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Out of the multitude of technology companies which will be founded
in the next several years, a few world class companies will
emerge. Those companies that will achieve this distinction will
depend in small part on the market niche that was selected for
launching the company and in large part on management. The pace
at which high technology businesses must achieve maturity sets
them apart. The normal corporate development cycle taught in
business schools will be compressed to one-tenth the time.
Technology markets are international in character. Almost from the
first day, these companies will be competing for customers
against well managed large international companies. By necessity
their corporate adolescence must be brief. Sophistication in
planning and execution must come quickly. The following are some
of the real problems imposed by such growth.
GATHERING THE TEAM
To take a business rapidly beyond a few million in sales, an
outstanding team is required. Identification and attraction of the
exceptional individuals that such growth demands is a major
challenge. Excellence in software, hardware engineering, marketing,
manufacturing, sales, finance and general management must all be
brought together. A single weak link can be debilitating or fatal.
Because the highest growth segments of the economy — e.g. software,
biotechnology, healthcare or telecommunications — have the most
acute shortages of experienced talent, the ability to recruit the
best is decisive.
QUALITY
Maintaining the quality of the people and methods of business are
among the highest priorities in building a company. While the
importance of quality is always acknowledged, small compromises can
easily occur under the pressures of high growth. Even the best
managers can lose their objectivity. Once lost, quality standards
are hard to regain.
TURNING A TECHNOLOGY LEAD INTO A MARKET POSITION
Technology advantages in competitive high growth markets are
inherently short-lived. Unless a company expects to make a major new
invention regularly, it must rapidly convert its initial technology
lead into a defensible market position. That is, it must establish
itself with a distinctive market image, a significant market share
of its defined market and a cost effective distribution system.
CREDIBILITY
Every entrepreneur knows that credibility (and the faith that
underlies it) is a precious asset for a young company. Credibility
is needed with each of the company's constituencies: its customers,
vendors, employees, shareholders and financiers. The process of
building a company can in many ways be considered a process of
constantly building confidence with these constituencies. For
example, a young company's best financial asset is the credibility
of its financial projections. At the early stages, when a company's
credibility is most fragile, the management needs to do everything
possible to accelerate the credibility building process. As the
company grows, all its reserves of accumulated credibility should be
jealously guarded.
FINANCING
One of the key tasks of a new company is to raise money effectively.
A company must have adequate financial resources to develop and
market its products, attract key people and assure major customers.
The alternatives for financing are many and must be matched both to
the company's stage of development and its long-term strategy.
Creative approaches at critical times can be pivotal. Risk reduction
must be balanced against dilution. Individual financings cannot be
viewed in isolation since early mistakes can easily foreclose
important future options.
ORGANISING FOR CHANGE
A corporation is normally structured with the goal of clarifying
responsibilities and thereby increasing stability. However, in high
growth technology companies, organisational structures must
facilitate continuous change rather than the status quo. The needs
of such dynamic businesses tend to change much more rapidly than
many people are comfortable with. Great skill is needed to establish
an attitudinal environment in which the individual ego needs and
organisational needs for change can be kept in consonance. Only in
this way can the organisation keep its personnel resources
effectively positioned against the right problems, and thus stay
competitive.
DEFINING THE CONTRIBUTION
It normally takes management in a new growth business several years
to fully grasp the potential of its technology or marketing
approach. Companies get started by solving a customer need better
than the competition. The value-added justifies their initial
existence. And in order to grow, they must keep expanding the scope
of their problem solving capacity. A strong strategic business
planning process is a necessary tool to assist management in
evolving its perceived contribution in a focused and controlled
manner. A breadth of industry understanding becomes increasingly
critical.
DEVELOPING INDIVIDUAL POTENTIAL
Many of the entrepreneurial individuals who will build new firms
have limited general management experience, having come from largely
engineering or marketing backgrounds. When their companies grow
rapidly, these individuals soon find themselves performing
unfamiliar responsibilities. This can be unnerving and result in
tardy decision making as they begin to question their instincts and
fall back on their analytical capabilities. However, these
individuals usually have exceptional scope and learning abilities.
With the right reinforcement of their naturally good instincts by
experienced advisors, their rate of personal growth in executive
skills can surprise even themselves — and keep them ahead of their
company's fast development. Personnel turnover is extremely
debilitating to fast growing companies and maximising personal
growth must be the primary solution emphasised.
INTERNATIONAL SALES
Overseas customers can make a key contribution to a technology
company's early financial viability by providing revenue with little
incremental overhead cost. Moreover, markets for technology products
are world markets, and one's competitors will be pursuing your
markets even if you are neglecting theirs. However, international
markets are a maze of idiosyncrasies, where those without the
required knowledge can waste prodigious amounts of time and money.
BALANCING OPTIMISM WITH OBJECTIVITY
New companies demand enormous energy and enthusiasm. Pessimistic
realists do not become entrepreneurs. Nevertheless, in building a
successful company, problems and opportunities must be realistically
assessed and prioritised against the firm's limited resources. Good
managers do this naturally; however, in a rapidly changing high
growth situation, objectivity can be easily blurred regarding
competition, development schedules, marketing programs and strategy
shifts. A human frailty is to confuse good luck with personal
genius. Striking the right balance between aggressive exploitation
of opportunities and dangerous overextension requires continuous
attention and experienced third party objectivity.
NURTURING INITIATIVE
In technology growth companies, the opportunities and problems are
too dynamic to rely solely on traditional management methods of
delegating responsibility from above. The tasks just cannot be
adequately defined in advance and too much creative initiative in
their effective solution is required. Thus a process of bottoms-up
initiative taking and strong communications is essential for rapid
creative problem solving. Reconciling this management environment
with the policy, plans, procedures and controls which larger size
entail, is an art where experience in valuable. However, the
strength of a company's values and mechanisms for this ownership
taking from below will determine its future entrepreneurial energy
and growth.
MANAGEMENT INFORMATION
High quality, organised information is fundamental to a company's
decision making. Maintaining adequate management information systems
in growth companies is difficult for two reasons: first, because
decisions need to be made so rapidly; and, second because the
organisation (which generates and is directed by this information)
is in continuous transition. Unless the commitment is made to
evolving a company's information and decision making systems in
parallel with growth, the firm can suddenly find itself flying
blindly when faced with a major capital or strategic decision. With
early attention to the development of flexible planning and
reporting systems, a new company can make all the necessary
midcourse corrections that dynamic markets will demand.
LEGAL
The corporate contracts demanded of new companies grow geometrically
— distribution agreements, employment agreements, financial
agreements, patent agreements — and mistakes on any of them can
seriously jeopardise a company's ultimate value. Even minor errors
can require inordinate top management attention.
ACHIEVING VALUE PRICING
All worthwhile new technology products represent significant value
to customers — usually an enhancement of the customer's
productivity. However, companies can inadvertently slip into a
vicious cycle of poor prices and poor customer support. It is
remarkable how few managements give enough consideration to the
creative structuring of their product offerings so as to emphasise
their company's unique value-added; thereby maximising the
profitability of each individual sale. This is essential to
achieving the profitability needed to build the company longer term.
Too often management lets their product be defined by their
competitors and sells on the basis of price expecting higher volume
to make the business profitable. Price should always be low on the
customer's list of reasons to purchase a technology product.
DEVELOPING A UNIQUE PERSONALITY
Great companies develop a unique image in the eyes of their
employees and their customers in which their contribution is seen as
different and significant. That is, these firms believe they are
unique in their products, quality, internal culture, people and
personality. In most cases, a distinct personality develops
gradually over the first few years of the company's life. A company
needs to identify its distinctiveness, reinforce it and convey that
image effectively to its employees, customers and the financial
community. This is not easy, but if successfully accomplished the
benefits include greater customer loyalty, simpler marketing,
improved employee morale and higher P/E ratios.
SUMMING UP: EXCELLENCE
The company that intends to become a world class corporation must
recognise that there is seldom a viable low and slow strategy for
building a company of significance. The pressures, commitment levels
and hours required will always be extreme. All of the above problems
must be met simultaneously and decisions must be made almost
instinctively with only limited time and ephemeral facts for
analysis available. Fortunately, the opportunities created by
technology driven market growth are sufficiently powerful to make
new firms with true contributions successful. Those companies whose
managements are truly committed to excellence will emerge as major
companies.
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