After a friend and I recently discussed the challenges he faces running a newly launched medical technology company, I thought it might be helpful- based in part on my own experience managing two start-ups - to offer advice in this column on how to enhance chances of successfully bringing a start up to market.
*Preserve capital. Spend as little as possible except to develop the product or service you will sell. Don’t hire the extra person if you can avoid it but stretch those already on board. Work in simple offices. Forget the latest computers, smart phones or elegant office furniture. Fly coach and take cheaper commuter airlines. Survival is the focus.
*Try not to seek additional capital. Obtaining additional financing from any source presents a dilemma. You get the money but then have your ownership and control diluted, and you must usually seat new board members representing the investor. Management’s interests and those of the investor don’t coincide. You want to build value for the founding investors and management. Lenders usually want to go public or sell the company as soon as fast as possible.
*Beware founder’s purity. Often the founder, with the brilliant idea, is unwilling to change course even when necessary for survival. Experienced managers know that one has to be nimble, sometimes modifying original strategies and respond to the needs of customers, the market and competition. Try to have the founder focus on technology and sales so his “vision” can be preserved while someone else runs the company. Sometimes a palace coup has to dethrone the founder while keeping him on as an adviser and shareholder but out of management. This can be messy so be prepared for emotional confrontations; and be resolute.
*Be careful who to hire. Senior managers moving from large companies often had a personal assistant who took calls, made travel arrangements and acted as buffer between themselves and the world outside. They rode in black cars, stayed in luxury hotels, dined well with ample expense accounts and never flew coach. These practices are inconsistent with life at a start up. If you hire someone like this, you may find yourself letting him go if he doesn’t adjust fast. In my own experience, it’s best to hire someone who has already experienced the move from a large to a small company. There will be less chance for the explosive discussion about entitlements. Of course, there are exceptions, and some hires from large companies excel and fit right in.
*Dependence on one key person. In a small company when a single person with great proprietary or financial knowledge leaves, you are vulnerable to exorbitant cost to buy that knowledge back. Share important knowledge with several people.
*Outsource commodity functions. Start-ups require human resources, tax and payroll support. Specialty companies can handle these and perhaps other functions for your company where a larger company might hire additional staff. Do not hire. The pay your small company can offer will not attract top talent. But specialty companies have it, and at a lower price.
*Protect the company’s intellectual property, trademarks and know-how. Once these jewels are lost, your advantage in today’s highly competitive market is gone. Seek legal counsel to protect key assets.
*Consultants. Avoid using consultants unless you need specific help. Consultants are expensive and unless closely managed, may not deliver desired results.
One personal example: I was asked by the Board of a small company with a good business model but cash poor, to do a life-saving, short consulting gig. I read the business plan, talked with CEO and all the employees (there were just under 30) and I concluded – with the CEO agreeing - over half were not producing. The CEO fired them, and the company continued successfully. This was a focused assignment with a specific aim. The cost was manageable.
The life of start-ups is fragile. But if the market likes your idea and you focus on getting that idea into the market cheaply and efficiently, you may survive and become the next Google.