Challenges In Building World Class Technology Companies
Out of the multitude of
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 shortlived. 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.
Organizing for Change
A corporation is normally structured with the
goal of clarifying responsibilities and thereby
increasing stability. However, in high growth
technology companies, organizational 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 organizational
needs for change can be kept in consonance.
Only in this way can the organization 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 companies'
fast development. Personnel turnover is extremely
debilitating to fast growing companies and maximizing
personal growth must be the primary solution
emphasized.
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 the unknowledgeable
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 prioritized 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, organized 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 organization (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 jeopardize 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 emphasize
their company's unique value-added; thereby
maximizing 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 recognize 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. |
