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Customer Driven Capital
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
March 16th, 2001


By Brent Holliday
Greenstone Venture Partners

"If your time to you
Is worth savin',
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin' "
Bob Dylan, The Times They Are A-Changing

It has been an interesting two weeks. I met the Minister of Finance of Canada and, after recovering from an opening faux pas, briefed him on a project I've been working on. I went to Ottawa and helped some US investment bankers understand Canadians by giving them a history lesson while skating on the Rideau Canal. I met some of Canada's hottest technology companies and discovered why Ottawa has changed for the better, even if it is still under three feet of snow (I sent digital photos of my kids frolicking among the tulips back to my Ottawa peers). I continually found optimism in a ridiculously bad market. I found out that the aforementioned Paul Martin lets his advisors wear sandals to work and let's a poodle run free on his floor, the seat of financial power in Canada. Like I said, interesting times.

First, the faux pas. George Hunter, Executive Director of the BC TIA, says stand still and don't move because he wants to introduce me to the Minister when he was in town on March 5th giving a speech to the BC TIA. Up strolls the Hon. Paul Martin who extends his hand and says, "Hello Brent how are you?" To which the uninitiated hick responds, "I'm fine Paul. How are you doing?" I spent the next 10 seconds sweating as George explains who I am and what I am doing with a brain gain web site for ex-pats in the technology field. The whole time I am thinking to myself, "Did I just call him Paul? Isn't he Mr. Martin or Mr. Minister or your honour?" After a brief stammer, I spent a minute briefing him on the project, which went well. He didn't seem to mind that we were on a first name basis. In his speech to our tech community, as in his brief conversation with me, he was certainly saying all of the right things. The man appears to "get it" about technology and that it is the cornerstone of Canada's future competitiveness. During his Q&A period at that lunch, the woman next to me (Aileen being a US citizen living here for the past few years) says rhetorically "Tell me again why this isn't Canada's Prime Minister?" Well, there's this little guy from Shawinigan see, and he knew a guy with a golf course and... Never mind.

In Ottawa, the first conference in Canada sponsored by a large US investment bank (Robertson Stephens) took place last week. This is one more validation of the critical mass that Ottawa has reached, when this bank sends twenty of its top analysts and bankers in the optical space to the frozen tundra. The 20 companies that presented were the hot companies in the optical networking sector locally. My personal view is that Akara, Quake and Hyperchip appear to be the hottest of the hot. Why? They all have taken the big step from technical innovation to solutions provider and also from research and development to a full-blown sales organization. Each of these companies started with an esoteric invention or discovery at the chip level. In and of itself, the actual invention had obvious benefits and was probably unique. But the three companies all presented a solution to a customer problem built around that initial discovery. This is subtle but important. They are exciting companies because the solution that they are presenting to the market are directly solving a carrier or enterprise need and they appear to be ahead of the competition in providing that solution.

In Ottawa, born of R&D and scientists with pocket protectors and bad haircuts (which really made them non-descript in the company of civil servants), it was only 5 short years ago when most of the researchers had no clue how to commercialize their product. The idea of a customer driven solution was as foreign as daily hygiene. The real revolution in Ottawa was happening inside Newbridge, Nortel and Mitel (and some Johnny-come-lateley's like MOSAID and Cognos) where engineers were being exposed to customers. They were finding out that big carriers or large enterprises wanted networking or IT solutions that made them make more money. The customers were uninterested in the technical sophistication or the "beauty" of the technology. They just wanted four things:

· Short ROI - it would take less than one year for this thing to pay for itself

· Five 9s of up-time (99.999%) - the quality of the product would lead to near zero failure. It had to work every time and all the time

· Integration - it had to inter-operate with existing stuff. Wholesale swapping of equipment is very rare.

· Customer support - if anything ever did go wrong, some person from your organization would step into a phone booth, come out in a spandex suit with a cape and solve everything immediately.

Which of the four things above are scientists in R&D facilities or universities concerned with? Exactly zero. This is why Ottawa is now on fire. The people that learned from direct customer experience, that suffered failure and loss of potential or existing sales, that learned success depends on delivering the four attributes along with your product, were the ones that started the new breed of Ottawa company. Guess what? That is precisely how the Silicon Valley started getting hot in the 80's. Customer driven companies. Market driven decision making. You can't seriously think about building a company from a new innovation unless you have direct experience on your team in dealing with the customers that you will sell to.

I watched the presentations of some other Ottawa companies. In order to protect the innocent, I will not mention their names. One stands out, actually. It was an NRC spin-out, meaning that it was scientists that created the original company. After they presented I was left with the distinct impression that they had a technology looking for a market solution. They had no one on the team that had actually worked in industry. They regaled us with their team of PhDs and superior technology. But they did not convince me that the customer actually wanted their product. They mentioned none of the four attributes as features of their product and company. It could be that they are early and have not yet rounded out their staff, but I am not sure that they understood that they needed to do it, fast.

Ottawa has its share of companies going under or struggling to get financed in this market. But the optimism of the VCs and the companies is very, very high. They feel that they are on the verge of greatness. Here's something really interesting: Three of the companies that were there, two of which are on my list of hot companies, have re-pats running their organizations. That is to say the CEO used to work in the US in technology and has returned to the homeland to start up a new venture. This phenomenon is very important. The opportunities in Ottawa are so good, that ambitious, connected, smart people working in the US with all of its opportunities, have returned there to create something big. I am VERY excited about that trend.

Finally, you might want to know how I heard about the sandals and the poodle in Mr. Martin's office. My cousin works in the Ministry of Finance and last Saturday morning I got a tour of the place. I asked why there was a dog dish in the Minister's office and I got an earful about the dog that runs around there and eats sandwiches or lounges in the conference room chairs... during meetings. I found out that the country's national debt, all $650 B of it, is managed in three non-descript offices by four people. Four underpaid civil servants dealing with the sharks in red suspenders in New York, London and Tokyo. I also discovered that we have not really spent a lot of our taxpayer dollars on carpeting, wall coverings, furniture or computers in the Ministry of Finance. They just threw out a couch in the lobby of the place that was twenty-five years old and had stains all over it. Maybe it was the dog.

Random Thoughts –
· For those of you that didn't notice, there is and election already on in BC. Gordon Campbell's speech to the BC TIA last week was the announcement of a platform for his election. He has done a lot of work and consultation with the tech community as he has addressed many of the concerns that we have in building a sustainable technology industry. If he executes those promises (even if they were short on specifics) than we will certainly be in position to achieve the critical mass that Ottawa is now enjoying a lot sooner. But, they are promises, so we need to push to make sure they actually happen.


What Do You Think? Talk Back To Brent Holliday

 



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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