Sunday, September 27, 2009

Management & Its Ability to Execute

We have seen some exciting new technologies in the past couple of months and our work to "accelerate the path to commercial success" has been intensifying. Of particular interest are some of my clients with Waste to Energy, Solar, Water Treatment and Smart Grid technologies. Those organizations will be the backbone of the Ontario economy in the not to distant future.

As we work work with these early stage organizations, a set of patterns are starting to emerge that are worthy of emphasis. Clearly, these technology companies are focusing in Exciting and Growing sectors. They are based in Science and are well on their way to securing Intellectual Property (IP) protection for their inventions. Businesss models although initially "a little crude", are being re-worked to demonstrate the ability to successfully "turn a profit". Any investor who takes a "quick look" is quickly impressed on all three fronts.

So why aren't we reading more about the successful financing of these companies by Angels, VC's, Government Grants and larger Institutions?

A quick canvas of any investor group will tell you that Management and its Ability to Execute often eclipses the process for securing early stage funding. Due Diligence teams will ask the Leadership team questions such as:
  • How many years of experience does the team bring to the table?
  • Have you successfully built other organizations to a successful exit?
  • Does the CEO have the depth and breadth to move the organization to its next level?
  • Are all key functional disciplines appropriately represented by the organization?
  • Does the management actually act and respond as an effective team?
  • Is the team able to articulate an action plan and deliver those promised results?
  • What kind of dashboards are used to track weekly, monthly and quarterly success?

These are extracts of a long list of diligence questions that any investor will need to be comfortable with before opening the cheque book. How about the one that Kevin O'Leary made famous on Dragon's Den: “What if you get hit by a bus and you're road pizza?”

The key for these emerging technology companies will be to do a detailed assessment of their team and its story around executing strategy. The assessment will not doubt uncover several holes in the team that will need to be proactively addressed to mitigate investor risk. These may include:

  1. Identifying key hires that will be added once funding is secured,
  2. Assembling that Advisory Board and ensuring that they are engaged,
  3. Hiring part-time Mentors to work with lessor experienced executives,
  4. Encouraging the completion supplementary training programs,
  5. Joining key sector networking forums and in some cases,
  6. Identifying that the existing CEO may need to step aside in favour of a "been there, done it before" leader.

The good news for Entrepreneurs is that if their technology really is a "Game Changer", the "Path to Profitability" is reasonable and the tactics to augment the "Execution Strategy" are sound, many seasoned investors will take a "serious second look" at the company with great result.

Thursday, September 10, 2009

Increasing the Odds of Success

A fellow blogger recently pointed me to a study done by a couple of Harvard business professors (Gompers and Lerner) titled “Performance Persistence in Entrepreneurship”. This study looked at the track record of first and second time Entrepreneurs creating a successful enterprise. (Success was defined as taking the start-up entity public.) The results of the study were chilling to say the least.

They found that first time Entrepreneurs only had a 22% chance of success and for the 78% who tried it again the Entrepreneur was only 23 % successful in their next venture. They also noted that to a certain degree “success breeds success” - the successful ones who tried a second venture were 34% likely to succeed.

This Harvard research and a companion study done by CIBC World Markets in 2005 suggested that successful ventures had a number of consistent characteristics that made them over achieve. These traits included: a) High Level of Education (2 of 3 Canadian Entrepreneurs have post secondary education), b) Extensive Use of Advisers (Service Professionals, Board Advisers, Board of Directors), c) Outsourcing Strategies (Companies focused on core competencies and outsourced other non-core functions), d) Technology Enablement (Companies utilized Web presence, CRM software to enhance and support customer interactions) and e) Focus on US and International Markets (Canada is only the starting point).

This is where the Ontario Commercialization Network (OCN) comes into play. Eight of the 13 centres have been funded with an Entrepreneur In Residence (EIR). These individuals are seasoned executives who have build, sold and turned around a number of ventures in their careers. The role is to “accelerate the path to commercialization” for these early stage companies.

EIR’s in the OCN all have a unique and individual style in advising their clients on "creating the organization's traction". Supported by Provincial, Federal and Private funds, EIR's across the province rely on a core set of resources to support their clients. These include 1) Education and Reference material, 2) Extensive network of contacts and practical experience, 3) Market Research, 4) Executive Coaching and Mentoring, 6) Assistance in building a Compelling & Focused story.

Entrepreneurs are the key to Ontario’s innovation agenda and are encouraged to sign up with the Commercialization centre in their region. We need to do all we can to increase their odds of "Stunning Success".