A VC in Vacationland

The Triple C Farm Entrepreneurs

Last weekend was Maine Maple Sunday--a time to visit maple tree sugar bushes and their boiler houses to taste the latest incarnation of one of Maine's tastiest products, maple syrup.  You need to get an early start in the morning, as many of the farms serve a great breakfast--pancakes, maple syrup, homemade butter and sausage. You also want to choose one where they are running the boiler house, preferably fired with wood, as I think it produces the finest syrup.

This year, we visited Triple C Farm in Lyman, Maine, about 20 minutes from where we live.  It had snowed overnight and the drive out was beautiful, with the sun rising on glistening snow on the pine trees.  We arrived to a muddy madhouse (it is mud season in Maine) at 9am.  It seems everyone else in Southern Maine wanted to have an all-you-can eat five dollar breakfast in a farm kitchen cooked by the farmer's wife and family.  The boiler house was operating a full blast (it takes 40 gallons of sap and about 3 hours at hard boil to create a gallon of maple syrup). The smell was sweet and steamy in the high humidity of the overheated boiler house. Samples right out of the finisher were available for a quick taste. The visit is somewhat like touring a winery in Napa, except you do not have chickens wandering around the wine cellar. After one of the sons gave us a full tour of the production process (quite complex), we feasted on fresh cooked pancakes on picnic tables in the barn. These days are one of the reasons we love to live in Maine.

So, what does all this have to do with entrepreneurship?  To survive in Maine, most locals (those who are not, like us, "from away"--even though my wife's family has owned land in Maine since the early 1900's) have multiple jobs and professions.  One day you are cutting Christmas trees and the next assembling M-16's for the Army.  The Triple C Farm not only makes and sells maple syrup in the spring, but also serves breakfast and lunch for hundreds of people all Maine Maple weekend. They sell eggs and chickens year around, pumpkins(along with hayrides and mazes) around Halloween, turkeys in the fall and early winter, and have a full complement of farm animals--cows, ducks, rabbits, chickens, horses that require substantial daily care. And oh, did I mention the family all have day jobs as well? I tend to think Maine does not really have many entrepreneurs--at least ones that approach me and ask for an investment  in their software start-up. But these farmers are certainly entrepreneurs--working long hours seven days a week to live their dream--in this case, preservation of multi generational family farms. And to do it all, they have to constantly develop all these value-creating products and services that allow them to support their chosen lifestyle in an tough Maine economy.

By now, you are wondering what lesson Dave is contemplating for other entrepreneurs from this experience. What struck me was the ability of the farm and its occupants to keep evolving their operations to fit the changing economic environment.  I often counsel start-ups to focus on their key, market changing products and services and not to be overly distracted about running after new markets and solutions. In general, this is good advice, as limited resources require focus on the initial offerings to acquire satisfied clients.  But longer term survival means expanding and evolving those initial products and services to serve the ever-changing market place.

One of the most difficult challenges I have with later stage start-ups is to get them to forget the earlier, stick to your knitting advice and to begin to develop the new products and services that will attract new customers as well as more revenue from existing customers. They can get in a comfort zone, able to sell existing offerings to lots of new clients, generating good revenue growth.  Why can't we just continue doing this, they argue? Why do we have to explore new frontiers?  Why can't we relax a bit after having worked so hard to get in our current "sweet" (get it?) spot?

The answer is simple: unless you continue to innovate in your market niche, you will not achieve your dreams.  That's what the Maine farmers have learned--they add strategic offerings to take advantage of Maine's natural resources and make them readily available to their marketplace. Other entrepreneurs need to heed the same advice.  Your investors will not tolerate mediocre performance, poorly defined business strategies and resistance to evolution and change. New investors and potential acquirors want to buy a growth story, bolstered by a clear vision of where the market is going and how new offerings will create value in the evolving environment.

So, take a lesson from Maine's long-time farmer entrepreneurs and make sure you protect your dreams by developing new, value creating offerings. It's all about economic survival in Maine, just like in start ups. Just like the Triple C Farm entrepreneurs, you need to have a diversified offering portfolio to help survive the challenges of a fast-changing and highly competitive marketplace.

Supply Chain Innovators: Dust Networks

As my original post said a few months ago, LARTE's are not a new Double Expresso drink at Starbucks, but rather Location Aware Real Time Enterprises.

They are getting a lot of play in the VC Blogs of late, powered no doubt by the growing availability of GPSS/sensor/RFID and related data that can help companies run their product design, plants, supply chains and customer relations much more efficiently.

Conceptually, I like the idea.  In practice, however, most companies are having so many problems getting the simplest use of real time data into decision making that I doubt we will see many existing companies become real time data junkies any time soon. And there are a fair amount of misconceptions about what is real time data in supply chains.

So, repeat after me--RFID and other related data is not "real time" data.  It only tells you when a product went through a reader, not where it is at the moment. It could be hours or days before it goes through a scanner again.  So what's a company to do if it wants real time tracking of products in the supply chain? 

Perhaps Dust Networks can provide part of the answer. By constantly reading the location of all products within reach via its motes network of tiny sensors, one could develop an RFID network that could locate tagged items without the aid of readers.  Dust Networks is based on a new location estimation innovation in sensor networks--RF Time of Flight. In a conventional RFID installation, one would need RFID readers everywhere to pick up data from the tagged product, unless one invested in powerful sensors (read: expensive).

RF Time of Flight has its roots in Smart Dust. Smart Dust is defined as motes attached to products who search out and find other motes, connect with them, form a broader network and communicate information across the network. One would set up a mesh network (in, for example, a warehouse) in a similar manner to a traditional RFID or wireless network, but using only a small number of readers (less than 10%) than in current installations. Assuming the thousands of products in the facility are tagged with motes, the motes begin communicating, set up their own mesh network and begin reporting their position.  Measuring the distance from one mote to another allows calculation of item location, even if the product is in motion.

At the moment, the motes are the size of a nickel, but the plan is to make them the size of a grain of sand.  Like traditional RFID chips, the motes have sensors, computing circuits, bi-directional wireless technology, with an antenna and power supply external to the chip. The motes can be set to record and transmit vibrations, temperature and light.

The big issues in designing motes are reducing the size and power consumption of the motes, no easy tasks.  There are a number of competitors also working the space--Crossbow, Millennial and Ember.

There have been some early adopters of the technology, including the well-known supply chain innovator, Emerson Electric. Asset tracking is one of the principal applications of the technology among early adopters.

Look for RF Time of Flight applications to become a primary component of "real-time" supply chains in the next few years

The Analysts are your Best Friends

Many start ups are afraid that industry analysts at AMR, Gartner, ARC, among others will not interested in their ideas or technology.  On the contrary.  These analysts thrive on the new, new thing. They are eager to introduce their clients to the latest and greatest software and solutions, provided, of course, you have a few success stories at your early customers to share with them.  And they are also very interested in having you subscribe to their services. 

But the big news is that analysts can be an inexpensive sales channel for new companies who are developing solutions to increase supply chain efficiency and effectiveness.  For the cost of a modest subscription, often less than $50,000 per year, you can:

• access knowledgeable supply chain analysts (and their research) in your space,
• keep abreast of competitor product development plans,
• ask the analysts to recommend your solutions to their clients,
• get the latest industry gossip and competitor dope quickly,
• be up-to-date on possible M&A activity, often before it happens,
• have them write flattering analyst articles and notes about your solutions,
• have them sponsor research showing how your solutions can reduce supply chain costs/whatever,
• have them keynote your webinars and conferences, and
• serve as a reference when you need one at a potential client. 

Where else can you get that kind of combination of PR, marketing, product and sales assistance for such a small amount of money? The answer is nowhere. You will have to invest a goodly amount of time and energy in developing and maintaining these relationships.  Often, analysts require a significant amount of "education", especially around new and innovative solutions.  Patience is important in dealing with analysts as they may not understand right away how your solutions are superior to those of competitors.  Although analysts tend to jump ship fairly often and move to competitors, that is generally good news as you will have a friend at the new firm, while the existing firm usually goes out of their way to make sure existing clients have a comparable analyst taking over your space.

Here are a few thoughts on maximizing the collective value of your relationships with the analysts:

1. They can be your best Brand Managers.  They can help you position your product in the right space and help develop your sales strategy to correspond to key industry trends. They will review your marketing plans and give you insights into how best postion your product for the sweet spots in your space.

2. Make it their idea.  It's not that you just call them up and tell them you are the best thing since Kim-chi, however. You have to let them come to that conclusion.  Analysts always like to discover  new things themselves.  Why else would they call themselves analysts?

3. Get them to be your best advocate. Analysts can attract a lot of the right professionals to your webinars, seminars and conferences.  They generally participate at minimal cost if you subscribe to their services. They are flattered to be invited to participate in your client-related activities because they can learn what's going on inside of these companies and also hit them up for a subscription.

No Free Lunch: Partnering for Start Ups

Many start ups think that "partnering with the Big Boys", whether large channel partners, consultants or complementary software providers, is a great way to make their business grow.  This is true for some, but not for all start ups.  Any such partnering requires significant effort and resources to generate sufficient leads to justify the investment. 

Here are a few success factors I have found useful in advising start ups hankering to get in bed with the Big Boys:

1.Choose carefully-partner only with successful players who have penetrated key buyers in your target verticals. Many start ups do not do sufficient research to uncover potential partners who both understand their technology but also have the access to the right people who are possible users of their technology.  If you have picked your Board carefully, you should have a few members who have industry contacts that can be helpful in this process.  In addition, do not hesitate to tap your network for ideas and suggestions.

2.Resource the effort--put a top person with experience in making partnering happen in charge. Former managers with IT consultancies make a good choice here as many of them have a lot of experience with software vendors and know the ropes when it comes to setting up successful partnerships. Make sure that you establish strong relationships at the executive level with key channel partners to both ease problem resolution and generate strong lead streams.

3.Bring a lot to the party--if you do not bring good, qualified leads to your partners, then you will be ignored. Many start ups erroneously believe that partners will work to drive business to you.  Sometimes, but not very often, this is true. The best way to get good leads is to give good leads. Use permission-based marketing management technologies, such as Vtrenz or Eloqua to attract and forward new opportunities from joint webinars and other marketing campaigns.  Every company values partners who deliver business.

There may be no free lunch in the partnering world, but, done right, it can sure pay for a lot of dinners.

For those interested in a detailed discussion of partnering with one of the Big Boys, see my presentation on Partnering with Accenture in the Resources section of my web site Supply Chain Ventures.

Rifle versus Shotgun? Selling Your Company

The day inevitably comes for the entrepreneur when he or she will face a decision on whether to sell the company that they have built over the last few years.  Although you may not end up going through with any transaction at that time, it is useful to consider selling strategies and be prepared to choose which one may be best for you.

Let's set the stage a bit by saying that you have been approached over the last few months by potential buyers and have developed a relationship with an investment banker to help you decide if this is the right time to sell. And remember that there are a lot of variables in deciding when it is right to sell.  We all want to sell at the peak of the market for our technology, but that is really difficult to predict.  So you will have to decide which selling strategy will work for you, given your readiness and the pulse of the overall market.

There are two principal selling strategies for most entrepreneurs: the rifle or the shotgun strategy.

Under the rifle approach, you would focus on buyers who you would really like to acquire you, or are most likely buyers, perhaps Google or Microsoft, for example.  The investment banker would meet with these companies and see if they are interested. If the market is hot, you are a leader in your space and your technology would fit a hole in their portfolio, you may get lucky and have a few high quality bidders, or one that wants to preempt a deal with anyone else.

Under the shotgun strategy, the investment banker would contact anyone that may be remotely interested in your company and sees if they would like to discuss a deal.  This could yield about 25 parties who request the details on the company, moving down to 5 or so serious parties to negotiate with.  This strategy can maximize value by flushing out all potential buyers.  On the other hand, a protracted process with no sale at the end can make the start up look shop worn.

Of course, you could get lucky and have a bluebird buyer come along, offer you the big bucks you were seeking, be a great home for your people and solutions and make you a leader in their company.  But this stuff happens only rarely.  You need to face the reality that you sold the company and the buyer can do what they want with it, which may or may not include you.

Under any circumstances, it is best to discuss potential sales strategies with your Board sooner rather than later.  The processes associated with each strategy are very different and involve varying time frames and levels of management commitment.  Make sure that the Board understands all this in advance so that an informed decision can be made in advance of any serious moves to sell your "baby".