标签: startup

A few weeks ago, Wall Street Journal reported that Andy Rubin, creator of Android has raised $48 million to launch Playground Global LLC to provide support and advice to tech startups making devices for consumers and companies (see http://www.wsj.com/articles/android-creator-andy-rubin-launching-playground-global-1428353398 ). This follows other recent announcements from Y Combinator (YC) ( http://www.ycombinator.com ), arguably the most successful Accelerator program that was started in 2005 for software startups. Y Combinator announced partnership with Bolt (https://www.bolt.io/) to provide hardware startups the critical support in design, prototyping, and manufacturing. Why is this important? Just like the launch of Y Combinator in 2005 filled a gap at the earliest stage where VCs didn’t normally invest, their foray into hardware startups begins to address a similar gap in the hardware startup space. Till recently, crowd funding (e.g. Kickstarter) offered the only viable source of funding for startups looking to build new products. As Internet of Things (IoT) brings together hardware, software, cloud, security, and communication technologies, Silicon Valley is becoming more interested in hardware companies to take advantage of new opportunities.  In 2013, US VC funding for hardware startups was US$848 million (Wall Street Journal, March 2014), twice the amount invested in 2012. The early Accelerator programs in hardware space are likely to be rewarded handsomely in coming years as entrepreneurs all over the world develop new “smart” products in areas as diverse as Wearables, Healthcare, Home automation, Smart cities, and others. What changed for hardware startups?  The ecosystem is now in place to support rapid growth of companies building products that leverage hardware as a key component. First, the cost and difficulties in developing and launching hardware enabled products and services has dropped drastically in the last few years for many reasons--rapid prototyping (e.g. 3D printing), lean manufacturing techniques, explosion in open source communities around hardware designs, easier product distribution channels, and separation of design and manufacturing (i.e. contract manufacturing and fabless semiconductor industry models). Second, continued miniaturization of devices driven by rapid growth in semiconductor technologies and advances in cloud computing, communication technologies, and analytics has created opportunities for innovation that did not exist just a few years ago. Finally, the funding and mentoring part of the ecosystem is also now in place with more entrepreneurs, big name Accelerator programs, and VCs looking past software to the hardware enabled products and services as the next growth areas.  

Don’t worry: This blog is not about giving you tips to start saving money for your retirement. This post is addressing the difficult subject of how the CEO of a startup might try to balance between saving –– in other words, minimizing the risk of running out of cash –– and spending. That is, investing into building new technology that presumably will propel his or her company to great success.       I’m sure I’m not alone when I confess to having had more than one sleepless night worrying about the company’s cash balance as a startup CEO. The situation we are discussing here is the early stages when the company is not yet break-even and is burning its precious cash resources. During those early stages, one number is omni-present in the CEO’s mind: The “out of cash date.” It is also sometimes measured as the “runway” or length of time to reach the out of cash date. A pretty self-explanatory concept that investors track almost as closely as the CEO and gets reviewed at the board meetings. It also gets scary once the runway drops below six months.   I always found it difficult and struggled with whether to focus on immediate needs (saving) versus investing in the future (spending). For example, if I choose to preserve cash today, I need to do so while looking ahead to the future to keep pace with the industry and customer needs, not an easy balance.   As a startup, the objective is to survive through the release and initial sales of the first product. These days, many startups have bootstrapped themselves or taken small seed funding to get them through this period. The runway is typically one to two years at the start of the product development. At this stage, the “spend or save” dilemma is focused on how many resources to deploy for the product development. Hire one or two more engineers? Buy more licenses of a critical software tool? Get more compute power?   Once the product has been released, the objective moves to selling it and investing in the channel, and here it starts to get trickier with the addition of this new parameter. If the startup is in Silicon Valley, it’s a reasonable assumption that someone in the company knows a project team in need of this kind of technology. Quickly, though, there will be an international pull because of big development clusters in Asia or Europe and the attraction to travel overseas or even open an office in one of those regions becomes irresistible. Often the team finds out that the product is not quite perfect and another round of product improvements is required to meet the customer needs.   The sales channel needs leads to fill the pipeline and that means marketing and promotion, visibility and awareness through the website and content creation, advertising, events and public relations. All valuable activities that should accelerate the revenue ramp.   Costs skyrocket and the company begins to run out of cash. All of a sudden, the ‘out of cash date’ completely overwhelms your kids’ birthdate in your mind!   It’s at this point where I wish I could pull out a magic template to avoid the often-made mistakes of startup founders who squander venture capital investment, but I don’t. Instead, I’ll offer a few observations on sound investment management efforts I’ve witnessed over the years.   As I’ve mentioned in previous posts, startup executives would be well advised to not make those critical decisions in isolation. Board members are the first place to look for help; mentors can also be a great resource. An experienced board member or mentor can serve as a good sounding board because he or she will have a global view of the industry and a wider perspective. Consultants, customers and partners could be sought out as well.   Next up is the budget. Judiciously setting goals and objectives that are tied to measurable results is important for all companies, but especially startups. I would recommend a systematic assessment to determine the outcome of every line item expense in the budget. Cost overruns should not be tolerated.   Working smart is important: Some founding technologists fall in love with technology and insist of building it when it can be outsourced or a “ready-to-use” solution exists. A perfect example of this concept is IP. An entire industry has grown up around supplying design pieces that can be used by other chip companies to shorten the development cycle and conserve cash.   Balancing spend versus save when building a business is a difficult problem and one that that has no easy, pre-packaged answer. While I struggled with this balance as a startup CEO, I also reached out to trusted advisors for help and worked hard at maintaining a reasonable budget that met objectives.   Michel Courtoy is a former design engineer and EDA executive who sits on the board of directors at Breker Verification Systems.

In the past, one of the first things the founding team of a start-up did was write the business plan. The thinking was that the company's business plan was written expressly for venture capitalists and was essential to raise money. However, it has become clear that venture capitalists do not expect — and will not read — a traditional business plan. Does that mean that the business plan is a useless, obsolete document?   I have a different, more pragmatic view of a business plan's value and believe it still is one of the most important documents any company develops. The reasons are varied and considerable, but the most important motivation to invest the time in writing the plan is the absolute need to clarify the corporate goals, objectives and plans of the fledgling startup.       Driven by this goal, the process of writing the business plan becomes more important than the final document itself. During the creation of the plan, the founding team will need to develop in-depth answers to questions about its mission, product direction, market availability and strengths and weaknesses.   Let me briefly cover two examples of key questions that will need to be resolved. The first is the capitalization table (cap table for short): What ownership of the company is awarded to each employee and how the company will be valued when seeking investments are key parameters here. Another critical element is how the company will allocate its scarce resources. For instance, which markets and customers will be chosen for the initial “beachhead” target?  How will the budget be allocated between product development and the sales/marketing efforts?   Coming up with clear answers to those questions will force healthy discussions between the team members and hopefully create an alignment in purpose that will be beneficial.    The plan will become a living document used throughout a company’s existence. And, no one should be surprised if the first business plan looks nothing like one a few years later. It will go through many iterations and could change often.   Of course, writing a business plan is a great exercise because it will service as a vehicle to get funding, though most VCs prefer a short PowerPoint presentation that distills the information from it. During an in-person meeting, the VCs will ask tough, penetrating questions and will expect well-thought-out answers. After a rigorous effort to get a business plan polished and finished, the presenters should be well prepared to answer those probing questions clearly and without hesitation about the corporate philosophy, the product roadmap and the financial plan.   Going through the exercise of developing a 30-page or longer business plan will help the founders get a keen understanding of their business. They will need to drill in on the financials and take apart all assumptions and then justify them –– great training for a VC meeting. Any startup executive presenting in front of a VC will be responding to a host of “what if” scenarios and will be expected to understand all of the business levers. If there is any interest at all from a venture capitalist, financials will become a critical part of the discussion.   Through the process, the founding team may find that the company needs to move to a different market segment. It may point out weak areas within the team, which will spawn conversations about resources. For example, no one may have the savvy to manage the financial aspects of the business or how to market the company and its products.   As the company grows, portions of the business plan can be repurposed as web content or executive commentaries and blog posts or as recruiting tools.   Getting started may seem daunting, but shouldn’t be. After all, the plan begins with open communication within the founding team. Presumably, the members like each other and work well together. Resources are available that offer a series of questions to ask, as well as business plan templates. Business books can be found in brick-and-mortar bookstores, online or a public library. Mentors and other startup executives often are willing to lend a hand.   Technology startup executives who need to keep the company nimble and evolving as needed shouldn’t think that a business plan is for fundraising only. A well-considered business plan can be a multi-purpose document with a variety of uses.   Michel Courtoy is a former design engineer and EDA executive who sits on the board of directors at Breker Verification Systems.