Management and its ability to execute

By David Pasieka

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 too distant future.

As we 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 no doubt uncover several holes 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 of 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.

David Pasieka is the Entrepreneur-in-Residence at the RIC Centre. Learn more here.  Visit Our Contributors page for more information about David. Read his blog at www.cedarvue.blogspot.com

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Hockey sticks and consultants

By David Crow

Reblogged DavidCrow.ca

I’m always giving consultants a hard time. It’s not that I dislike consultants. It’s not that I think that consulting is a bad business model. It’s that a consulting model is very difficult to get exponential growth. You know that hockey stick growth curve, well it’s actually an S-curve but early it looks like a hockey stick, that is so important. I’m talking about real numbers, not projections. Revenue. Users. Customers.  (Need help figuring out what you should be tracking? Go read Dave McClure’s AARRR! Startup Metrics for Pirates). And go read Mark MacLeod about why compound growth changing your funding requirement.

Consulting is a linear growth business. It grows based on:

• # of consultants billing
• # of billable hours
• hourly rate

Unfortunately, all of these are limiting variables. There are examples of very profitable firms and corporate structures that enable a very profitable model. I’m not discounting the profitability of the Big5 consulting firms. Consulting firms are generally limited to the number of consultants. Corporate culture is defined by its people.

The number of billable hours is a limiting factor. There are only 8760 hours in a year. You can’t work every hour. You can’t bill every working hour. It’s just not possible. Billable hours are the currency of consulting and legal firms. Many firms require 1700-2300 billable hours/year. Just think about this: 2300 hours/year =  46 billable hours/week + 2 weeks of vacation. If you assume a 80% utilization rate, i.e., 80% of your time is billable and 20% is on overhead/email/meetings/etc.  To achieve 46 billable hours you need to work 57.5 hours per week.

Hourly rate is generally set by the skill set and the market. Flippa. Rentacoder. 99designs. crowdSPRING. Elance. There are others willing to do it for less.The market determines a consultants hourly rate.

So for an independent consultant billing at $200/hour on a 57.5 hour work week at 80% utilization would have revenues of $460,000/year. This is an extremely high rate. Looking at the NASDAQ 100 using Cognizant averages $35,892 versus Apple ($1,014,969), Ebay ($551,049), Microsoft ($663,956) and others. This might be a little extreme. Don’t believe me, Hoovers.com suggests that IT/software consulting has average revenues of $160,000/employee (MarketResearch.com has this closer to $100,000/employee). Realistically the easiest way for a consulting firm to achieve exponential growth is to grow to the number of consultants working. And the risk of exponentially growing the number of consultants is that you kill the culture that attracts many people in the first place.

“But isn’t the consulting company itself a startup? No, not generally. A company has to be more than small and newly founded to be a startup. There are millions of small businesses in America, but only a few thousand are startups. To be a startup, a company has to be a product business, not a service business. By that  I mean  – not that it has to make something physical, but that it has to have one thing it sells to many people, rather than doing custom work for individual clients. Custom work doesn’t scale. To be a startup you need to be the band that sells a million copies of a song, not the band that makes money by playing at individual weddings and bar mitzvahs.” – Paul Graham

That said, consulting is a great way to take the risk out of a startup. The best consulting projects are the ones where you can build the software you want to sell as a product. This assumes that you have necessary legal agreements where you retain ownership of the intellectual property created during the consulting gig. This is often referred to as “bootstrapping” (read Paul Graham’s Fundraising Survival Guide to understand the tradeoffs).

There’s nothing wrong with consulting. It’s a perfectly viable career. It’s a perfectly viable business model. But do the math, it doesn’t scale like a product company.

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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The Perfect is the Enemy of the Good

By Bryan Watson

The perfect is the enemy of the good. – Voltaire

Far from a sanction of shoddy work, or an excuse not to think things through, Voltaire makes an excellent point that all start-ups should pay heed to. Attaining perfection, be it in a technology or a business plan, becomes infinitely more difficult as you get closer to achieving it.

There comes a time in every start-up’s life where the CEO must decide that the technology is good enough for the market and the business plan significantly addresses the majority of the issues he is likely to face.

At that time the CEO has a choice:

1. Tweak and tune the technology or business plan alone in the basement to make it ‘perfect’ (something I would argue you will never achieve that way anyway…); or
2. Get out there, sell, get the market validation a company needs to grow, integrate customer feedback as you grow.

At some point every would-be entrepreneur must decide to jump into business and make a go of it – and potentially fail. Working to perfect a business plan or technology is the deceptively safe alternative. Why deceptively? Because, in the end, all you have is the unrealised down-side of opportunity cost. I have seen a number of people fall into this trap. Don’t let it happen to you. Get out there, even if what you have isn’t perfect, it might just be good enough to start a killer business.

Angel Summit

Canada is at a crossroads, having to immediately restore employment and economic confidence, while also building the knowledge-based industries that represent our future prosperity.  NACO is working diligently to satisfy these policy objectives by stimulating Angel investment activity throughout the country.

In a continued effort to rev the Engine for Commercialization in Canada, the National Angel Capital Organization will be hosting the 9th Annual National Angel Summit in Toronto, ON on October 14th and 15th. As with previous Summits, this year’s event will bring together Angels from acrosss Canada, US, and abroad to discuss the state of Angel investing and share best practices and network.

Previous Summits have given rise to new initiatives and drawn national attention towards Angel investing.  This year’s event will continue to elevate the importance and necessity of Angel investing in Canada (and abroad) while hosting the premier networking and educational event for Angels in Canada. Visit Angel Summit for details.

Throughout his career, both in Canada and the UK, Bryan J. Watson has been a champion of entrepreneurship as a vector for the commercialization of advanced technologies. Upon his return to Canada in 2004, Bryan established his venture development consulting practice to help emerging-growth companies overcome the barriers to success they face in the Canadian commercialization ecosystem.  Visit Bryan’s blog and the National Angel Capital Organization.

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Sarcasm and other things face to face

By Stephen Rhodes

I’ve discovered sarcasm doesn’t always play well in email, or on Twitter. It’s a waste of time in a text message. Duh!!!! works but it doesn’t really have much depth. To really express my true feelings I have to be face to face with someone and that seems to happen less and less these days.

The world is flying by and email, text messaging, status updates and tweets have replaced even the telephone as front line communication. Hardly anyone wants to pick up the telephone anymore. Are we afraid, or just so busy we don’t want to risk the pleasantries of social intercourse running longer than it takes to tweet?

I prefer telephone over email, although I admit email is often a time saver. Voice and inflection are important in conversation. Moods are easier to detect. Instructions are easier to follow and more certain.

Email is fast and leaves the impression that you are right on top of something, when in fact it’s often used as a delaying tactic. I know. I have done it.

You can’t convey passion in email like you can on a telephone or better yet , in person.

Twitter and Facebook are great communication tools but they can not replace facetime with a client. Face to face is the place where business is consumated. I have never worked with a client I haven’t met face to face. I can’t imagine I ever will until until I can project a hologram into their virtual office like Obi Wan Kenobi.

Body language is also part of the dance of commerce. Facial expressions, nervous ticks all help you better understand the needs wants and even anxieties of your client. And how will they understand your sarcasm if you can’t wink, wink, nudge, nudge?

Whatever rapport you build takes on a new dimension when you meet face to face. It’s the best way to build strong relationships with your clients.

How do you conduct business?

Stephen Rhodes is President of The Marketing PAD, a full service strategic communications and marketing company. Read Blogpad or visit  The Marketing Pad online.

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Building a web presence

By Radi Hindawi

You hire a graphic consultant to develop a web presence for your company. After months of investing your time and resources and even longer overcoming obstacles and emerging issues, your website is finally complete. You successfully launch it online under your personalized URL address and wait for the hoards to beat a path to your door, but they do not come.

In the cluttered world of web pages and online information, simply having a webpage is no longer sufficient. This should, instead, be complemented by additional web optimization tools that can raise the profile and awareness of your site across the World Wide Web. Web optimization is a different process and requires a different approach than web design.

Web optimization is about  building traffic on your site. Web optimization allows you to link your site with unique keywords, labels and other features that will be directly associated to your page during a user’s search. Ultimately this process will lead to an increased awareness and traffic.

Web optimization utilizes different tools and it is important to understand how each can increase your online presence.

Social Media

Social Media tools like LinkedIn, Twitter and Facebook allow you to publish and market your website’s URL to these communities of followers, increasing its accessibility.

Search Engine Optimization

Submit your website URL to search engines like Google, Yahoo, MSN Search and Ask Jeeves to improve search optimization every time an individual links into your site.

Blog Development

Blogs are great tools that can help introduce and attract readers to your site. They allow you to communicate directly with your clients online.

Directory Navigation

Another area, which tends to be forgotten, is that of directories. Directories filter your website into various categories allowing more users to directly connect to you online.

Each of these tools requires a significant amount of time, effort and patience. However the outcomes of these efforts are significantly positive and, as a result, can generate increased visitors to your site and build a powerful and positive image for not just your website, but your business.

Radi Hindawi is a fourth year Digital Enterprise Specialist student at the University of Toronto. Radi has extensive experience in web development and design and currently runs his own company, Innovations Canada . Email Radi  Hindawi.radi@gmail.com

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Rotman article explores Canadian biotech collaborations with developing countries

Re-posted from the Cross-Border Biotech Blog

By Jeremy Gruschow

A very interesting article in Nature Biotechnology from a group at the McLaughlin-Rotman Centre for Global Health provides some empirical support for a trend we’ve been following of increased innovative activity in developing countries.

According to the article, over 25% of Canadian biotechs collaborate with developing countries.  Of these, however, the vast majority of companies do so alongside collaborations with other developed country partners — only 4% collaborate exclusively with developing countries.  Also, gaining access to developing countries’ markets is the most frequent (66%) reason cited for collaboration.

Still, some of the data reflects the growing importance of developing country collaboration (China and India in particular):

• Canadian firms’ collaborations with India (17) and China (22) nearly equal the number of collaborations with Japan (18) and Germany (23); and
• Accessing knowledge from developing countries’ partners (24%) is approaching providing knowledge to developing countries’ partners (37%) as a reason for collaboration.

How do these collaborations look overall?

The figure from the paper on the left shows the geography of, and rationale for, the collaborations. Part “a” shows marketing and distribution collaborations, and part “b” shows those involving an R&D component.

What is the effect of all this activity?

Well, it’s hard to quantify, but the authors review revenue data from public company respondents and find that:

“average total revenues of firms that have North–South collaborations are nearly four times higher than firms that do not have such partnerships.”

My bottom line: causal or not, that’s a correlation that should cause all biotech companies to take note.

Jeremy Grushcow  is a Foreign Legal Consultant practising corporate law at Ogilvy Renault LLP. He has a Ph.D. in Molecular Genetics and Cell Biology. His practice focuses on life science and technology companies.

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Our greatest challenge

By Av Utukuri

Being heavily involved in innovation and commercialisation, earlier this year I had a study commissioned through Leger and Leger to try to clearly understand what Canadians really feel about their place in the history of great innovation, and what they think are the greatest challenges facing Canadian innovation in the 21^st Century.

Data collection for this study was conducted between March 4th and March 8th, 2009 and the survey was conducted using a national random sample of 1,508 people.

The results were interesting, if not entirely unsurprising – to me at least.

The study showed that 76% of Canadians believe their nation’s people to be innovative, with 19% saying they are very innovative. Sadly, young Canadians ages 18 to 34 are less likely than those 35 to 64 to see Canadians as being very innovative (13% vs. 22%).

The study also showed that, when it comes to marketing new product ideas, many people claimed that direction is their biggest challenge; they indicated that they simply wouldn’t know where to start. For other inventors, those who have considered marketing their ideas, finding the financial resources is, they said, the most challenging thing of all.

It turns out that 59% of Canadians claim to have had product ideas and 14% have actually considered marketing their ideas at some time.

So all-in-all we seem to be a pretty innovative lot, but knowing where to turn for help and, particularly, being able to secure funds to move an idea forward, seem to be the major obstacles faced by Canadian innovators, which has always been my view of the landscape.

The full survey results can be found at: http://www.nytric.com/pdf/innovation_study.pdf

Av Utukuri is a graduate from University of Toronto’s Engineering Science program, specializing in Electrical Engineering.  For the past 12 years, he has researched, developed, and commercialized many products in diverse industries.  Av is presently the lead judge and lead sponsor (through Nytric) in Canadian Business Magazine’s Great Canadian Inventor competition.

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Free Government money? Does it really exist?

By Fred Hausmann

Free Government money?  Does it really exist?

The answer to this is YES and YES.

The government — and particularly the Canadian government — has a  mandate to support various business development initiatives and they achieve this through incentive programs. Many of these incentive programs include tax rebates, direct funding, loans and other forms of grant money.

The challenge faced by most companies is awareness.

It’s simply not easy for the uninformed to know where to begin.

After all, you can’t search for something if you don’t know how to ask!

And therein lies the rub because it’s quite unintuitive to discover what government funding your company qualifies for.

So how do you figure out what programs you may be eligible for?

Unfortunately there is no “master list” out there.

Remember, many of the programs are constantly changing, or they are short lived due to sometimes limited funds available (i.e. first come, first serve).

In some cases the programs expire when funding is all allocated, or they shift into a neutral state until such time as the government allocates more money.

A good proactive accounting firm will help you identify available tax programs – but finding a firm that’s able to commit the required time to your business while maintaining deep ties into the available programs is often easier said then done. In fairness, while your accountant is likely excellent at managing the day to day financial aspects of your business, it’s quite an additional time commitment to stay informed about the ever changing landscape of available government tax deduction and tax credit programs.

That being said, here’s a brief example list of programs funded by various foundations and government ministries.

These ministries include:

• Ontario Ministry of Economic development
• Agriculture and Agri-Food Canada
• Business Development Bank of Canada
• The Department of Canadian Heritage
• Industry Canada
• CANARIE
• Defense Research and Development Canada
• Canadian International Development Agency (CIDA)
• Canadian Institute of Health Research
• Ministry of Economic Development and Trade
• Natural Resources Canada
• Export Development Canada (EDC)
• Ontario Ministry of Northern Development and Mines
• Ontario Chamber of Commerce
• Federation of Canadian Municipalities
• Fednor
• Ontario Ministry of Research and Innovation
• Ontario Ministry of Colleges, Training and Universities
• National Research Council Canada
• Ontario Centre of Excellence
• Ontario Media Development Corporation
• Ontario Ministry of Revenue
• Sustainable Development Technology Canada

While this is not an exhaustive list, it gives you a good idea where the main potential sources of funding are for Ontario based companies. Currently all of these ministries have their own websites and investing some time reviewing them will identify the funding programs they are currently offering.

But What is the Best Option For My Business?

Each company’s needs are unique and your specialist can guide you, however at this time the most lucrative and largest funding source is the Scientific Research and Experimental Development (SR&ED) tax incentive program.

The SR&ED program gives business owners like you a total of $4B per year! This program refunds up to 68% of the eligible costs your business incurred (in Ontario) on ‘special’ projects.

In a nutshell, eligible costs are the costs associated with attempting to overcome technological uncertainties where it is not readily known how to overcome those technological limitations or barriers.

Needless to say, navigating the maze of government programs and obtaining free money is a complex process and with professional guidance often leads to a successful result.

Naturally you can use your current accountant or attempt the process alone, however it makes much more sense to have an experienced professional shepherd you through the application and manage the process for you.

About the Author:

Fred Hausmann is the founder and senior managing director at the FRED Group Inc. a business development and specialty tax service whose mandate is to source, secure and support your business through the maze of government funding options. Specialties include SR&ED and other tax refund/credit programs. Visit FRED Group’s website or contact Fred at  email fhausmann@FREDgroup.ca

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It isn’t who you know… well really it is!

By Jeff Bowman

You undoubtedly have heard that it isn’t who you know that is important to success, it is how you present your message to those decision makers once you get that golden opportunity to meet them.

There is some truth in the notion, however, that you will increase your chances for success incrementally when you multiply the opportunities to present your product or service through networking and developing what I call “channels of exposure”.

In broad terms, there is no direct sale without some form of relationship entering into the equation. The strength of the relationship is what determines the level of trust and interest. The more relationships you develop, the greater there is a chance for someone else to promote you and your products -that’s right, letting someone else sell for you based simply on the strength of your relationship with them.

Networking provides the opportunity for you to make hundreds of contacts – granted some will provide a level of value and some will simply remain in your contact management system as contacts. But it is the harvesting of the good ones that leads to the “exposure channel”

There are many organized networking events available – hosted by professional organizations, Boards of Trade and RIC Centre.

You need a plan of attack and a well-rehearsed introduction. This is not, as many seem to think, a game of he or she who leaves with the most business cards is the winner. You may attend an event and recognize that there are only a couple of conduits available to add to your channel, and that is fine.  Prior to attending any event you need to ask yourself some questions:

Who would make a good contact for me directly? These would include all those who will buy, finance, market or will introduce you to buyers.

Who would make  great secondary contacts? Those who know others, distributors, product specialists or people who are well respected and have influence in an industry.

What have I got to offer in return? Ask yourself why is my product or service interesting, needed or of higher value than my competitors?

Armed with his infomation, you are ready to step up to the plate and swing at your selected pitches.  Don’t neglect the other opportunities that exist to build your channel at social events, sports activities, volunteering for charities or schools etc. The time it takes to introduce yourself and ask a few simple questions may be well rewarded.

So, it is who you know and how you manage the channel of exposure through networking and other activities that will determine your success rate.

Your one voice can reach a few ears. However, a combined effort will reach ears you never even imagined.  Just like in the Dr.Suess story, Horton Hears a Who, “we are here, we are here!”

Jeff Bowman is a Sales and Marketing Specialist with The Marketing Pad Inc.. Follow Jeff’s blog at Blogpad or visit www.themarketingpad.com.

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Increasing the odds of success

By David Pasieka

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 built, 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 and 5) 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”.

David Pasieka is the Entrepreneur-in-Residence at the RIC Centre. Learn more here.  Visit Our Contributors page for more information about David. Read his blog at www.cedarvue.blogspot.com

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