Editor’s note: Bill Warner is managing partner of Paladin & Associates. Warner, who stepped down last week as CEO at LiveWire Logic to launch his own executiving consulting and services firm, will be a regular contributor to Local Tech Wire.“What do I do now?”
Everywhere you turn in the technology industries the first or second thing you always talk about is how hard it is to get a company started and on track in today’s economy.
It is hard to get market traction with customers that are reluctant to take a risk on new technology and have constrained budgets. The early stage private equity market is imploding as institutional investors take less risk by requiring terms that reflect low company valuations, leaving the early stage investors with minimal returns. There is a lack of management know-how that is required to provide leadership and operational management to young companies as they mature.
The dot.com era turned the world upside down with respect to basic business economics. You could start a business over lunch and a business plan written on the back of a napkin. Money flowed like water, funding seemingly innovative ideas, many of which made no business sense. The private and public markets were inundated with companies with wildly overstated valuations.
Nevertheless, for several years, lots of entrepreneurs and venture firms turned people into millionaires. Those days have been behind us for the last three years. We are moving back to the good old days of basic market economics of supply and demand, having real customers, collecting revenue, becoming cash flow positive, being profitable, and growing shareholder value.
You know, the stuff that made America what it is.
But, how do you deal with this new economic environment?
The answer, like the Marines might tell you, is adapt and improvise. I am a firm believer in focusing on the things that you can, recognizing and accepting the things that you cannot change, and being smart enough to know the difference. With respect to the market condition we find ourselves in today, there is not much that an entrepreneur, company founder or company executive can do to change the economic situation.
What we can control
What you can do is change the way you do business in response to the world as it really is and will be.
For example, enterprise class customer sales cycles are becoming longer. That’s the way it is, and will be for quite awhile. So, what you have to do is get in the door at high levels of management and through people that give you strong referrals, foresee the customer’s process steps and be prepared with quick responses, know your customer’s business so that you don’t have to spend time learning it from them, and establish strong relationships with the economic buyer.
Another example is that the bar you have to jump over in order to get the attention of an institutional investor has gotten higher and higher over the last three years. What you have to do is make the early stage investment last longer by focusing only on the right things to get the customer traction that the institutional investor needs to see.
Of course, this is all easier said than done. But, my point is that you have to recognize that we are in a new economic climate, spend time understanding how it really is now, and take the steps to respond to it aggressively and decisively. We are not going back to the hay day of the dot.com era anytime soon.
Strangely enough, there is beauty in having to succeed in today’s market economy. The rules now make sense, unlike the dot.com era. The readjustment is hard, but we are on the right track.
In a lot of ways, we are going back to some basic business practices, requiring good old-fashioned leadership, responding with hard-nosed management know-how, having business models that really work, and making positive financial returns. Overseeing all of this, top executives have some basic pillars of success that are always needed, but have to be executed extremely well as we transform companies to respond to today’s market challenges.
The four pillars
The first pillar is know your market. This does not mean merely going to the market research library and reading some important statistics that loosely relate to your market. It means that you have to really know specifics about the market segment that your company plans to pursue. Answer some basic, but difficult questions.
What business problem are you going to solve?
Is the problem worth solving?
Who is the buyer?
How do I reach the buyer and get face time?
What are the available channels through which one can reach the buyer?
What are the economics that drive the buying decision?
Is there a value proposition that will justify the purchase?
Are funds likely to be reserved to address the problem that your company solves?
These, and many others, are hard to answer, but without answering them, a young company can drift for so long that it runs out of money and fails. In today’s economy, no early stage investor is going to help a company without these questions being answered.
A ‘must have’ solution
The second pillar is have a product or service that wins. To be a winner, you must have a product that indeed represents a “must have” solution for a prospective buyer. “Nice to haves” don’t count for much today. A winning product or service also is better than anyone else’s. To be better, it must have the “secret sauce” that makes it different and entirely better than the competitor’s. Positioning the product or service as differentiated and a “must have,” will maximize the chances of success. A “me too” product will fall on deaf ears, especially if it’s from an early stage company with no references.
Love, love, love
The third pillar is love your sales people and love your customers even more. Having great engineering and wonderful technology is necessary but insufficient. The marketing and sales machine has to get cranked up to identify and sell to customers in your selected market. Ralph Waldo Emerson’s approach with a better mousetrap does not work.
The world will not beat a path to your door. There are too many paths and doors today. Nobody will find you. You must generate leads through effective marketing programs and deploy highly energized and focused sales people in the geographies that have the highest opportunities. Once you have gotten a customer, nurture the relationship as if it were your most valuable investment. Today, an early stage company does not get many chances at this before the investment money runs out. Focusing on the right set of customers that represent the highest chance of success has to be constantly reinforced as an early stage company tries to get market traction.
The people connection
The fourth pillar is people. For any business executive, the most important asset they have is the people in the company. There’s nothing that can stand in the way of a team of people that “click.” You can sit with a team of people and within minutes know that they are together in trying to achieve success. You can feel the energy, see the excitement, hear the dedication, observe the relentless focus, and sense the trust in each another. This kind of teamwork is created by solid leadership by the executives, as they create a championship team that will win in their selected markets.
You might believe that these pillars are pretty basic. They are. What is not basic is how to actually do them well. In future articles, I will describe in more depth, each of these pillars of success as they relate to making an early stage company a success.
Bill Warner is managing partner of Paladin and Associates. You can reach him via e-mail (thepaladin@paladinandassociates.com) or phone (919 570-1023).
