5. March 2008 by Martin Suter.

I love the web and am constantly amazed at what one can find or learn from others skilled in the art.

I recently came across a very interesting piece in Marc Andreesen’s blog: "The Moby Dick Theory of Big Companies", in which he suggests that "There are times in the life of a startup when you have to deal with big companies." He then builds a very interesting metaphorical case for SmallCo as Captain Ahab and BigCo as Moby Dick. It’s an entertaining and enlightening piece, but I will endeavour to go a few steps further and try to delve into the psychology driving the players in this game.

Marc makes some interesting points about a BigCo’s behavior being inexplicable when viewed from the outside. He suggests that there are some many moving parts and agendas, that the dynamic of decision making is highly unpredictable. While I tend to agree at a macro level, it’s my experience that people (and a company is an aggregation of people) will react most predictably to fear. I think it was Intro to Psych class where we are all introduced to the concept of "Fight or Flight" and that it applies equally to business psychology.

SmallCo’s are used to talking about the opportunities created by their disruptive technology: new markets, huge revenue, vast market share, value creation. This is a natural side effect from their creating business plans and pitching investors on how compelling the opportunity is.

Once they’ve convinced themselves and their investors that the opportunity is huge, they will often go out and try to convince one or several BigCo’s of the same thing. Getting funding or landing a whale require different stories, but usually SmallCo re-uses their investor pitch in trying to get BigCo’s attention. You may get nodding heads in meetings and even hear that they agree with your assessment of the opportunity, but all too often BigCo inertia takes over and nothing happens.

I first experienced this in a big way shortly after being recruited from a start-up into the Disruptive Technology group at Nortel in Q3/2000. MeshNetworks had just emerged from stealth mode with a classic, highly disruptive story that had the potential to impact many incumbent technologies and R&D programs in the wireless space. Nortel was heavily invested in 3G, having made a major UMTS bet, and I was advised to identify a new market opportunity created by this emerging technology rather than positioning it as a disruptor to 3G. So, I began the exercise of focusing on a net new commercial opportunity that this technology could enable for Nortel. It was a billion dollar opportunity in 3-5 years, yadda, yadda. I got the nods in meetings and the "Atta boy" from my boss at review time, but there was no sense of urgency to act.

Frustrated by this, and deciding to win big or die trying, I spoofed a news story using the San Jose Mercury News banner and inserting quotes from John Chambers and industry analysts. The banner read: "Cisco Leapfrogs 3G and Goes Right to 4G; Acquires MeshNetworks for $400m". I then printed off my mock-up and put it on the fax machine, sending it around internally. Within 5 minutes, my phone began to ring - "Holy shit! What the hell just happened? How could we have let this happen?!?"

Basically I then told them that we have a do-over, that this didn’t really happen (yet). But I then asked whether this was a version of the future that we were prepared to accept. If so, not acting was a reasonable course of (in)action. If we couldn’t contemplate this version of the future, then we needed to act urgently.

What did I takeaway from this?

BigCo’s are largely risk averse. Status quo rules the day and that having a team of singles hitters internally is easier to manage than going to the free agent market and bringing in the guy who will either hit it out of the ballpark or go down swinging. Unless that home run hitter is also talking to another team in your division which could lose you more games. The threat of him landing with a competitor usually changes the way in which you look at his availability as well as what you’re willing to pay to get him on your team. It’s the competitor pre-emption premium.

Winning vs. not losing. Opportunities or threats. Two different ways of framing the discussion.

After 20 years of dancing with 800lb gorillas, or hunting the great white whale, my experience is that BigCo action is catalysed more often from perceived threats than from potential opportunities. My hunch is that this is an 80:20 relationship, although I have no quantitative data to support this.

What happens inside companies when presented with a perceived threat? The Fight or Flight instinct kicks in. Corporate DNA is pre-disposed to fighting (they don’t call it "competition" for nothing), while fleeing is anathema to most BigCo’s. Status quo is not an option when under threat of attack.

You’ve decided, for whatever reason, that you’re going to go hunt the big white whale. You’ve got a disruptive technology, well it’s called disruptive for a reason. Change the lens through which you have them view you. Build your story around the threat to their status quo and you are more likely to get them to act with a sense of urgency.

But be careful what you wish for. You might just end up harpooning the whale and you then have to answer the "Now what do I do?!?"

That’s my .02!

Martin Suter

(martin.suter@iplicensing.net)

Posted in Nortel, Strategic Alliances, Disruptive Technology, Cisco, Wireless, Start-ups | Print | No Comments »

12. February 2008 by Martin Suter.

Allen Kupetz, Executive-in-Residence, Crummer Graduate School of Business at Rollins College, is the kind of professor that was exceedingly rare when I was in university. Allen wants his MBA students to gain a deeper appreciation for the “real” business world, and is not shy about bringing in local subject matter experts to share their insights with his class. I’m very fortunate to be Allen’s “go-to” guy on the topic of licensing.

Tomorrow, I have the opportunity to speak with his “Technology Entrepreneurship” class about IP Licensing, both as a catalyst to start a company as well as a means of commercializing early-stage technology. If they’re like me, there’s little chance that they’ll be filing patents on their own inventions, so I’m hopeful that introducing them to sources of IP and describing what it takes to get a deal done will be interesting. My goal for the talk is to expose them to the world of licensing, as a means of harnessing their entrepreneurial aspirations…stuff that you’ll never find in a textbook.

The academic world needs more guys like Allen and fewer textbooks.

That’s my .02!

Martin

(martin.suter@iplicensing.net)

Posted in Education, Licensing, Start-ups | Print | 1 Comment »

29. January 2008 by Martin Suter.

The corporate DNA in most large companies is such that getting to signed paper can often be a lengthy business development process. Early stage companies have agility built into their DNA. Reconciling these two extremes can be extremely challenging. The pay-off can be significant, and as I previously blogged, may help to bring in money to the company at key inflection points in a company’s development.

Two deals that I have been involved with highlight both ends of this spectrum. In 2000, I negotiated a deal with Microsoft for Netware to Active Directory migration tools. Notwithstanding the 2+ years building relationships, creating mindshare and credibility internally, once the decision was made to ship “their own” tools, it took a matter of weeks to get to signature. Obviously, this deal didn’t come out of the blue, as the groundwork we had been laying was critical, but the deal itself was virtually frictionless.

The second is probably more representative of what it takes to get a deal done. While at MeshNetworks  I began the dance with Motorola in Feb. 2003. Mesh had done a good job of building visibility and mindshare as a company with an emerging, potentially disruptive technology. Motorola Ventures, its internal VC group, identified Mesh as “interesting” from an investment and potentially from a strategic perspective. What began as a nominal equity investment with an optional second tranche in the mid-seven figure range, slowly began heating up.

In March, we began a technical due diligence and validation process with Motorola’s emerging technology group, which was a great thing, as they floated above the product groups that are nose down trying to get existing products out the door. Supporting this effort consumed hundreds of person hours, in addition to travel costs. Throughout this process, we needed to continually justify to ourselves, to our Board and investors that this was worth doing.

By summer, we had come through most of the technical evaluations and began to push for a commercial discussion. Some posturing around deal terms began, which required a real gut-check to convince ourselves that this remained worth doing. In late September, we got down to more substantive discussions and by late November, had a non-binding MOU. Getting from there to signature took a further 4 ½ months of page turns in rooms full of Motorola Legal and business folks, but finally on April 9, 2004 we had a deal.

This process brought us much closer to Motorola, during which time they had an in-depth look at us. It also gave us the chance to better understand how Motorola was structured, and more importantly, where there was strategic alignment across the portfolio. On December 21, 2004, 750 days after we began to dance and nine months after the licensing deal, we closed an M&A deal with Motorola.

Was it worth it? Absolutely.

That’s my .02!

Martin

(martin.suter@iplicensing.net)

Posted in Licensing, Start-ups | Print | No Comments »

27. January 2008 by Martin Suter.

In my last blog, I described some of the real challenges facing start-ups that need to get a technology to market. Of course, there are categories of companies for which the front-end load of R&D costs to productise is lower (e.g. software vs. hardware), however the challenges of funding the commercialization of a product are relatively common across all categories.

Frequently, a start-up may attract seed funding on the basis of the team, an idea, and a vague view of some massive, future market opportunity. For this, the founders give up a big chunk of the company, and embark on delivering a proof-of-concept. This critical milestone is typically the trigger mechanism for another round of funding designed to get the company closer to product and customer traction. Ideally, this proof-of-concept is leveraged into customer/partner/market interest, with sufficient “buzz” to secure enough money at a reasonable valuation, so the founders and the seed guys aren’t crushed.

The problem, is the disconnect between where the company’s really at in the eyes of new investors (“So you’ve got no product, no customers, limited market proof points…but we DO like you”), and the eyes of the company and the seed guys (“Hey, this stuff really works. You should be blown away by the technical accomplishment”).

So, therein lays a challenge. Facing massive dilution from new investors, likely alongside liquidation prefs, other onerous terms and a promise to hold additional funds in reserve to ensure later financing is available, the early stage guys and the founders face a difficult decision. Lose control of the company to later stage investors in order to get to revenues or…What other options do they have?

An important option that remains, IMO, largely misunderstood, is the licensing of technology to an 800 lb gorilla as a non-dilutative means of generating revenues and helping you to monetize your technology. Frequently, their strengths are your weaknesses: money, customers, sales coverage (direct and channel), manufacturing/supply chain relationships, global support, brand, etc. Trying to displace an 800 lb gorilla that is intent on maintaining market share on your own, is like me trying to budge a sumo wrestler. It ain’t gonna happen.

However, if you think about what you bring to the table when viewed thru the eyes of the big guys: innovation, agility, de-risking of technology development, competitive advantage and time-to-market, all of which are worth something to the right partner. Their motives may be offensive (moving into a new market with a disruptive technology to displace an incumbent), or defensive (preserving dominant status in beachhead markets with next generation technology). In either case, knowing where the hot buttons are will be key to getting to the negotiating table.

Structured correctly and presented with conviction, technology licensing can be a means to generate early revenues, get market traction and acceptance without requiring a massive shareholder dilution post-proof-of-concept.

What do these deals look like? What are the issues? Stay tuned…I’ll get to that soon.

That’s my .02!

Martin Suter

(martin.suter@iplicensing.net)

Posted in Licensing, Start-ups, IP | Print | No Comments »

24. January 2008 by Martin Suter.

A very real dilemma facing the majority of early stage, pre-critical mass companies is how best to commercialise their technology. Most companies grossly underestimate the time and expense to first productise and then again to commercialise their IP. Depending on the physical form factor of the “product” to be commercialized (i.e. software vs. hardware vs. semiconductors), the cost of productisation may be in the tens of millions of dollars.

But this is what engineers do, they build. Damn the torpedos, full speed ahead. But taking an “If we can build it, they will come” view of the opportunity is dangerous and naive. Getting product to market is exceedingly difficult; often more so than building the product in the first place. Companies present rosy market forecasts to their potential investors, but building up a sales force and a channel that is adequate for coverage and sales capacity to get anywhere near most projections is very expensive and time-consuming.

How much quota are the reps going to carry? What’s a reasonable ramp? If it’s an evangelical sale, it’s unlikely that any rep will get anywhere near quota for at least 18 months. What is the per rep revenue number that you expect to bring in? What headcount do you need to support this…Marketing to create programs and demand generation, Finance to manage a growing payroll, along with accounts payable and receivable, Customer Service and Technical Support to scale to the projected number of customers required by the projections, etc.

What is the market window? If it takes 2-4 years to build a highly functioning sales channel, what percentage of the market opportunity has already passed?

Lastly, young companies almost always underestimate the stickiness of vendor/supplier relationships, especially if they’ve got a component that they’re trying to embed in someone else’s device. Imagine how difficult it is to sell into a risk adverse industry like the automotive industry, where their product roadmaps extend beyond 15 years, while yours are lucky to extend 15 months. Security of supply, financial stability, and corporate longevity are just three, of many, considerations that a start-up must contend with in order to close a sale of this type.

Next, I’ll talk about IP licensing as a go-to-market strategy.

That’s my .02!

Martin

(martin.suter@iplicensing.net)

Posted in Start-ups, IP | Print | No Comments »