Mixing Ingredients For Success

I think it’s important to appreciate the relationship between three key ingredients in any business: enterprise, innovation and finance. An entrepreneur is a person who operates and assumes the risk for a business venture. Innovation which is the process of making improvements by introducing something new. Every successful company needs combination of these two ingredients, plus a healthy dollop of money. And they need to be mixed!

Getting these three ingredients to work together is the key to success. Each needs better understand each other’s language, motivations and values. This is doubly important in the UK where VCs and equity funders traditionally have an accountancy background compared to their more tech savvy USA counterparts.

Initiatives like the Enterprise Fellowship Scheme funded by Yorkshire Forward is a sterling example of how researchers can get some entrepreneurial DNA spiced into them without compromising their academic integrity. Having a potential commercial outcome in mind from the outset can inform the research as much as that all important journal publication. At Connect, we are increasingly involving academics on our company assessment panels to help assess technical innovations coming from the private sector.

Great companies are built by teams that bringing together money, management and ideas. You need a critical mass of these components and the infrastructure to connect them. People are the ultimate technology transfer agent and commercialisation is a ‘Contact’ sport. And organisations like Connect can provide an important mechanism for catalyzing and promoting this reaction, linking entrepreneurs and innovators with the resources they need to succeed.

Our upcoming Connect Investment Forum provides a key platform for promoting this interaction. We also provide online introductions through MyDealMaker and publish a periodic Investor Bulletin to bring companies on our radar screen to the attention of potential investors.

Reflections On The Enterprise Show

Having spent a day at the Enterprise Show it reminds me of the need to have an alignment from encouraging entrepreneurs to providing the right start up advice, access to finance, and networks to inspire enterprise and growth ambition. The right business support made available at the right time, especially so at the early stage, is essential for innovation to flourish. Most importantly, innovation requires strong and effective business networks. The evidence is that building a successful business is a contact sport and partnerships, teamwork and community are essential.

Physical closeness is undoubtedly important. Silicon Valley and the Cambridge cluster, the rise of the high-tech community around Boston and San Diego all have things in common, not least the active involvement a dominant research-led university. Yorkshire is blessed with not one but at least five world class academic institutions which not surprisingly tend to vie with each other for superiority which with this catalysing focus in mind is not necessarily entirely a good thing. Good networks and geographic focus can help to foster commercialisation and growth.

The Enterprise show is a good example of a key element that fills one of the gaping holes in provision - which is help for the general public to get their business idea off the ground. This is also the space where Connect primarily operates. It will be interesting to see whether the new innovation voucher scheme leads to more engagement between the general public and the universities in pursuing enterprise and innovation. They have thirteen in the region to choose from...

It's Good To Be A Little Bad or Mad

Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great."

- Mark Twain

A lot of entrepreneurs worry about people stealing their bright ideas. In my experience, ideas are easy - its execution that's hard. And even if your idea is brilliant, the best ones aren't necessarily so. Any really good new idea will seem either bad or mad to most people; otherwise someone in China will already be doing it. Your idea needs to be almost good and it helps if the world around you helps turn your fad into a fashion. Look at all the money going into green energy - its even got its own name 'CleanTech'. Most funders are driven by consensus, not just within their firms, but within their community. Surely that's exactly how the credit bubble happened - everyone was doing it, so it must be a good idea. Not.

And being too clever ain't necessarily a good idea either. My claim to fame is that my Ph.D was part of a research project that won E.J. Corey his Nobel Prize. That research itself never generated anything that was directly commercial. However, the spin-offs that were successful were infinitely less ambitious in their goals, but solved real-world problems in an explainable way. It’s a great case study of how a small change of perspective and focus on an addressable market opened up a commercial opportunity – and why trying to be too smart is not always a good idea in the real world!

So when the next small-minded person tells you what you are trying to do is bad or mad, breath a sigh of relief that maybe you on the path to greatness! Someone right now is probably telling the next Google why what they are doing isn't such a bright idea. And he probably works for a bank!

Nothing Ventured...

Deirdre Bounds gave a passionate talk at the Venturefest Yorkshire 2008 dinner. As a former stand up comic I expected a few more laughs, but she mainly focused on her journey from 'bedsit to boardroom'.

What was her take home message? Well mainly that if you have got an idea just do it, even if no one around you gets it: if you believe in yourself you can succeed in realising your vision. This was rather at odds with Ajaz Ahmed's talk earlier in the day where he was lamblasting government support agencies for backing 'lame duck' ideas that were destined to fail and that people shouldn't be given 'false hope' that they can become 'supermodels'

I must admit to being more with Deirdre on this one. Sure, we need to screen out the ideas and people that are just plain daft and applaud the ones that are sure fire winners (because they, like Deirdre, will fly without any outside help or an outside investor getting a slice of the action). But in the beauty contest that is innovation and enterprise, the winners and losers will sort themselves out in the marketplace (think dancefloor, not stage). Out there it's execution and the audience vote that counts: the wisdom of crowds, not the opinion of experts. In my experience, most good ideas start off looking pretty ugly or just plain daft to conventional eyes. As Deirdre says 'We need to encourage weird'.

Building An Innovation Ecosystem: Rainforests vs Plantations

Prof. Mary Walshok the founder of Connect in San Diego gave an inspiring talk at the Knowledge Capital Annual Lecture in Manchester focusing on the elements that led to their region to develop beyond tourism, real estate and agriculture into a powerhouse of technical innovation. She emphasised the need for regions to recognise and develop the assets they have but also to address the gaps then connect things together. As she note: "Like in Particle Physics when things collide you get reactions". The Connect program was that catalyst that brought people together. She emphasised the importance of community over company, shared purpose and a "sense of place".

Another interesting observation was that an innovation ecosystem should be more like a rainforest than a plantation. In this environment there is more uncertainty, density and diversity where the hybrid ideas arise from cross fertilisation and serendipity more than any organised linear process. Once a new idea has formed and proved itself to have something new and beneficial to offer to the market that's where cultivation and organisation become important.

Beating A Path To Your Door

Interesting post on TechCrunch on the top ten tips for startups. Not so sure about tip 9: "Don’t plan a big marketing effort. It’s much more important and powerful that your community loves the product."

The biggest mistake a startup can make is to believe if you create a better mousetrap, customers will beat a path to your door. Yes, if it’s a totally great or revolutionary idea maybe word of mouth will out, but the reality is that for us mere morals, we need to find a balance between developing an even better product and selling what we have.

Remember: out of 10 people, one will buy your product just for the hell of it (or they thought it was something it wasn’t); one will never buy it no matter how good it is; and the other eight could generally take it or leave it. How many of those eight you convert into customers, and at what cost, will dictate how successful you ultimately are.

Our FastInvest loan scheme is designed to give young technologies that push needed to get out there marketing and selling their product. Yes, make it better, but it's never too soon to start validating market demand and selling!

New Year Predictions

OK here goes:

Connect Yorkshire helps even more companies get investment ready and pitch for investment through its flagship investment forums, investment challenges and business plan competitions.

The rest of the Northern Way embrace the Connect model and it is rolled out in the North East and North West.

An online community of best practise, participation and support develops that brings together entrepreneurs with the resources to they need to help them succeed that extends beyond our traditional geographic boundary and the Web 2.0 community.

Yorkshire Forward announces a region-wide investment fund as a follow on for Partnership Investment Finance and the South Yorkshire Investment Fund that incorporates a much needed seedcorn element.

Component-based, service-oriented applications finally take centre stage with Web Mashups and loosely-coupled applications 'Web 2.0' increasingly replacing the monoliths of the past.

Connect launches its 'Springboard' initiative to help early stage propositions get their business plans into shape.

I finally access and use a Web site in a meaningful way through my mobile phone.

One can but dream...Happy New Year!

Information Wants To Be Free

According to Wikipedia, this phrase was supposedly first pronounced by Stewart Brand in 1984, citing the fact that the cost of dissemination is getting lower and lower. However, the effort required to generate high-quality information ain't getting any cheaper.

But equally a lot of people view their information as free for dissemination as they make their money in other ways, like IKEA. You could say the likes of Google are parasitic and without information to search they wouldn't be able to sell advertising space, but I would argue it more of a symbiotic relationship. The concept of consolidating freely available information then selling easy access i.e. adding value is as old as the Bible.

With the trend towards Open Source the argument goes that enabling technology like operating systems and other basic building blocks that benefit everyone should be free so that, like Isaac Newton, you can reach greatness by 'standing on the shoulders of giants' rather than reinventing the wheel. I think there is a strong argument that if public money is spent on R&D then the IP should be made freely available. However, those who create valuable information (and whose business model requires payment) deserve to have their copyright and commercial integrity respected.

Convergence: Jack of All Trades or Master of One?

The whole TV/Broadband/Mobile/MP3 world sees to be heading for one point on the sunrise aimed at producing one appliance that is all things to all men: Whether its one box or one handset it has to do it all. This reminds me of the eternal battle ensuing in the software space between ERP systems (get you systems and processes right, then pore concrete on them) versus best-of-bread applications (malleable components linked together using open integration technologies allowing swap and change). It invariably boils down to whether you want something that is 90% good at doing lots of things or many things that are 100% good at doing just one.

In an earlier post, I talked about focus, focus, focus. Think of the last 10% being innovation and the 90% being the existing substance. For some markets the benefits of the innovation offset the complexity of having multiple vendors; for others simplicity and consistency is the name of the game. For most innovators, a market that has developed to this point of maturity is not a good place to be as you will face an uphill battle to see off the entrenched competition who will undoubtedly cover more bases than you do. So you need to find a peripheral market, which is undoubtedly smaller, where your value proposition can hold sway against the entrenched competition. When you are starting out, don't seek to be a jack of all trades, be master of one.

First Mover Disadvantage

One of the interesting themes discussed at TechTalk in association with our Investment Forum in Sheffield yesterday was that he who dares doesn't always win. Being first to market can mean you do all the R&D, validate the idea and educate potential users only to see the competition eat your carefully prepared lunch. Equally, being best technically doesn't necessarily equal success either.

As Lee Strafford emphasised as he spoke about his success story at Plusnet, route to market can be a real differentiator when it comes to execution. Stuart Green CEO of ZOO Digital warned that while you are evangelising about how beneficial your innovation will be to users, potential competitors will be readying themselves to shoot arrows in your back. And Steve Barnes, CEO of Infoserve reminded us that history is littered with those that tried first and failed or thought being (second) best equals success. Oracle didn't have the first relational database and VHS wasn't the best video technology, but each ended up the 800lb gorillas in their respective markets.

Being at the bleeding, rather than the leading, edge can leave you exposed if the market or infrastructure just ain't ready. Equally stealing a march on the competition is what innovation is all about, so this all has to be finely judged. Being first or best certainly isn't a prerequisite for commercial success.

There Be Dragons Ahead

At the Business North West event, Doug Richards of Dragon's Den fame gave a inspirational talk charting his ups and downs (yes even he has them!). Mainly anecdotal, but some of his take home messages that particularly resonated with me were:

1. Luck and serendipity plays its part in any successful venture; the path to greatness is not deterministic. Deal with it.


2. Don't only listen to those that have only tasted success; they are the exceptions not the rule. Also take council from people that have tasted failure as well. Inductive learning requires negatives as well as positives.


3. Yes, have a cunning well thought-out plan but be prepared to deviate from it as necessary (recognising this is not what funders necessarily want to hear): The reality is that you have to be flexible and opportunitistic (which is what the big boys aren't, so you have the advantage).


4. Cash and share price are not equivalent currency: Market Cap ain't worth anything until you have exited with money in the bank.
   
5. Leadership is about enpowerment. "Ask for my forgiveness not my permission". The founder/CEO should strive to be operationally redundant - he or she is generally not replicatable nor reliable. Surround yourself with people more able than you!

Pile It High...

At BarCamp Leeds last Saturday, Dean Saddler CIO at PlusNet evangelised about how you can build a web-based applications quickly and easily and one of the tricks was to repackage and reuse the same underlying technology in different market niches and applications.

His take on monetisation was that if you have been smart about development, you only have to charge sensibly and adopt a subscription model to take market share from bloatware providers charging perpetual licence fees (where have I heard that before?). He also emphasised that his development plan only extended as far as the next round of features that users had requested. Sounds like the whole concept of component reuse and evolutionary development has finally caught up with web designers!

Not sure I totally agree you can produce something of any substantial worth so cheaply - even if you outsource development to China - but the idea that you have to work smart, reuse components, adopt incremental development strategies that keep you close to the users and offer something significantly better and cheaper than what has gone before is undoubtedly true.

The Second Bounce

Ronald Cohen of Apex fame argues in his new book that the everyone can see the first bounce of the ball; it's the second bounce that is uncertain. And it is only in situations of uncertainty that significant investment gains can be made. Well I beg to differ - until you bounce the ball once there is the highest degree of uncertainty - one can only guess at the outcome. Once you have seen a bounce, you have data to predict pretty well what the next bounce will do and even fix things that fall flat!

Releasing Version 1 of a product into a market is always the most uncertain stage. Once users have something to play with they can give you feedback and the whole market research process can be brought to bear on the problem. When all you have is ideas, hand waving and hopefully some passion and a committed team, most potential users will still just stare back blankly at you - they ain't good at looking at a blank canvas and saying what will make it a masterpiece.

That thought dovetails pretty nicely with a talk I caught on the first bounce at BarCamp Leeds on Saturday on the futility of trying to predict the future. Sure, it's hard but unless you can make an educated guess at where things are going how can you ever hope to align the technology idea you are working on with what the future holds. That said, the prevailing view was that the best way of predicting the future is to implement it!

Focus, Focus, Focus

In real estate investment the mantra is location, location, location but for a startup company it should be focus, focus, focus. Far too many companies bite off more than they can chew even before they have cut their milk teeth. While big markets numbers may turn some people on, it's always better to be a master of one.

This is what Ev Williams (founder of Blogger & Twitter) has to say about this:
“Focus on the smallest possible problem you could solve that would potentially be useful. Most companies start out trying to do too many things. Focusing on a small niche has so many advantages: With much less work, you can be the best at what you do. Small things, like a microscopic world, almost always turn out to be bigger than you think when you zoom in. You can much more easily position and market yourself when more focused. And when it comes to partnering, or being acquired, there’s less chance for conflict. This is all so logical and, yet, there’s a resistance to focusing. I think it comes from a fear of being trivial. Just remember: If you get to be #1 in your category, but your category is too small, then you can broaden your scope—and you can do so with leverage.”

Most businesses need to cross the chasm from early adopters to the mainstream and that's a lot easier when you have a whole product however small, then you can start to add +1 extensions to grow your market. The downside of trying to calve off too large a slice of market real estate too early is that you never have enough substance in any specific area to transition your product or service to the mainstream which is where you will make your money - however big or small your target market is.

Online Research Versus Legwork

There seems to be an increasing trend to research opportunities online before expending too much physical effort evaluating the options. Who last went looking around a new neighbourhood looking for houses, rather than first having a trawl of Rightmove? Tesco have just launch a new comparision website to compete with the likes of MoneySupermarket. So there must be money in them there hills. And with MyDealMaker debuting, even venture capitalists and angel investors can get in on the act and search for entreprenurs with big ideas looking for funding that meet their search criteria.

Where will it all end? In the lead, not supprisingly, is Formula One. Car design is apparently moving from using computer simulation to validate an hypothesis to ab initio models where nothing physical is made until the computer says yes. Drug design has similarly embraced the idea that sampling chemical space is best done virtually before that expensive step of synthesising anything is taken and anyone gets their hands dirty.

Who, thirty years ago, would have believed that computers would be used for screening potential dates/mates before 'pressing the flesh'! And if you had said we would all be texting like mad, rather than videoconferencing by now you would have been laughed out of the room. As the BT futureologist at a recent YSTN event commented, maybe we should be employing more phycologists to help design new products, rather than leaving this entirely to the technologists!

Developing an Innovation Strategy

Rob Hulme from Smith & Nephew spoke at the first of our Business Fitness workshops in Hull on developing an innovation strategy. He emphasised their strategy has moved from closed innovation to a more open approach to embrace ideas from outside. Another of his themes was the concept of teamwork and cross-functional approaches noting that breakthroughs often occur at the interface between two disciplines.

A interesting observation was on the competing pressures of Process & Bureaucracy and Passion & Anarchy that a company needs to find an appropriate balance between to maximise its potential. Too much bureaucracy and innovation risks being stiffled in favour of the status quo. But equally too many mavericks trying to change and tinker with things then chaos reins.

This complemented my discussion in the previous session on Business Strategy & Planning where I focused on the chasm between Visionaries and Pragmatists. Visionaries are by definition more driven by passion and a quest for radical improvement, whereas Pragmatists are looking for more incremental, managed evolution to improve the current situation. Most managers coming from larger companies have these pragmatic skills in spades, but may lack the open mindedness and willingness to experiment and even fail that sets out the visionaries from the rest.

There are four more seminars in the series which promise to be equally inspiring! Click here to find out more...

That Original Idea

As we embark on our InvestorQuest Challenge, we ask are you like John Nash in A Beautiful Mind (looking for that original idea that will be the basis of your business, rather than just delusional). Surprisingly, good ideas for a business are often less than original and are often pretty simple. In 1978 (yes, nearly thirty years ago) I wrote a program to play blackjack, so you could blame my 'idea' for all those Internet betting sites out there today. Simon Nixon, the founder of moneysupermarket.com, had a brilliantly simple idea to provide consumers with independent comparison of insurance products that he took from inception through to a £1B stock market flotation.

What differentiates those that succeed is often not the idea for the business, but their single minded focus to exploit an idea and find an addressable market for it. Turning a fledgling idea into a marketable product is the key and so is avoiding the pitfalls along the way. That's why when asked whether an investor is more interested in the idea or the management, often the answer is the latter. Good ideas are surprisingly plentiful, it's the ability to execute that maketh the business. That said, you need an idea!

Suck IT and See

Do visionary/successful companies try lots of things consistent with their goals and and keep the stuff that works. Or do they know exactly how to get to where they want to be and home in on perfection like a wasp buzzing towards your pint of beer?

The ultimate suck it and see company has to be 3M. All things big start off small, but who knows for sure what will grow? They recognised that you need to develop a pipeline of little things and keep nurturing those that work. Time to market is also key. In the 1970's Glaxo was one of many drug companies climbing the greasy pole. Then their researchers discovered a potential wonder drug, ranitidine. Instead of doing toxicology testing sequentially, they decided to save time by running the toxicity studies in different species in parallel. By taking a calculated risk Glaxo were first to market and the rest, as they say, is history.

So one could conclude that if you want to make a bee line for success, you need to take a leaf out of Charles Darwin's book and try lots of things and keep the ones that work, and if you are going succeed, make it snappy!

Those Who Can Do

I have been involved in developing software applications for more years than I care to remember and here are a few thoughts:

1. You are only a naive user once. Watch a new person try to use your software application and learn from what they can't easily do. Once you are trained, anything is intuitive.
2. You don't build new software the way you build a house - those that try to make it into a linear process with prescriptive completed outputs at every stage are doomed to failure - even if the project plan looks pretty. There is always a non-deterministic aspect to any complex system. Agile approaches, adaptive planning and iterative development is needed.
3. That said, you should always seek to reuse building blocks and design the components of the system with this in mind. If you have to reinvent the wheel each time, you are doing something wrong.
4. Don't expose too many end users to pre-alpha software (apart from those sacrificial virgins mentioned in 1) - they will not be able to see past the first bug/crash/wobbly and will not thank you for an early look at anything short of perfection.
5. So don't let core developers design a user interface. Their perspective is clouded by what is going on deep in the bowels of the system. A business analyst that has empathy with and understanding of the user requirements should always be part of the team and in small projects is more important than a 'project manager'. They can fein selective amnesia to immitate 1 and 4.
6. Everyone is qualified to criticize and say what’s wrong with a system; it’s a lot harder to contribute innovative ideas and define what’s right!

10 Things Not To Get Wrong When Building A Technology Business...

At the i-techpartners academy event at Daresbury, Richard Veal from New Mind reflected on what he had learnt (the hard way!) in building his business, a lot of which resonated with my own experiences:

1. There isn't a shortage of work to go around - collaborate, build on the work of others and stop your techies insisting on reinventing the wheel.
2. Ideas are cheap and surprisingly plentiful, it's implementation that's hard. It also helps to focus on one idea, so select the right one!
3. Don't believe your own hype: success is not necessarily replicable and equally if you fail at first, try and try again.
4. Being an MD is a lonely place - you need advice, mentoring and an external perspective.
5. Generic business advice is useful, but specific advice is invaluable from someone who really understands your market/technology.
6. Get your organisational structure right as soon as you can. An average employee in the right structure (and motivation) is better than a good employee with the wrong one.
7. Build in scalability into your business model from day one; it's hard to retrofit.
8. You will need twice as much time and money as you thought you would!
9. Networks are important to long term development. External focus is needed to understand the wider picture and assess impact internally.
10. Success is specific, run your own business - it's your story, write it.

See also my top ten tips on raising investment!