How to Manage a Company?
Anyone who has passed a management course is familiar with Peter Drucker and his books on this subject. He coined the term “knowledge worker” and later in his life considered knowledge work productivity to be the next frontier of management.
But his most important contribution was promoting decentralization and simplification. Drucker discounted the command and control model and asserted that companies work best when they are decentralized. According to Drucker, corporations tend to produce too many products, hire employees they don’t need, and expand into economic sectors that they should avoid.
He considered companies as human organization rather than just as source of economic data. But he also insisted that all human organizations need clear objectives and hard measurements to keep them efficient. Basically, everyone needs to be accountable! And if you go higher in the chain of commands, you are more accountable; because you have more authority. He was always against “super bosses”. That is why he liked to say that people used the word guru because the word charlatan was so hard to spell!
Bad Signs for a Start-up Company
When your management team is underutilized in a start-up company, office politics will take over the whole 
operations. Like kids; they should be busy with good activities that couldn’t find time to think about bad stuff.
In a small company everyone should be utilized 110%; your VP of engineering is on the road with field engineers and your CEO is moving the furniture in the office and going to Staples to buy stationary to save some money. If your higher management sits in the office and you have directors who communicate with other employees, you have executive assistance for a 50 people company something is wrong. When people are not busy with real operations, they feel vulnerable and start justifies their presence by artificial activities. At this stage, the whole intent is to perceive employees, board and other investors just to drag the operations for couple of more months and receive the paychecks as far as you can. Do you watch Office; they don’t have anything to do!
Nokia; Still Going Down!
Couple of months ago I wrote about why Nokia is loosing the battle in smartphone war! The latest news that iPhone share of smartphon
e market is up to 17 percent is another affirmative sign of gradual decline for Nokia. While global mobile phone handsets were almost the same as for the same quarter in 2008, smartphone sales were up by 13 per cent to 41 million for the three months ending September 30. This means you can not count on out of date, old fashion voice centric phones forever to generate revenue. Also, you can not wait for Apple or other companies to come out with a concept (iPhone, iTune, etc) and just copy that! You should have some innovation yourself to be successful!
VCs, the End?
During last couple of weeks, I received emails from my VC friends if I am aware of any job opportunity for them!!! Initially I thought it is joke or something; but no, they were serious. Venture capitalists are a breed in decline! Just 17 venture capital firms raised new funds in the third quarter of 2009, the smallest number of firms in any quarter since the third quarter of 1994, according to new data released by Thomson Reuters and the National Venture Capital Association (NVCA). While venture capital firms typically raise money every three or four years, and so a single quarter represents only a snapshot, the very small number of firms raising money (historically speaking) shows just how much of a crunch the industry is in right now.
Too Much Money and Ego; If you want to kill a Start-up!
In his article, Paul Graham
mentioned 18 mistakes that kill start-ups. Among them, two caught my attention. Number one, Single Founder! How many times you have seen a founder who can not convinced any other to join her/him or ego does not let her/him to share the glory with others. “Single founder syndrome” marginalizes start-up culture by reducing true power of founder! It is a one man show, she/he against others (VCs and other board members).
Raising too much money and spending a lot is another recipe for disaster! Once you raise several million dollars of money, the clock is ticking. If VCs fund you, they’re not going to let you just put the money in the bank and keep operating as two guys living on ramen. They want that money to go to work. At the very least you’ll move into proper office space and hire more people. That will change the atmosphere, and not entirely for the better. Now most of your people will be employees rather than founders. They won’t be as committed; they’ll need to be told what to do; they’ll start to engage in office politics and you know the rest!
Kleiner’s Laws
Eugene Kleiner was always my favorite VC! My fascination started when I was doing my MBA and read his famous ten laws:
- Make sure the dog wants to eat the dog food. No matter how ground-breaking a new technology, how large a potential market, make certain customers actually want it.
- Build one business at a time. Most business plans are overly ambitious. Concentrate on being successful in one endeavor first.
- The time to take the tarts is when they’re being passed. If an environment is right for funding, go for it. Eugene, more than anyone, knew that venture capital goes in cycles.
- The problem with most companies is they don’t know what business they’re in.
- Even turkeys can fly in a high wind. In times of strong economies, even bad companies can look good.
- It’s easier to get a piece of an existing market than to create a new one.
- It’s difficult to see the picture when you’re inside the frame.
- After learning some of the tricks of the trade, some people think they know the trade. This reflected some of Eugene’s own humility; he recognized that many venture capitalists thought they were experts when they had just a bit of knowledge.
- Venture capitalists will stop at nothing to copy success.
- Invest in people, not just products. Eugene always respected founding entrepreneurs. He wanted to build companies with them not just with their ideas.
After being around startups for more than ten years and dealing with couple of them I know how true they are! “Build one business at a time. Most business plans are overly ambitious. Concentrate on being successful in one endeavor first”. Let focus and be successful in one technology/product and then jump to the new one. For the first four to five years, your product is your technology and your technology is your product. Your CTO is your VP of engineering and your VP of engineering is your CTO! When you have not delivered your first product, there is no need for future technologies and products. Even if you have the best portfolio of patents, without a solid product and revenue they are worthless! Do not believe me, ask Irvine Jacobs from Qualcomm.
“Even turkeys can fly in a high wind. In times of strong economies, even bad companies can look good”. This is the story for early 2000 and 2007! When companies were out to raise money and no one vet them based on “their” value and what they have and not based on what is the hype out there. Companies with positive cash flow can go through the present storm and come out more solid and successful. Companies need cash and looking for investors to come out of this storm; will come out diluted and weak!
“It’s easier to get a piece of an existing market than to create a new one”. If market does not exist and you plan for a “potential” product for a “potential” market; good luck!
And my favorite; “Invest in people, not just products. Eugene always respected founding entrepreneurs. He wanted to build companies with them not just with their ideas”. Guys, if you think the founders are not right people to run the company for first five to six years, you do not have a company! DOS was not successful; it was the combination of Bill Gates and DOS which was a success. Apple Computer was not successful; it was combination of Steve Jobs and Apple Computer which was successful. Intel RAMs/Processors were not successful; it was combination of Noyce/Moore/Grove and their RAMs/Processors which was successful.
$2.9 Billion Company in Nine Years!
The latest news regarding acquisition of Starent Networks by Cisco for $2.9 Billion is good news for entrepreneurs; and for Cisco. Finally they found their “right” way to go into wireless market. Early 2000, when 3G was the “hype” at the peak of dot com bobble, lots of companies start to position themselves to grab a little bit of business from usual suspects (Ericsson, Nokia, etc). New IP infrastructure proposed by 3GPP and its new components opened a new path for small companies to add their niche product into main stream. GGSN was the focal point of new “parallel data network” for mobile operators and legacy vendors were not expert. Different companies started with the promise of ultimate GGSN with wide variety of functionality. Lots of VCs at that time were ruling off any chance of success for these new guys in completion with big boys. But Starent made it! Focusing on a niche market and a good plan they made it. With revenue, around $250 million, in less than nine years they showed if you do your homework you can make it and sell to big operators. But, what was the secret? I met Ashraf (CEO and co-founder) couple of times; a real entrepreneur, down to Earth and hard working engineer. Anthony P. Schoener (VP of engineering and co-founder) is an experienced engineering manger. But I guess the main secret is consistency. The founders are with the company from the beginning and they are leading the company; CEO and VP of engineering. Remember Eugne Kleiner law, “Invest in people, not just products. Eugene always respected founding entrepreneurs. He wanted to build companies with them not just with their ideas”. HP, Intel, Microsoft, Apple, Starbucks, Dell, … are just examples of companies that founders are/were running them into success. I know people will also refer to companies failed because founders were involved, but the big jackpots are by founders!
Cash is not King!
After posting “Is Clearwire Going to Survive?”
last week, I received hundreds of comments, emails and messages from different readers; technical geeks, analysts, bankers and investors. What surprised me was coherency in responses and how people from different fields are emerging on one issue; “cash flow positive” is king in this economy. For services/operation companies, burning capital intensively is not an option anymore. Probably technology companies with a niche technology can justify their initial capital requirement without meaningful revenue for a while, but an operator can not burn cash without a meaningful cash flow. Cash is not king anymore; cash flow positive is the new king!
Is Clearwire Going to Survive?
Recent news from Clearwire is not promising! New CFO is leaving the company after 10 months, Scott Richardson (Chief Strategy Officer) is going to leave as well. If you look at Clearwire cash flow, they have burned $2 billion last year to expand their network. With $0.5 billion operational cost, one billion dollar in cash and virtually no meaningful revenue (just $80 millions) the million dollar question is; should they go ahead as planned expand the network and burn the cash in six months, or halt the deployment and stick to their cash to survive another two years?
As a “green field” operator, the huge amount of cash burn in initial phase is inevitable. As number shows, you can not grow organically as an operator and go head to head with tier-one operators. On the other hand, although you think one billion cash is available; in wireless operators world it is peanut! It can not cover the cost of a limited rollout, leave alone other expenses including marketing. Cash starvation is going to damage all business models need huge amount of CapEx, including launching a “green field” wireless operators.
Where is the Speed Bottleneck in Telecom World?
Have you ever tried to measure your network access speed from your computer? It is easy; there are plenty of sites that offer this service for free. You choose your location and test server location (that should be close to you) and it will conduct the test. I have access to a 10 Mbps connection at our office; whenever I choose a server in California I can see more or less 10 Mbps, but as soon as I choose a server in East Coast the speed will reduce to 4-5 Mbps. Switch to a server in Europe it will be around 3 Mbps! My “access speed is 10 Mbps” but my end to end speed reduces a lot; because of core network limitations.
During 90s access network was the main bottleneck. Starting with dial up going to cable modem, to wireless data networks, 1-2 Mbps was the ultimate goal for end users. If we reach that speed the world would be perfect! Since couple of years ago, by improving access networks and increasing speeds in the access networks, customers start to see the bottleneck is moving to core network.
Couple of weeks ago, one of our broadband subscribers with 10 Mbps access link was complaining his end-to-end speed to his other office in Iowa is just limited to 4 Mbps! As a regular business owner (and not a technology geek!) he was complaining that I bought 10 Mbps and now I just receive 4 Mbps. It took our customer care service couple of days to teach networking to our customer and convinced him that this not an access network issue. Then he asked the most interesting question “if the core networks are not upgraded, what is the point to have all of this 10-50 Mbps access networks”!!! I guess after 10 years, we reach the point that Telco’s need to upgrade core networks. Late 90s was the hype time for core network mania. Everyone was expecting core networks will collapse but dot com bust of early 2000 slow it down. Now it is the right time, access networks are good enough folks, lets look again at core network for a while.
