycles in which there is typically period of rapid discovery followed by typically period of rapid discovery followed by incremental improvementincremental improvement

• This cyclical trend repeats itself improvements should This cyclical trend repeats itself improvements should be built in to manufacturing effectivelybe built in to manufacturing effectively

• Eg: invention of transistor by willium shackley in bell Eg: invention of transistor by willium shackley in bell lab till invention of integrated circuitslab till invention of integrated circuits

• Competition between US and JapanCompetition between US and Japan

Time to marketTime to market

• The time at which your product reaches the The time at which your product reaches the marketplace may determine its success and failuremarketplace may determine its success and failure

• Clearly speed to market is major factor in Clearly speed to market is major factor in determining product profitability & successdetermining product profitability & success

• Reaching the market either six months earlier or six Reaching the market either six months earlier or six months later increased or decreased, respectively, a months later increased or decreased, respectively, a products lifetime profits by one thirdproducts lifetime profits by one third

• Eg: intel chips in series released in 2 years gapEg: intel chips in series released in 2 years gap

Flexibility Flexibility

• Managers must create rules with caution Managers must create rules with caution because they might inhibit innovation and old because they might inhibit innovation and old rules should be reviewed periodically to make rules should be reviewed periodically to make sure they are still constructivesure they are still constructive

• Lack flexibility inhibits developing innovative Lack flexibility inhibits developing innovative technologiestechnologies

• Eg: early and wide adoption of internet in US Eg: early and wide adoption of internet in US and late adoption in japanand late adoption in japan

Clusters give an edgeClusters give an edge

• A business should be located close to your A business should be located close to your fierce competitor or close to your most fierce competitor or close to your most demanding customerdemanding customer

• That way gain from advantages created by the That way gain from advantages created by the cluster of companies that have complementary cluster of companies that have complementary and competitive skill set would be high eg: and competitive skill set would be high eg: labour pool, vendors, investors, customers, etclabour pool, vendors, investors, customers, etc

• Eg: cut flower business in NetherlandsEg: cut flower business in Netherlands

Risk tolerance Risk tolerance

• The only people who never experience failure are The only people who never experience failure are those who never push the envelop of what mankind is those who never push the envelop of what mankind is capable of doing. The risk tolerance among capable of doing. The risk tolerance among individuals should be encouragedindividuals should be encouraged

• Many cultures which have stigma for success, Many cultures which have stigma for success, conceals success from public eye and fails to create conceals success from public eye and fails to create role models for young would-be entrepreneursrole models for young would-be entrepreneurs

• Eg: stigma for failure is less in US and result is best Eg: stigma for failure is less in US and result is best and brightest gravitate towards start-upsand brightest gravitate towards start-ups