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Archive for September, 2009

Management

david

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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david crowBy 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.

Crow's ExponentialConsulting 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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bryan watsonBy 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.

VoltaireAt 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

angeltrain_w400Canada 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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White rhinoceros

Stephen

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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Radi HindawiBy 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.

SEO RadiWeb 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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Re-posted from the Cross-Border Biotech Blog

jeremy grushcowBy 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?

GrushcowThe 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

Av UtukuriBy 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 21st 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.

InnovationThe 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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