Only 3 Things Can Go Wrong in VC-backed Businesses

July 2, 2010 at 3:48 pm Leave a comment

In my many years of working with companies and seeing what works and what doesn’t, I have come to realize that every challenge faced by a venture funded technology company falls into one of only three buckets:

1. Management. The first one is similar to the old adage regarding real estate. A wise person once said that when buying real estate there are three things to look for – namely, LOCATION, LOCATION, LOCATION. All else falls in line if the location is good. Well when I look at a company to either invest in or help, the first thing I look at is really three things – MANAGEMENT, MANAGEMENT and …. MANAGEMENT.

Without sound management, companies cannot and will not succeed. When looking at management, I like to look for a team of managers who respect each other, who are, or want to be, collaborative in style, and probably most importantly, who are decisive. Not making a decision is worse than making the wrong decision, or worse yet, not making any decision.

Some danger signs to consider when reviewing management is the way the CEO interfaces with the board of directors. A CEO who will not allow open and complete access by board members to the Executive Staff, not just the CEO, is probably insecure, or perhaps hiding things from the board. He may not want to risk having his staff contradict what his message to the board of directors has been. A CEO and team that keep missing deadlines or objectives is another sign that things might be going awry. These missed deadlines and objectives are a clear indication that the staff is probably not communicating, even with each other, on a truthful basis. Their credibility with the board will also suffer. So, bring in a coach or a replacement may be necessary to get the management to work in an effective and cohesive manner.

2. Technology. The second thing to look for is TECHNOLOGY problems. These problems can fall into two different areas. The first, and probably most important would be called technological feasibility. A good example to demonstrate this would be looking back at the computer about 15 to 20 years ago. When COMPAQ first introduced a portable computer, it was heavy, with two floppy disk drives, and a six inch green CRT display. If someone had proposed producing a two pound notebook with a flat panel high resolution color display, a 128 GB solid state drive and a quad core processor, people might have really liked what was being described. However, technology had not advanced far enough, or small enough, to accomplish these lofty specifications. Therefore, an investor who had invested in this dream would have faced technological feasibility issues, and the company probably would have failed.

The second issue surrounding technology is poor execution. If the technology is feasible, but the team has not been able to complete development, then refer to the first point above, because the problem probably resides with management.

3. Marketing. In essence, the question here is can the company generate sales for the new product or service? In most cases, a young company is established and capitalized to fill an unaddressed primary need in an emerging or existing market. Assuming the market is real and the technology works, a failure to generate sales traction is a marketing execution problem. Either the marketing guys spec’d the wrong product to begin with or they failed to successfully market the product once it was available.

So, as you prepare to invest in a new company, or are involved in an existing company, be aware of these three areas and stay vigilant to avoiding the common mistakes made by many others.

Rich Brenner is Founder and CEO of The Brenner Group, one of Silicon Valley’s premier professional services firms. Rich is a veteran executive, entrepreneur, investor, board member, and philanthropist.

Read more about Silicon Valley news, trends, and commentary in The Brenner Banner

Original post permalink:

Entry filed under: Interim Management, Restructurings, Shareholder Services.

M&A Agony and Ecstasy for Early Stage Technology Companies: Purchase Price Allocation The Case for Being Either the Pursuer or the Pursued

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Subscribe to the comments via RSS Feed


Silicon Valley finance and accounting issues, trends, and commentary from The Brenner Group.   (more)

Recent Posts