Tuesday, August 26, 2008

Business innovation Vs funding

While all start ups require some level of funding, over funding will work against innovation in business development. It is better to starve a business than over finance. Its only through financial pressures on the start up that the business management will become creative and focus on the shortest route to reach financial independence. My experience has been there is an inverse relation between easy access to money Vs innovation in technology development and business practices. Far too often a business plan is unrealistic with its expectation believing easy funding will expedite success. I have experienced and witnessed on several occasion how easy access to funds or expectation of such could ruin a start up or derail it.

On the other hand we all know of many technology and marketing break throughs that happened because there was not sufficient funds available. The quest for less expensive options and alternatives to money necessitates originality in ideas and innovation to overcome obstacles.

Life after you sell your business

Life after you sell your successful business has its own challenges as it often releases you from some financial insecurities and pressures. But this event adds other challeneges as one learns how to spend the new found wealth and live with the new rules. Most of us go on to sell our businesses creating wealth and unexpected headaches. The headaches come with new responsibilities and change in directions our careers take. Some of us become employees of entities that bought our businesses. Most of us will fail to flourish in this new environment and will bail out within two years. So choose your partner (buyer of your business) well and plan well ahead what you want to do next before you hand over the reins to new management. Explore your options for your life and career after selling your business and make sure you can handle what some of the consequences are, if not you are in for a shock. Knowing you will leave the parent company within two years should provide you with peace of mind and opportunity to plan ahead for your next move. Many of us like I get back out to start new businesses. But remember the same start up rules apply and having funds of your own to invest does not ensure long term success of the new venture.

Thursday, May 22, 2008

Innovation types

Simplified, there are two types of Innovation, Disruptive or sustaining. The best way I found to define them is as follows:
1- Sustaining innovation responds to an existing market need which is typically well defined. Another way to put it is "a market looking for a product." Usually successful commercialization can take place in short order for sustaining products since the customer (end user) clearly understands the benefits of the product for immediate application.
2- Disruptive innovation is a product looking for a market since often it is too premature or advanced for what it is originally designed for. Hence it goes looking for markets outside of its original intended niche (application). Often this is where we come across accidental inventions (discoveries) some of which shake up industries and provide us with quantum jumps in technology advancements. Typically disruptive products take much longer to launch and become commercially successful. However, a well managed disruptive technology/product can often lead to great commercial success. It just needs patience and longer term visionaries to see it through.

In a start up, we need both to have a successful business launch and long term success without too much dilution of the original founders equity.

Do you agree?

Provisional Patents

The fastest and cheapest way to protect your IP is with a US provisional patent filed with US patent office.

Always file a simple cheap provisional patent application (with US patent office) first for each discovery and new product. You then have twelve months of protection and can commercialize your product with patent pending statement on the label. If during this twelve months, you are convinced the new product or invention has high commercial upside and there will be copy cats, then go file the actual US patent and if necessary followed by international patent filings.

Provisional patents are US government gift to start ups and small companies providing a low cost approach to create IP quickly and effectively. I have been in high tech business for more than 25 years where patents are highly valued and an important asset. However, looking back I noticed of every ten patents (each costing approximately $50K including international coverage) only one or two ended up protecting successfully commercialized products. What a waste of money and worse precious time of key scientists and other technical staff.

Marketing plan importance

Marketing is often treated as a minor topic in business plans often mixed in with sales strategy and under utilized and misunderstood by most technical start up entrepreneurs. Marketing portion of a business plan for a start up is as important as the management team experiences and expertise. Marketing plan must reflect how well the management knows it market niche which includes first and foremost a list of potential customers followed by the list of competitors direct and indirect.
Pricing is one of the key activities covered under marketing plan and needs to be approved at the highest level in the start up organization. Far too often a salesperson is given the latitude to set prices in the field sitting in front of a client. Sales people should not set prices but gather market info and provide feedback to start up management which will then set the highest prices the market can bear. The first group to object to the high prices should be the start ups sales team. The bar should be set high and sales staff challenged to sell at prices they considered too high.

Product/Service successful Pricing

One of the most important aspects of Marketing of a new product or service is its pricing. Traditionally pricing was based on multiples of cost which would allow for a reasonable profit margin. While this is one approach, it tends to be too simplistic leading to lower margins than can be achieved. Pricing needs to be driven first and foremost by analyzing the value of the service/product to the end user and followed by knowledge of competitors' prices which often could set the glass ceiling on expected prices.