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.