Fear Of Failure

A recent survey by Orange reported no shortage of bright ideas, but cited the lack of confidence and a fear of failure as the main reasons for sitting on their hands. Orange said that budding entrepreneurs needed more encouragement to succeed. They called on help to be given to develop talented would-be entrepreneurs and to cultivate an appetite for rational risk in the education system.

A particular focus of Connect is to help innovators hone their ideas and share best practise through our Investor Readiness workshops and mentoring schemes. The role of Proof-of-Concept funding cannot be underestimated in helping these fledgling ideas gain momentum and we continue to lobby for improved business support in this area.

Investor Readiness

The Sunday Times featured an interesting article on Investor Readiness that echoed many of the experiences that we find with people who go through our IRP programme. These are given by experienced professionals and business people who give their time freely to help young technology entrepreneurs understand their proposition from the perspective of an investor. The lessons learnt are invaluable as is the ability to share experiences with other people following a similar journey and seasoned professionals that have heard it all before. Our next IRP workshops are being held in Sheffield on the 7th and 14th November. If you fancy coming along, please contact us.

The Value Of Networks

Metcalfe's law states that the value of a network is proportional to the square of the number of those involved. The number of unique connections in a network of a number of nodes (n) can be expressed mathematically as n*(n-1)/2. Perversely, the basic tenet of modern organisational theory is how to manage this complexity and structure companies so that as they grow this proliferation of connections is managed effectively.

However, when it comes to the virtual world the more the merrier is usually the case and only when an application focused on participation and involvement reaches a certain critical mass do those involved start to interact effectively. This relates to the fact that although the number of potential connections may be large, the number of relevant connections may be much smaller. Obviously if we are talking about directed connections i.e. you know the number or address of the person you want to 'call' then all is fine and dandy, but much of the success of tools like LinkedIn and FaceBook relates to the ability of the software to facilitate members of the network finding like minded people to interact with and build up connections based on declarative information embedded in profiles. The success of using structured information to facilitate or prompt interactions is a major development over traditional web-based directory listings.

If you also think about the comparison to physical networking - what is the chance of bumping into someone at an event are inversely linked to the paucity of the network, so the focus is to maximise the focus. With online networks the goal is to maximise the number of participants and ensure relevant people find each other using the functionality of the site. With our new resource portal http://www.mydealmaker.co.uk/ we are trying to balance the focus on signing up more users with efforts to improve the functionality of the site so that users find connections of interest as the beta progresses.


By the way, we are looking for participants for focus groups to be held over lunch from 12.30-2.30pm on Wednesday 31st October and Monday 5th November at our offices in Leeds. The aim of this is to help inform our strategy for provision of online services with specific focus on our new opportunities portal http://www.mydealmaker.co.uk/. We realize this is short notice, but if you can spare the time we really would appreciate your input. We promise no homework is involved! If you would like to have your say in a physical way, please email us.

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.

Jam Tomorrow

Directorbank recently announced it is taking equity stakes in young companies in lieu of their fee for placing staff. A number of Connect Yorkshire partners also work with companies on a contingency basis and look to take a stake in return for the effort they put in. Is this a good idea? It can be a good way of building trust and aligning the interests of the advisor with that of the company. I am surprised more service providers aren't prepared to take a punt and put their money where their mouth is. One our sponsors Winburn Glass Norfolk is well known for its innovative approach in this area.

Taxing Times

The Chancellor's decision to change the Chapital Gains Tax (CGT) rate to a flat 18% and abolish taper relief seems like a gut reaction to the fact that private equity bosses are only paying 10% on their 'carry' on successful investments. Caught in the cross fire are entrepreneurs that now are going to have to pay nearly twice as much tax on exit. The fact that the Enterprise Investment Scheme (EIS) allows up to £400K of any gain to be rolled over into a new venture softens the blow, but these changes that come in in April 2008 give a big incentive to exit before then!

Sainsbury Boost For Connect

Lord Sainsbury’s review of the UK science and innovation system. includes a glowing endorsement of the CONNECT model:

Recommendation 9.5
Drawing on the success of the CONNECT scheme in San Diego, RDAs [Regional Development Agencies] should support services for high-technology entrepreneurs around our world-class universities similar to the CONNECT service within the BSSP [Business Support Simplification Program] framework.

Connect assists technology-based companies and entrepreneurs in refining their business and financial strategies through a group mentoring process. It assists with the development of business plans and business presentations, and provides a forum in which the entrepreneurs can present their refined business model before a group of business, marketing and management experts. The scheme’s success steams from its holistic approach, the range of expertise it provides and the fact that “none of us are as smart as all of us”.

Distance No Object?

VCs often tell me that it’s the quality of the company that drives the deal, not the geography. So is where you start a business really that important? According to Library House London is a magnet for new venture capital backed businesses despite the expensive rent and salaries. They point to the number of successful exits as a ratio to the number of deals done as an outcome measure. Apparently, in London the ratio is 2:3 whereas in the North the ratio is no more than one in four. Does this in any way relate to the geographic remoteness from the major financial market? One blip in this statistical argument appears to be the Emerald Isle where, albeit from a lower base, the ratio of exits to deals is one in two. Maybe it’s the Guinness that aids the deal making!

Is one way of breaking down these geographic barriers to utilise technology more? Connect has recently released a online portal, http://www.mydealmaker.co.uk/, designed to allow companies wherever they are to pitch their investment proposition whenever they want. The idea is that even if a VC can't find the time or the rail fare to come to our Investment Forum, they can at least take a looksee at the cream of the technology crop from across the region. Equally, entrepreneurs no longer have to wait for the next Forum to come around in the hope that they get a presentation slot. We look forward to our first online investment success and to improving our ratios!

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!

Fail Fast, Fail Early

Not the most inspiring of titles, but ask any medicinal chemist what the chances of his or her lead molecule making it through clinical trials and it's about one in ten (and falling). And no matter what anyone tells you, no one knows which development projects will fail when on the journey from the lab to your bathroom cabinet. Yes, that pill you pop for hay fever or hypertension is the result of a whole lot of great science and one big dose of good fortune.

The development strategy of big pharma embraces this fact as they seek to spend the least amount of money on the ones that don't make it. Fail fast, fail early is their mantra. So why don't they run tests in parallel (assuming it's ethical and legal) and speed up the process? Unfortunately, with these odds history and a few calculations in Excel tells you its a mug's game to try to rush perfection to much. What you need is a development pipeline (which is what equity analysts sweat about as the last blockbuster goes off patent) and then you can play the numbers game and be reasonably patient.

But wait, what about small guy who just has one or two throws of the dice and mix in a doze of commercial reality that their wonder drug or medical device has a limited market potential? And what if they don't have the luxury of funding their development from previous successes? Then they have to raise funding from VCs who don't want to wait a decade to see a return and even then the market potential may not give sufficient returns to make the investment add up financially. This is the problem facing many Healthcare Technology companies and it ain't easy to beat the numbers.

Complaining about the short time horizon and greediness of VCs is about as useful as trying to rush a product through clinical trials (and by that I mean spend more money on failures faster). It just isn't that productive. So what is the answer to this connundrum? The obvious answer is to licence more things earlier and accept a smaller slice of the pie if they make it through to market - which is what most smaller biotechs do. Alternatively, you can find a friendly source of development funds that is prepared to wait for a return and see your project through from cradle to grave - it's called working for Glaxo! But is there a third way?

InvestorQuest Final

The Saturday Yorkshire Post featured our Red Carpet Day where the 10 InvestorQuest finalists fought it out for a slice of the £1M of funding on offer. Whether they are successful in their quest only time will tell, but four walked away with £1K of consultancy support kindly donated by the event's sponsors Clarion solicitors (who hosted the event), Murgitroyd & Co, Mazars and Turnkey.

It was interesting reviewing the initial comments of the panel of investors. There concerns were less about how clever the technology was, but more about whether the IP was protectable, barriers to entry, routes to market, vertical market focus vs infrastructure play, return on investment, etc. Although each presenter was mentored prior to the event, only a minority had developed these aspects sufficiently to satisfy the investors appetite for business strategy, rather than technical detail.

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...

What Is The Optimal Length Of A Queue?

There is a fine line in business between having satisfied customers and happy ones. If all your customers are too happy you are probably not charging enough for your product and service or indeed doing too much for them for too little. This can be a difficult habit to break, but can be the difference between success and failure.

Early in my career I worked for a software company that everyone loved, they just didn't make any money and were taken over by another company that did. The only difference I could make out between the two was the one that was successful charged their customers for everything they could and should. The other went out of its way to keep its customers happy, but didn't charge them enough for the privilege.

Do you want to be liked or respected in business? If it's the former, you probably think the answer to the question posed is zero. If it's the latter, a better answer is three...

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!

Don't Trash The Competition

Marketing is all about differentiating yourself from the competition, but what's with the current spate of adverts that lead on what's wrong with your competitors, rather than what's right with you? I was always told never to speak badly of the competition when in the company of customers. "I couldn't possibly comment" says eons more than any direct insult ever could.

This seems to be a bank thing. Nat West and Nationwide are both running TV adverts parodying a fictitious bank that doesn't listen to its customers and employs morons. Maybe it's just me, but I can't help thinking the only association created is precisely the unintended one.

Has anyone done any studies on this? Put viewers in a room and show them the employees in the advert and ask who they work for. My guess is that there will be a significant correlation that isn't the desired one. Surely, a marketing agency is spending millions of pounds on this without thinking this one through (surely, it doesn't work like that?). Or just maybe mud does stick to the slinger...

Work On The Business, Not In It...

The Prime Minister, Gordon Brown, has curtailed his holiday in sunny Dorset to rush back to Downing Street following the outbreak of foot and mouth disease on a British farm. Is this driven by a need to be seen to be doing something from a PR perspective or does the CEO of UK Plc need to work on his delegation skills more?

Any good CEO has to balance involvement (interference?) in operational matters against taking a more strategic view. Delegate to little and too much weight lands directly on his/her shoulders. Delegate to much and risk the fate of Metropolitan Police Commissioner Sir Ian Blair by being accused of not being in control.

A key stage in any business is when the CEO can focus on working on the business, rather than in it. This requires that a management team is assembled that can take primary responsibility for operational matters. Sure the CEO might be the best person to do everything and make every decision (which he probably had to do to in the early days), but he or she has to sleep sometime (and even take the odd holiday).

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!

Connect Yorkshire on FlickR

We have set up a Connet Yorkshire Group on FlickR and posted some of the photos from our recent Investment Forum there.

If you would like to join this group and view the photos, click on the following link

http://www.flickr.com/groups/connectyorkshire/

Death Of Animal Testing

An interesting article in June 18th issue of C&E News predicting reduced animal testing in favour of experiments utilising human cells and components by the USA National Research Council. They say advances in systems biology and methods to test cells in vitro is reaching the stage where it will provide more information on human toxicity than high-dose in vivo testing on animals.

This may cheer our Venturefest Yorkshire Business Plan winner, Kirkstall Ltd. who are developing a multi-chamber bioreactor that utilises human cells. To read the NRC report, click here.

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!