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I Told You Not To Do That
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
March 28th, 2002

By Brent Holliday
Greenstone Venture Partners


“So you know you better watch your step
Or you're gonna get hurt yourself.
Someone's gonna tell you lies,
Cut you down to size” – Tom Petty, Don't Do Me Like That

I won't make excuses for missing the last column two weeks ago, other than to provide a warning to all parents that think driving your kids to Disneyland is a good idea in the wake of September 11th, because you might save money and/or that you could tie the trip in with a massive technology convention that just happens to be in Anaheim at the same time. Somehow I became pre-occupied in the March 13th/14th time frame with an egregious amount of stress related to hotels not finding reservations, children vomiting profusely in and around the hotel room that you eventually find yourself in at 1 in the morning and massive headaches brought on by too much caffeine, repeated estimation of arrival times and poor nutrition from American fast food along Interstate 5. Not that I'm making excuses.

Since I had such a wonderful trip and it put me in a good mood, I thought that I would have an upbeat, enlightened column for you... about mistakes (Mistakes or errors in judgement in technology companies as they grow from start-up, as opposed to mistakes that you might make in planning a relaxing vacation).

From the top, you should know that I am an advocate of making mistakes only because I subscribe whole-heartedly to the Church of Entrepreneurism and the first commandment of being an entrepreneur is that if you aren't making mistakes, then you aren't taking risks. In business there is a fear of making mistakes that drives conservatism. Indeed, each of us in business carries a scorecard of mistakes and successes that help people form quick opinions about our abilities. So, like the NHL +/- rating system to see if you are on the ice for more of your teams goals for rather than goals against, there is always a chance to improve your business +/- by having more successes and making less mistakes. If the sheer volume of personal or company-wide mistakes far outweighs any successes, then you are probably doing something wrong and deserve the consequences.

Experience and advice from those experienced is the best way to avoid mistakes because one develops instincts to make good decisions only through iterative learning. What I am writing about here will not be a recipe for avoiding your own mistakes only because every decision made every day in your business is as individual as a fingerprint. There is no silver bullet for all scenarios. But hopefully some of you will identify with the scenarios described and get some benefit of the mistakes I have made or witnessed directly. In no particular order of importance:

1) Hiring Your Friends - This mistake could also be called "Hiring People Just Like You" because typically your friends share similar points of view and wear the same clothes as you do. A company needs different perspectives and different work habits to be successful. It is a massively inappropriate and foolish thing to do for two main reasons: a) You will always have a falling out that kills or damages your friendship and b) A company thrives when the people best suited for the roles are hired. Every friend ever hired into a company was a "shoehorn" hire. They end up squeezed into a role that probably was not right up their alley and they will not perform. If you are building a company that will win against all other professional management and engineering teams in the world, you have to hire the absolute best person for the job. Resist the urge to create a social club and think about building a business.

2) Allowing Information/Communication Bottlenecks - Time and time again, early stage companies surprise their senior management or their board or their investors with untimely announcements that something grave is wrong. I'm not going to go down a "lessons of Enron" road here and talk about organizational management theory. But giving individuals the ability to filter information on its way up the corporate ladder is a sure way to create problems. Openness and accountability are extremely important ingredients of a successful corporate culture. How a manager or executive accepts and deals with bad news usually sets the tone for filtering. A hard-ass, chastising boss will create a culture of information suppression. Make sure that the CEO knows what the VP, Engineering is actually building and whether its on-time. Make sure that the Board knows that the sales pipeline is not filling in a certain region. Avoid surprises, good or bad. Surprises undermine credibility and the cause is always poor communication and/or bottlenecks.

3) Don't Be Too Modest - I have seen countless examples of companies having better technology, better solutions or better capabilities that fail to raise enough money, raise enough profile or capture the customer's attention because they are not aggressive enough in sales and marketing. Jonathan Wilkinson of QuestAir brought this up as a symptom of Canadians in general when talking with Kevin Lynch, Paul Martin's Deputy Minister the other day. He was talking about Canadians in business as a whole, but it applies to the individual company or manager. In positioning your company or your products in the market, you have to set yourself up to be the standout in the crowd. In the sales or business development process, you have to be persistent and follow-up, follow-up, follow-up. Don't drop any balls and don't wait another day to make the call, set up the meeting or push for a decision. Exuberance can make the difference of getting noticed or being remembered. Don't ever undersell or underwhelm.

4) Don't Let Rookies Design and Build - Too often, a start-up is a group of relatively inexperienced people with a good idea. With some funding, they set out to make the software, chip or device on their own. Even if you have 3-5 years of experience at a successful company prior to embarking on this effort, you are still a babe in the woods. Experience in best practices in development is absolutely, positively crucial to success. You may be very bright and have all sorts of potential on your team, but the iterative process of prototyping, testing and re-designing is very, very difficult without grizzled veterans that have seen every mistake made. Every single start-up has a hitch in development for the simple reason that they are usually building something that no one else has made to date. By not having industry veterans, that understand the customer needs and the requirements for a saleable product, you and your company will bump along and get there eventually, but probably too late. There are companies out there that might help in co-development that have experts. But don't let them take over development. Rather, let them assist and give guidance. In lieu of full-time experts on the payroll, hiring these contract development firms should help you get there faster.

5) Know What You Don't Know - An often fatal flaw in the character of and individual entrepreneur or a company is the assumption that no one else knows anything about their business any better than them. By requirement, and entrepreneur needs an ego. Otherwise they wouldn't be taking risks. Self-confidence is a must and it should reflect on their company culture (see #3 above). But not seeking advice from outsiders, by adding "yes" men to your Board or to your management team, by rejecting anyone that disagrees with you out of hand, you are doomed to fail. Unless you are really Clark Kent. Then you will be successful without any friends. And as Lee Iacocca once said, "I will measure how successful I have been in life by the number of friends that show up to my funeral." Always consider alternative courses of action and seek advice, but don't get bogged down in analysis. A great entrepreneur makes decisions on imperfect information. But know your weaknesses and know where and when you need help.

I'd be interested in any of your anecdotes or suggestions of mistakes often made in start-ups. If we get enough good responses, perhaps we can make a Hall of Shame where all of the mistakes can go for others to learn from. In the meantime, I will try and be more positive the next time around as the car ride fades into a more distant and fading memory.

Random Thoughts –

- A Parable Worth Repeating - Got a militant union member in your household or at your workplace? Have they berated Gordon Campbell's tax cuts in your presence lately? Has the rhetoric gone something along the lines of "He gave all the breaks to the rich!" Does this irk you? Here is a short story to help them understand the "fairness" of across the board tax cuts:

This article appeared in the February 23, 2002 issue of the Lakeshore News - Salmon Arm, B.C. It was written by Ron Adams, a local financial advisor who writes a regular column in the paper.

I was having lunch at PJ's with one of my favourite clients last week and the conversation turned to the Campbell government's recent round of tax cuts. "I'm opposed to those tax cuts," the retired college instructor declared, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and I and that's not fair." "But the rich pay more in the first place," I argued, "so it stands to reason that they'd get more money back." I could tell that my friend was unimpressed by this meager argument. Even college instructors are a prisoner of the myth that the "rich" somehow get a free ride in Canada. Nothing could be further from the truth.

Let's put tax cuts in terms everyone can understand. Suppose that everyday 10 men go to PJ's for dinner, The bill for all ten comes to $100. If it was paid the way we pay our taxes, the first four men would pay nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest) would pay $59. The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement until the owner threw them a curve. Since you are all such good customers, he said, I'm going to reduce the cost of your daily meal by $20. Now dinner for the 10 only costs $80. The first four are unaffected. They still eat for free. Can you figure out how to divvy up the $20 savings among the remaining six so that everyone gets his fair share? The men realize that $20 divided by 6 is $3.33, but if they subtract that from everybody's share, then the fifth man and the sixth man would end up being paid to eat their meal. The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount and he proceeded to work out the amounts each should pay.

And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of $59. Outside the restaurant, the men began to compare their savings. "I only got a dollar out the $20," declared the sixth man pointing to the tenth, "and he got $7!" "Yeah, that's right," exclaimed the fifth man. I only saved a dollar, too. It's unfair that he got seven times more than me! "That's true," shouted the seventh man. "Why should he get $7 back when I got only $2? The wealthy get all the breaks." "Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor."

The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They were $52 short! And that, boys and girls and college instructors, is how Canada's tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Switzerland and the Caribbean.

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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