Something Ventured:
November 21st, 2003
By Brent
Holliday
Greenstone
Venture Partners
"I
shouted out,
Who killed the Kennedy's?
When after all,
It was you and me." - Rolling Stones, Sympathy For
The Devil
On
the evening of Thursday November 21st, 1963, Walter
Cronkite was telling the average American on the 6
o'clock news that the Dow Jones average closed at 742,
up almost 30% since the Cuban Missile Crisis a year
earlier. He also mentioned that the President was headed
to Dallas, Texas on the start of a yearlong preparation
for re-election in 1964. Things were normal, safe and
relatively quiet... until the next day around lunch
time. What happened in Dealey Plaza that early afternoon
created an entire generation of conspiracy theorists and
skeptics.
Conspiracy
theories on the JFK assassination still abound today,
introduced to a whole new generation by Oliver Stone and
Kevin Costner in 1990. Except for the Oswald Was Crazy
And Acted Alone theory, each of the other
"plausible" explanations involves some huge
powerful group that sponsored the act to sabotage the US
Government at the time. Why do we find it easier to
believe that the Mob, the Russians or the CIA were
behind it? Even with evidence to the contrary, why do we
want to believe that there are big bad guys out there
that can pull something like this off? Somehow,
seemingly since November 1963, we have become
conditioned to believe that big powerful organizations
are basically corrupt and are the basis of all evil
acts.
Before
you think I'm going into some sociological essay about
JFK and how his death warped us all, allow me to draw a
parallel with the technology industry today: Don't we
feel the same way about big organizations in our
industry? Isn't the default position that Bill Gates is
basically Lucifer? It is practically dogma that big,
large multinational organizations are going to steal
from you without conscience, whether you are a wee
little consumer or a wee little start-up company.
According to this widely held notion, the agents of
Hades are dressed in Khakis, have business cards that
say "corporate development" and meet with you
to do very complicated partnership deals in order to
steal your company at a later date.
Conspiracy
theories abound in the technology industry. IBM,
Microsoft, Dell, Apple, Intel and others have been tied
to stories of intrigue, espionage and market
manipulation. Then there are the conspiracy theories
about the countries that have no conscience when it
comes to technology. Big, faceless quasi government,
quasi company institutions from Japan, Korea, China or
Taiwan. They want to do big, hairy "joint
development" contracts with "shared
revenue" in order to reverse engineer your product
and steal it. Locally, we believe that Darren Entwistle
and Telus are evil incarnate, don't we?
Do
any of you really disagree with sentiment in the
previous paragraph? From what I have heard, read and
lived about the technology industry, we North Americans
of the current generation widely mis-trust the largest
institutions and governments and truly believe them to
be corrupt. Surely there are noble companies that are
very big and powerful and have lots of integrity when
dealing with customers and small partners and suppliers.
There must be quite a few employees at Microsoft who
would sooner help you out than screw you over (or at
least by you dinner first...). But just like the
generation jaded by the assassination of JFK, we find it
more exciting or more plausible that the biggest
institutions are against us.
For
what it's worth, here's what I think (this and $4.50
will get you a mocha at Starbuck's):
Oswald acted alone from the book depository. The best
evidence at the scene was a handheld film projector.
Zapruder basically proves it. The bullets came from the
rear over his shoulder. I do not believe there was a big
institution behind the "hit".
Ample
real evidence exists, however, for me to believe that
big technology institutions have their smoking guns and
grassy knolls. While I don't believe every story I hear
about Microsoft stealing technology, there are very real
cases of questionable ethical behaviour. But in most
cases where big companies thwart up-and-comers or
outright steal their ideas or people, the smaller
company likely didn't take all of the steps necessary to
protect themselves. The smaller companies went gleefully
into meetings with BIG company because it would sound
really good to their investors and customers if they did
a deal with BIG company. They didn't think ahead with a
conspiracist's level of paranoia and ended up giving
away too much, too soon. I do believe that capitalism
has its Machiavellian side to it and due care and
attention is necessary when revealing important details
to BIG companies.
This
is not to say that BIG companies are evil or that you
should never do a business deal in Asia. You should know
far more about your counterpart headed into the meeting
than they know about you and try to keep it that way
after revealing or dealing enough to keep them happy.
Building your own position to one of strength and
knowing that you are solving a real problem for BIG
company will always make a deal work. At least
initially.
In a
world where big organizations are well positioned to
take advantage of the little guy, here's a few things
that you need to consider before becoming an urban
legend in the conspiracy theorist's world.
You
go to the BIG companies for validation/credibility,
money, supplies, revenue, channels or expense reduction
(or some combination of these). If the relationship is a
very straightforward supplier or customer arrangement,
then there is no need for alarm. You will haggle on
price and that's that. Processes are in place for these
straightforward contracts between buyer and seller. But
when you want access to their channels, shared
development, investment and/or validation, things can
get interesting. So, tip number one is to try and make
the relationship as straightforward as possible. If you
are introducing a new product into a new region and the
BIG company wants to do "joint development or
assembly" in their region, taking control of your
product away from you, turn the discussion back to a
straight vendor relationship. You build it, they buy it
in its finished form.
The
asymmetry in size and relevance between you and them
always leads to trouble. In a channel arrangement, the
BIG company needs great incentive to promote your
product over everything else they are doing. But you
have to draw the line at exclusive. Stay away from
exclusives. They are a last resort and you should
seriously re-consider if your only option is to give up
an industry segment or a region for the relationship. On
the contrary, if you really have something that they can
benefit greatly from, get the exclusive working on your
side. Protect yourself against your own competition. Of
course this is very hard to do, but if your value
proposition isn't strong enough to even warrant a
discussion, well, you are in for a battle.
Watch
what you tell them. Engineers love to show how smart
they are and will inevitably (especially if plied with
booze) divulge the goodies. You must tell them why your
functionality is better than others, but you have to
protect your secret sauce from the BIG company that has
an army of engineers ready to fence your patents or
outright steal your idea and make it better. Focus on
how your product solves the problem at hand and sell
them the "black box" that delivers the goods.
Don't
be a pawn in their negotiations with incumbent
suppliers. Try not to get into "lab trials" or
evaluation periods that some BIG guys use to gum you to
death over great lengths of time just so they can turn
to their incumbent supplier and say, "If you don't
give me a better price, I'm going with these
nobody's." The only way to manage this is to be
evaluated by as many of the BIG company's competitors as
possible at the same time.
Always
consider how to own the "control point" in the
product's journey from lab bench to mass production and
distribution. Look in the proposed value chain of your
good and figure out where the real money is to be made.
Build your business case and convince your investors
that you have to control that point to make lots of
money or increase your value upon acquisition. It's
often too easy to sell out to the BIG company in an
exclusive deal and assume too much of the risk without
realizing it.
We
live in a world of skeptics and healthy amounts of
paranoia. The anniversary of JFK's death and the
profound impact on our society that followed made me
think of the way we approach and work with big
institutions. Even though I don't believe that big
organizations were behind his death, it isn't all bad to
consider all of the possible conspiracies ahead of time
in order to make sure that your relationship with BIG
companies is on the up and up going forward. It would be
great to live in a utopian Camelot world, but we don't.
Best to be prepared, I guess.
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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