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Conspiracy Theory
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

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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