It's been said that water is the new gasoline--I hope not, it will be hard to drink. ;-) I am a big believer in water investments; in the US we pay a fraction of a penny per gallon of water, while in the rest of the world it is priced by market forces--many times higher than here. As it did in telecom, deregulation will hit this industry and fortunes will be lost and made. In my real estate investments I have a partner who has been in bottled water for years, and is seeing a disproportionate escalation of water-related real estate values (i.e., land with springs and no waterfront). About 10 years ago I helped a friend with a European water bottling outfit differentiate his product using laser marking--there’s a stretch of technology. ;-)
In China and India, clean water is on the top-10 list of key infrastructure needs for the future. Coming from Australia, which is almost always in drought, I have a keen appreciation of how critical water is. Israel is a source of exceptional water-related technologies because, as with most things, need drives solutions. So far I have seen quite a few water deals, but I am having trouble finding the killer app/technology. There are membrane technologies that filter the water, specialty plumbing systems that recycle gray water and use it for non-potable applications, and there are software suites that model and optimize flow. It's a really large and fragmented industry; it's hard to make sales and they are usually consultative and long, with slow-moving technology adoption. Sound familiar?
So we laser jocks or telecom experts should be good at this area…maybe.
So many of the areas we plan in have this same characteristic, but the water industry exacerbates all the usual obstacles to selling for a startup: you are small and they take a long time to make a decision (you may burn through two rounds of financing before they put you in a field trial). If you win the field trial, then you have to support it, and if you get a design win, then you have to convince them you can supply and you'll burn through a third round of funding just doing that. But then you can ride the wave. :-)
There are some great, venture-investible technologies that help the water ecosystem, despite its fragmentation and selling difficulties. Acoustic leak detection systems using sonar, fiber-optic pipeline monitoring, unique algaes and chemicals that simplify and improve water purification, and also new electrolytes and electrode materials that make electrolysis easier to separate H2 out of water driven by solar energy. As with Palm Oil, water may be seriously undervalued--but we had better hope people don’t start turning it into energy for fear of making life's vital quantity-priced like gasoline...
Showing posts with label startups. Show all posts
Showing posts with label startups. Show all posts
Friday, April 19, 2013
Wednesday, February 20, 2013
Course correction
One of the key gifts of a great entrepreneur is their ability to execute real-time course correction in response to market changes, team changes, morale changes, and investor and customer sentiment. :)
As a hardware guy, it's fascinating for me to observe the truly real-time nature of management of Internet companies, and the amenability of the data to real-time analysis. For example, a retail web business continually tweaks its Web site -- everything from background color to placement of the buttons and core code -- but they do it in an endless series of micro tweaks, then measure the changes in site metrics to determine whether it was the right tweak or not. I saw the extrapolation of this metrics-based management in a company that sells specialty products to women when they tested a series of "hardware" initiatives in the same way they would test Web. In this case, they tried selling their product through real-world parties with interested women customers and measured the effects of different party structures and formats across multiple events to determine the optimum. When I heard the results and analysis and ultimate conclusions, I was struck with the simple question of "why not just ask someone who has done Tupperware parties or Avon, how they do it, and why?" Especially when some of the conclusions on the formats that didn't work were based on fairly obvious problems like, "if the women in the group didn't know each other, we didn't sell as much…" Fairly obvious, even to a non-Avon user.
Contrasting Internet, software, and hardware highlights to me a fundamental difference and issue in the area of product management, which is always the Achilles' heel of startups. Despite the experiences of VCs, most startups still suffer badly from poor product management -- it's not a well understood discipline, and confused with marketing and sales as much as marcomm is confused with true marketing. Being one of the classic failure points, I am always surprised when investors don't want to spend $ on a solid product management expert before "developing the technology" -- how on earth will you know what to develop? In any hardware company -- take your pick from semi to medical device -- the product is always late because the software isn’t finished. :) The software guys can't really test until the hardware is done. For the hardware guys, the product management and vision had better be perfect. Otherwise, the chip that took over a year to design, tape out, and FAB may work great but have the wrong interface or attributes, or control software that simply doesn't suit the customer -- and another spin takes at least 6 months more. :) These issues are somewhat amenable to analysis (not as in a consumer Web site), but largely the work of a very thoughtful and usually somewhat visionary product manager who understands the customer, the technology, the market, and the likely changes. Good startup CEOs know the fatal error of asking the customer what they want and building the product based solely on that (you get the same product you have today, but at a lower price with more features).
Let's face it, software might be trying to eat the world but if you really know what you are doing, you do it in hardware. :)
As a hardware guy, it's fascinating for me to observe the truly real-time nature of management of Internet companies, and the amenability of the data to real-time analysis. For example, a retail web business continually tweaks its Web site -- everything from background color to placement of the buttons and core code -- but they do it in an endless series of micro tweaks, then measure the changes in site metrics to determine whether it was the right tweak or not. I saw the extrapolation of this metrics-based management in a company that sells specialty products to women when they tested a series of "hardware" initiatives in the same way they would test Web. In this case, they tried selling their product through real-world parties with interested women customers and measured the effects of different party structures and formats across multiple events to determine the optimum. When I heard the results and analysis and ultimate conclusions, I was struck with the simple question of "why not just ask someone who has done Tupperware parties or Avon, how they do it, and why?" Especially when some of the conclusions on the formats that didn't work were based on fairly obvious problems like, "if the women in the group didn't know each other, we didn't sell as much…" Fairly obvious, even to a non-Avon user.
Contrasting Internet, software, and hardware highlights to me a fundamental difference and issue in the area of product management, which is always the Achilles' heel of startups. Despite the experiences of VCs, most startups still suffer badly from poor product management -- it's not a well understood discipline, and confused with marketing and sales as much as marcomm is confused with true marketing. Being one of the classic failure points, I am always surprised when investors don't want to spend $ on a solid product management expert before "developing the technology" -- how on earth will you know what to develop? In any hardware company -- take your pick from semi to medical device -- the product is always late because the software isn’t finished. :) The software guys can't really test until the hardware is done. For the hardware guys, the product management and vision had better be perfect. Otherwise, the chip that took over a year to design, tape out, and FAB may work great but have the wrong interface or attributes, or control software that simply doesn't suit the customer -- and another spin takes at least 6 months more. :) These issues are somewhat amenable to analysis (not as in a consumer Web site), but largely the work of a very thoughtful and usually somewhat visionary product manager who understands the customer, the technology, the market, and the likely changes. Good startup CEOs know the fatal error of asking the customer what they want and building the product based solely on that (you get the same product you have today, but at a lower price with more features).
Let's face it, software might be trying to eat the world but if you really know what you are doing, you do it in hardware. :)
Tuesday, November 15, 2011
Making Acquisitions
A really hard transition to make for most of us founders is the idea of paying some other entrepreneur our hard-earned cash or even tapping into the lifeblood of our equity in exchange for their inferior product that we could easy make ourselves, and do a better job of it, if we just had the time. This transition to building muscle tissue around the bare bones of a startup trips up most first-time CEOs. VCs often rely on their founders to be market and technical experts for diligencing their other dealflow, but it's often ingrained in the entrepreneur (and should be) that they have the best product and everyone else’s ideas are crap. ;-) This makes such diligence unreliable.
Clearly, it is just not possible to scale at the rate demanded by modern markets through organic growth. Especially demanding is the Internet, where innovation is unrestricted by hardware and can rapidly replicate without fear of IP infringement. I recently sat next to the VP of business development of a large Internet rollup (on a 5 a.m. out of Austin :( ) that owns most of the vacation rental Web sites, including good-old Stayz, which was founded by three of the youngest entrepreneurs in our portfolio, but I guess being in their mid-20s makes them middle-aged for Internet entrepreneurs :). This company was formed entirely to acquire these Web sites and form a conglomerate--it had no IP of its own, and interestingly did little to change the companies it bought. These guys perfected a Web acquisition model and rolled up what turned out to be a large market segment. Their key was overpaying the founders and betting on scale to make it all work. It’s a bit like the supermarket chain buying up the sole proprietorships, except you don’t end up with crap fruit and veg afterwards...
As a startup CEO you don’t think rollups, you think disruption. If you can paint a vision that other entrepreneurs will share, then you have a change to bring them under your banner to fight your cause. A lot of entrepreneurs look for “deals,” distressed assets, or companies that can't get funded, and try to do predatory deals. These usually don’t work--whatever caused the problems for the target company usually permeates the acquirer as well. Unfortunately, you have to pay up to make things happen. Now there are a few examples of companies like Visx whose internal technology failed, but became extremely successful by acquiring the core technology from someone who could not raise money. But assuming you are a successful startup, you should be abel to make 1 & 1 = 5 deals by bolting on the right pieces of product to your existing offering, and integrating them together under the hood to make them more compelling than they were separately.
There is a lot of banker wisdom in this area and a lot of people to help you formulate a financial engineering strategy. There is a lot of wisdom in this area and these guys know what is selling, who is buying, and why so they can in principle help you engineer an exit by making you the prettiest company on the block, By all means hear them out, but remember, you got to this point by focusing on one thing that you do better than anyone else--you leveraged yourself into a niche with your unique technology and you are well on the way to owning and controlling the direction of that market. You had a vision and drove it through the strength of your convictions. If your vision is accurate, you above all others can predict the direction your niche will move, and so you can build or acquire the products and technologies needed to serve that evolution. No banker or advisor can do that for you. Finally, you got here by serving your customer better than the incumbents. Stay focused on them and the acquisition will take care of itself--your company will be bought or IPO’d, not sold.
Clearly, it is just not possible to scale at the rate demanded by modern markets through organic growth. Especially demanding is the Internet, where innovation is unrestricted by hardware and can rapidly replicate without fear of IP infringement. I recently sat next to the VP of business development of a large Internet rollup (on a 5 a.m. out of Austin :( ) that owns most of the vacation rental Web sites, including good-old Stayz, which was founded by three of the youngest entrepreneurs in our portfolio, but I guess being in their mid-20s makes them middle-aged for Internet entrepreneurs :). This company was formed entirely to acquire these Web sites and form a conglomerate--it had no IP of its own, and interestingly did little to change the companies it bought. These guys perfected a Web acquisition model and rolled up what turned out to be a large market segment. Their key was overpaying the founders and betting on scale to make it all work. It’s a bit like the supermarket chain buying up the sole proprietorships, except you don’t end up with crap fruit and veg afterwards...
As a startup CEO you don’t think rollups, you think disruption. If you can paint a vision that other entrepreneurs will share, then you have a change to bring them under your banner to fight your cause. A lot of entrepreneurs look for “deals,” distressed assets, or companies that can't get funded, and try to do predatory deals. These usually don’t work--whatever caused the problems for the target company usually permeates the acquirer as well. Unfortunately, you have to pay up to make things happen. Now there are a few examples of companies like Visx whose internal technology failed, but became extremely successful by acquiring the core technology from someone who could not raise money. But assuming you are a successful startup, you should be abel to make 1 & 1 = 5 deals by bolting on the right pieces of product to your existing offering, and integrating them together under the hood to make them more compelling than they were separately.
There is a lot of banker wisdom in this area and a lot of people to help you formulate a financial engineering strategy. There is a lot of wisdom in this area and these guys know what is selling, who is buying, and why so they can in principle help you engineer an exit by making you the prettiest company on the block, By all means hear them out, but remember, you got to this point by focusing on one thing that you do better than anyone else--you leveraged yourself into a niche with your unique technology and you are well on the way to owning and controlling the direction of that market. You had a vision and drove it through the strength of your convictions. If your vision is accurate, you above all others can predict the direction your niche will move, and so you can build or acquire the products and technologies needed to serve that evolution. No banker or advisor can do that for you. Finally, you got here by serving your customer better than the incumbents. Stay focused on them and the acquisition will take care of itself--your company will be bought or IPO’d, not sold.
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