Help, Quick, Before it’s too Late…

Or is it too late already? Do new technology companies get more than one chance at success?

In working with, evaluating, and otherwise participating in the evolution of new start-up companies, as well as those somewhat further along in developing toward real businesses, I have observed that there seem to be several identifiable phases that new companies go through.

The first is what I am going to call the “nothing can go wrong” phase. That usually lasts about one year. This first phase is that exciting time after the initial round of funding has been obtained and the development work on the new technology begins in earnest. The work is characterized by the acquisition of equipment and facilities and the demonstration of the first results that invariably “prove” that the technology is on the verge of highly successful implementation. During this time, new employees are being added about as quickly as they can be interviewed -- and convinced that this new company is presenting them with that once-in-a-lifetime opportunity for technical and financial success.

Then comes phase two. The sunny skies begin to cloud over and the warm comfortable days begin to be replaced by windy and stormy ones. The technology problems are more severe than were originally anticipated. The investors begin to get restless, and the employees begin to have more and more battles over work assignments and budget allocations. Turf wars break out in earnest. To try to assuage the investors, the founders ever so gradually begin to put a more and more favorable interpretation (spin) on the technical results. Engineers begin to worry that there is a widening gap between the official company position and reality. As time goes on, this gap turns into a chasm the size of the Grand Canyon. Is disaster at hand? Is it time to face up to the crisis?

The surprising answer is – not necessarily. It is not only possible to continue in this mode for a number of years, it is even possible to raise additional funds and under certain favorable circumstances to take the company public. It all depends on the promotional skills of the founders whether they can convince investors and stockholders that the technology is coming along even better than planned -- not only are the original objectives being met but new ideas are continuing to be added that will result in an even larger business opportunity.

If the message is presented with sufficient skill and conviction, the typical result is stage three – initial manufacturing scale-up. But how can this be? The technology has not yet been proven to work. Ah, but if I can convince you that the technical problems are ever so close to a solution, don’t you want to be a part of the “success story of the decade”? Soon the engineers are all busy designing the new production facility, ordering new equipment, and testing it for operation. The nagging technical problems are temporarily put aside or simply restated as problems with the start-up of the new manufacturing equipment. As more material is processed “the yields are expected to improve”.

To confuse matters further during this phase, a few products may be introduced that actually create some sales revenue. These may be specialty products that carry a very high selling price or are sales to customers who are willing to explore a new technology even if it is not meeting the promised specifications. The engineers that have stayed with the company through this stage have, by now, decided that they simply don’t understand how business works and have decided that it’s best to just concentrate on their day-to-day activities. It’s a darn good imitation of the proverbial ostrich behavior but experience shows that it can work for years on end.

Nevertheless, the storm clouds have continued to gather and then one day the downpour begins. Investors have slowly been loosing faith in the stories they have been told. The credibility of management once lost cannot be regained. Not only that, by now the company has only a few months of operating cash left. The technical problems, of course, still have not been resolved. And it is not clear what products customers would buy even if the technology works as promised. The passage of time seems to have devalued many of the earlier expected benefits. The engineers and managers can’t seem to agree on anything other than that the company is in a major crisis.

Is it too late? Can this company be saved? What can be done with a technology that still has deficiencies from what was originally promised?

Having observed many such scenarios – some from uncomfortably close proximity -- over more than twenty years, I have come to the conclusion that all too often it’s not the technology that’s the biggest obstacle, it’s the people involved. But if the technology doesn’t work, what could management or the engineers have done?

In response, allow me to pose this next question: Were you building a technology or a company? A group of capable managers and creative technologists working as a focused team can almost always come up with a success worthy of significant customer interest. Unfortunately, such effective team behavior is extremely rare – virtually impossible to find. I’m not sure I can explain why. Perhaps, there is just so much diversity in human behaviors that getting together a group that can work unselfishly for the good of the overall organization takes a very special set of circumstances. In a few companies, these traits come to the fore as the result of an especially capable leader. In perhaps rarer circumstances, it’s the result of a key group of individuals. But when it does exist, a successful business is usually the end result. When it doesn’t, the participants can count on years of turmoil followed by a final crisis that is almost always terminal.

An excellent team can make up for significant technology shortcomings and still create a success. But the opposite is not true. Contrary to the ways of nature, in business only people can make the storm clouds part and let the light of commercial success shine forth.

Should you wish to share your own business development experiences, you can reach me directly from this site, by e-mail at silzars@attglobal.net, by phone at 425-898-9117, or by fax at 425-898-1727.