Early stage companies are always going to have upsets. Financing falls over at the 11th hour, a software glitch puts their entire launch in jeopardy, biological waste is dumped on their doorstep, resignation of a director, fraud and theft from within the company (yep, been there), a new government regulation alters the course of their business plan or an unexpected competitor moves into the space. There are literally hundreds of things that can go wrong. OK, the biological waste example was just there to ensure you’re paying attention…
None of these upsets need derail a company, provided you have sound management. In fact these very upsets help us as investors and financiers better determine a companies strengths and weaknesses, and this in turn helps us decide what our participation will be in the company moving forward.
Nothing is more encouraging than a company that encounters hurdles, only to flexibly create solutions at every step. Most successful companies today are creating products that were never part of the initial business plan. This is because they have been flexible to their market and adjusted to the needs of their clientele. Take Apple for example, a company that began with a vision to sell printed circuit boards. Yeah circuit boards, not apps or I-phones or I-pads. Apple succeeds because they continually listen to their customers and are flexible to adjust accordingly.
Unlike Apple however, small companies typically begin with one product line and when any of the aspects that endanger that product line come into view the company is forced to react very very quickly or die. I like to think of them as “cornered cats.” We’ve all seen cats escape the clutches of dogs by performing some ridiculously acrobatic move, like leaping 9 foot fences or vaulting themselves onto roofs and so forth. Successful management of small companies, like cornered cats, create solutions and get out of trouble situations simply because they have to, while competitors give up and resort to blaming someone or something for their failure. Cats find a way.
When “minor” upsets hit a large company with vast resources, multiple product lines and revenue streams, they have less incentive to pro-actively and quickly move to solve the issue. The larger an organization the more difficult it is to act decisively and quickly. Size naturally breeds bureaucracy. It’s simply a matter of logistics and even a company such as Google, which appears not to operate in a centrally planned structure, will have various layers to work through before implementing changes, whether that be a new branding, product line or whatever. On the other hand a startup or small cap company can and MUST be flexible and fast. Like a cornered cat.
My Kind of CEO
Another point I’d like to make on the topic of management… intelligence is helpful but comes second to determination and drive. The planet is littered with bankrupt intellectuals. How many super-successful companies do you know of founded by professors, and how many super-successful companies do you know founded by young students, or college grads, or college drop-outs? Consider Sylvester Stallone, clearly successful at his chosen field, who from what I’ve heard has incredible determination, this despite his appearing to have an IQ not much greater than that of a Neanderthal. The college grads and dropouts have both the cat factor as well as determination not typically found in a professor. Determined people eventually succeed. Note: for clarification, determined, not stubborn.
When a start-up company is surveying their competitive landscape the risks don’t lie in the existing players. They’re known quantities and it can be very dangerous to presume anything based on those existing players. They can provide a company with a false sense of security. Just remember if your small company can break into any particular market then so can someone else. This is why we bet on jockeys more than horses.
From our experience in funding small companies either via private placements or simple angel deals, the biggest threat to any company is not outside competition, regulation or any other external threat. The biggest threat lies within. Internal disputes, inertia, lack of knowledge and skills and a failure to address these. The biggest threat that I’ve come across is the following: a group of founders, or even worse a single founder, so passionate about their vision that they ignore feedback. They’re going to build their baby come Hell or high water. Driven, determined, but inflexible and unwilling to listen. It may have worked for Kevin Costner (Build it and they will come) but ignoring your market is a surefire recipe for failure.
Think of any company you’ve worked with, invested in, worked for, owned or cared to think about. Almost every single one of them has changed their game plan at some point and some drastically so. Hell even Madonna kept reinventing herself year after year – successfully. Business is no different.
Chris
“We are approaching a new age of synthesis. Knowledge cannot be merely a degree or a skill.. it demands a broader vision, capabilities in critical thinking and logical deduction without which we cannot have constructive progress.” – Li Ka Shing
