What About the Little Guy?
As a consultant to high-tech companies for the past 20 or so years, I have watched with interest as the industry has grown and changed. Almost from its inception, the industry has been populated by entrepreneur-initiated startups, from IBM and Digital Equipment in the early days, through Intel, Sun and Oracle, to the startup explosion of the past two or three years. That explosion was made possible by the relatively easy availability of investment funds at every level from the â€œidea stageâ€ through IPOs.
Say what you will about the Internet boom, and there was an inordinate amount of foolishness associated with it, there has never been a time in the worldâ€™s his- tory where entrepreneurship was nurtured as it has been during this time period. Paradoxically, this nurturing, followed as it was by the â€œdot-com collapseâ€ last Spring, has resulted in an investment market that has plenty of money to invest but is now very reluctant to invest it, particularly in early-stage enterprises.
Venture Capitalists, â€œAngels,â€ and private investors still have enormous â€œdeal flow,â€ but have become very conservative in their investment strategies. B2C (businesses that sell directly to consumers or end-users) ventures were the first to fall from grace in favor of B2B (businesses that have other businesses as their customers), which while still possible investment targets have also gone down on investorsâ€™ priority lists. Now, conventional wisdom has it, the only way to get no- ticed is to be a company that is involved in the e-commerce infrastructure or wireless arenas, and even there the sledding is tough and the chances of regis- tering on investorsâ€™ radar are slim without personal introductions or a stellar past history of running a company that showed high returns for its investors.
Lost in all this post-bubble conservatism is the guy or gal who made it all possible in the first place, the visionary entrepreneur. Imagine a young man who had worked all his life as a salesman â€“ selling musical instruments, then cash regis- ters, and finally scales, time clocks, and adding machines â€“ who approaches an investment bank with a new idea in the area of business automation. The com- pany has already burned through four million dollars in capital, and here he is asking for an additional forty thousand for research and development that will take the company in an entirely new, direction, one that is untested and un- proven. Today he would be laughed out of the investorâ€™s office. Fortunately that scenario did not happen today, it happened in 1914. The young entrepreneur was Thomas J. Watson, Sr., the company, then called the Computing- Tabulating-Recording Company (CTR) became, under Watsonâ€™s visionary lead- ership, IBM.
Where will the Watsons of 2001 go? As a consultant and interim executive I work with a number of early-stage startups with ideas as good and as sound business- wise as Watsonâ€™s was in 1914. Two years ago I could have hawked these com- panies on any street corner in San Francisco and their investment offerings would have been oversubscribed. Today, after presenting one of the best of these startups to an investor who claimed to be interested in startups, I was told â€œ(Iâ€™m) too busy to talk to a couple of guys who have a lot more to gain from us than vice-versa.â€ Well, any early- or idea-stage startup will have â€œa lot more to gainâ€ from interested investors than vice-versa, at least for a while. Thatâ€™s what early stage is about â€“ bringing an idea to the point where it can become a prod- uct and start making money for everyone involved. If the only things that are be- ing funded are â€œsure things,â€ then innovation, creativity, what Harvard professor Clay Christensen calls â€œdisruptive technologiesâ€ will go begging and the industry will stagnate.
For several years investors flew high and free, slinging money at every half- baked idea and business model that came their way and feeling like financial geniuses. As the saying goes, â€œa bull market makes everyone look smart.â€ They flew too close to the sun and since falling to Earth in the Spring of 2000 too many of them have remained buried where they augured in, afraid to even walk on the ground. Perhaps the fabled year 2001 is the time for some brave souls to see that a commitment to vision, innovation, and entrepreneurship is not only appro- priate but essential to the future of the high-tech sector and to start to make pru- dent, selective bets on some good horses. When Thomas Watson asked CTRâ€™s investors for $40,000 for R & D they pointed out that they already hadÂ $4,000,000 in the company and that CTRâ€™s condition did not justify further in- vestment. Watson replied â€œBalance sheets reveal the past; this [investment] is forÂ the future.â€ It is time for the investment community to distinguish between the euphoria and desolation of the recent past and to start to focus on the future.