Why Should VCs Give you a Dime?
By Trudy E. Bell, Arthur P. Cimento, and Jeffrey C. Sinclair
You look around the conference room table and feel your heart
quail. This wasn't at all what you expected when the chief engineer
tapped you to be part of the highly visible pilot team spearheading
the company's reorganization of product development.
Yes, you knew that customers had been complaining that products
were overfeatured and late to market. And you knew that to solve
those and other problems, the company had committed itself to
making product development a multifunctional team sport, instead
of primarily an engineering-driven process. But until this moment,
when you sat down and looked around the table, it had not sunk
in what multifunctional truly meant.
Seeing colleagues from manufacturing, operations, and maintenance
was no surprise - you've been doing concurrent engineering for
years. But what were those folks from marketing and sales doing
in this room - don't they just write advertising and peddle products
after they're made? And what about those two bean counters from
corporate finance and purchasing? What could they possibly contribute
to a product development effort?
You swallow. With the high visibility of this pilot team
across the company, you know your own reputation could be made
or lost depending on the results from this motley crew. And now
it's far too late to pull out. What can you possibly do to help
ensure that the team is a success?
For engineers working in an organization, whose culture is the
traditional one of people working primarily within their individual
functional departments, the first experience of embarking on a
project in a multifunctional team can be culture shock. But there
are quick and useful ways to gain a new balance that will allow
you to be off and running far faster than you ever dreamed possible.
Shift Into a Business Perspective
First, shift your perspective to recognize that
- traditional corporate culture notwithstanding — product
development and engineering are not synonymous. Viewed from a
whole-business perspective, product development is the process
of connecting customer needs with technical possibilities, and
at a cost that allows the product to be sold at a price that the
customer recognizes as value, and that allows the company to make
a profit and grow.
In mathematical parlance, engineering is a necessary, but not
sufficient, discipline for product development. After all, innovative
products emerge not only from the engineering inspiration, "Wouldn't
it be neat if ...?" but also from insightful perceptions
of potential customers' latent needs. Entrepreneurs know well
that product development is interdisciplinary, or they learn it
the hard way: if they can't find customers to buy their clever
gizmos, they're out of the gizmo business fast, regardless of
technical superiority. That's why new companies are commonly started
by several founders, rather than just by a solo technical genius:
the technical genius needs partners to drum up customers, obtain
financing, contract with suppliers, supervise assembly, manage
order fulfillment, and satisfy the liability lawyers and tax man.
Second, shift your perspective again to think
of yourself as an entrepreneur. Try to imagine yourself as CEO
of your multifunctional team, and the members as your partners
in a startup. Wouldn't you, as an engineer, just love to get your
hands on the wealth of data your marketing partner may uncover
by asking such questions as:
- How are customers actually using current products (regardless
of how the company thinks they should be used)?
- Why do customers prefer competitors' products over yours?
- Why do some potential customers buy neither your company's
nor your competitors' products?
As far as the bean counters are concerned, as CEO you'll realize
that it is not beans they are counting, but shareholders' dollars
entrusted to you and your company for making more money. The fiscal
responsibility of the financial professionals needn't put a crimp
in technical approach (except, perhaps, where a crimp is needed
— such as sounding an alert when the product is becoming
so gilt-edged that customers are unlikely to buy it at the needed
price). In fact, clever techniques for sourcing raw materials
and tough, informed purchasing negotiations can be instrumental
in lowering overall cost, so that your company can offer the new
product at a lower price or with more bang for the buck compared
with competitors.
Third, shift your perspective a last time to
envision yourself as an entrepreneurial CEO, approaching a venture
capital firm on behalf of your team for the next round of financing.
Why should this venture capitalist give your multifunctional team
a dime?
You Can't Do It Alone
Here's where you, as the engineer, realize that you need your
multifunctional teammates as much as they need you.
As chilling as it may sound, venture capitalist firms want to
know first and foremost how a startup plans to make money from
an idea. They are more interested in management teams and complete
marketing plans than they are in specific technological concepts.
At the extreme, in fact, they have even been known to put a management
team together first and worry about the engineering concept later.
Before investing, venture capitalists want to see how you plan
to identify customers and sales channels, as well as what your
envisioned product will do. History is strewn with sad tales of
brilliant technologies that never made a cent; what you want to
do is marry a terrific technology with a terrific business plan.
Even if a venture capitalist firm likes a founding team and its
concept, it will commonly starve the startup for capital. Typically,
financing is awarded in several defined stages, starting (perhaps)
with seed money to fund research on a fledgling idea, and culminating
with mezzanine or bridge financing for an initial public offering
of stock. Each financing stage is a distinct milestone at which
the startup's progress, product, and operations are scrutinized.
If the startup wins financing at any stage, the amount is usually
just the minimum needed to get it to the next stage, and it's
often less than the founders feel is necessary. If progress doesn't
pass muster at any stage, the venture capital firm has the right
to fold its hands and say, "Sorry!" Poof! The startup
becomes just one more good idea that never made it.
Not only do staged financing and a shoestring mentality minimize
the venture capitalist's risk, but more importantly, they keep
the startup's founders focused on the essentials: getting this
new product done, out the door, and into the hands of customers
as expeditiously as possible. Historically, the starvation diet
has worked well - in fact, there have been cases when overfinancing
a startup has actually killed an enterprise as surely as overfeeding
a plant. (One large-equipment manufacturer, for example, allowed
its product development team so much flexibility and resources
to 'perfect' its high-tech innovation, that it was 4 years late
to market - and had, by then, been superseded by inferior offerings
from competitors.)
Act Like an Entrepreneur
So, what does all this business perspective-shifting have to
do with you, as a product development engineer in a large, established
company? Many corporate elephants, feeling the nimble mice nipping
at their toes and gobbling away their business, have been learning
to dance by creating conditions for fostering entrepreneurial
energy in-house. There are two basic techniques:
- Multifunctional teams
- An internal sing-for-your-supper venture capitalist mentality
In a vigorous startup, multifunctional teamwork happens naturally.
All the founders are closely focused on a single product and everyone
knows and respects everyone else's role. However, in a mature
company, with hundreds or thousands of employees and dozens of
product lines, effective teamwork among functional departments
requires forethought and conscious effort, partly because people
may not fully appreciate one another's corporate purpose. Multifunctional
teams are an effective way of keeping engineers in close touch
with customers and financial realities.
Moreover, in a vigorous startup, incentives are aligned. There
is urgency born of raw need: the company cannot afford a mistake
in concept or targeted customers or a delay in launch date, as
the penalty may well be the death of the enterprise. On the up
side, though, a market success could make all the founders millionaires
before age 35.
In a mature company, however, incentives may actually be opposed.
The development of a mediocre or poorly-conceived product may
continue to be funded because of oversight, politics, or organizational
inertia. If the product fails in the market - oh, well, everyone
just works on the next concept. And if the product is a runaway
success, employees might get only a handshake and a photo in the
company newspaper.
In some large, established companies, this disconnect is changing.
They recognize how powerfully employees can be motivated to high
performance by keeping a venture hungry, requiring the passing
of milestone evaluations before proceeding to the next stage of
financing, and having the potential to attain Gates-ean riches.
They also recognize that sharing a percentage of the true rewards
can mean reducing the risks of poorly conceived products, as well
as lowering the risk that top employees may walk to start up their
own companies.
Some large companies (among them Ericsson, Microsoft, and Siemens)
are realizing the value of seeing that each team member has skin
in the game - that is, a substantial stake in the product's failure
or success. On the up side, that means stock options, royalties,
or other incentives. On the skin side, it means tying individuals'
performance to the team's performance and increasing accountability
for the product's market success.
Even if you're an engineer within a company not yet so advanced,
take advantage of being in a multifunctional product development
team to try thinking and acting like an entrepreneur getting ready
to request the next round of financing from a venture capitalist.
At the first concept approval meeting, for example, focus questions
not only on technical features but also on business issues:
- What current or latent customer needs are being met by this
new product?
- What is the price point at which the customer will recognize
value?
- How can we get it to market?
- Is it easy to service or is it a PITA [pain in the wazoo]?
Or is it reliable enough not to need servicing?
- What is the volume potential for manufacturing? How soon can
we earn enough return to pay for manufacturing?
Be a Team Partner
Teamwork is as much about people as it is about expertise. Ideally,
team members are chosen not only for their expertise and availability,
but also (as far as is practical) for their personality traits
and individual developmental requirements. Do what you can to
influence the team leader to blend both experienced colleagues
and promising new blood. Count your blessings if the team leader
is a strong, empowered program manager, with the support and sanction
of the company's senior leadership to call the shots without being
second-guessed or micromanaged. And plan to learn effective leadership
skills, if the team leader has the personality and wisdom to know
that he or she need not - indeed, should not - lead in all transactions.
On the best teams, authority is fluid, shifting from one team
member to another in response to necessary expertise or tradeoffs.
Do all you can to make sure that the team's mission is clearly
stated. Every member should understand the new product's market
focus, performance requirements, cost constraints (both on product
cost and capital cost for manufacturing), date of launch, and
technologies to be incorporated. If the understanding is not clear
enough that all team members are willing to have compensation
incentives tied to the fulfillment of those objectives, then the
mission is not clear enough to execute. Without clear guidelines,
the project risks having the launch date slip because of endless
dithering and rework over uncertainties in the concept, requirements,
and execution.
Once the product is launched, resist any suggestion that the
team should be disbanded immediately. Beyond the inevitable cleanup
work that always needs to be done, your team's expertise should
be kept intact in the event of customer complaints or product
recall. Moreover, making the team responsible for after-launch
glitches and successes anchors the accountability and credit where
it belongs. For a PC-based product, a multifunctional team should
stay together for a good 3 months after launch; for a product
as complex as an automobile or aircraft, a year is not out of
line.
Do all you can to create team cohesiveness. Especially if your
organization's culture is strongly functional, lobby in favor
of physically moving your team together, out of everyone's respective
departments. Product development is not only a team sport, it's
a contact sport. After all, the whole point of having a multifunctional
team is to make cross-disciplinary communication easy - just as
it is in the garage of a startup. Evidence abounds that the most
fruitful interactions often happen, not in formal meetings, but
in chance encounters. Proximity encourages chance encounters and
thus informal communication.
Most importantly, do all you can to make your team's effort fun
- a much under-recognized motivator of high performance in established
companies as well as startups. "Do you really want to know
what makes Silicon Valley tick? I mean, deep inside, at the core?"
asks Christopher Meyer in his recent book Relentless Growth:
How Silicon Valley Innovation Strategies Can Work in Your
Business. "The truth is ... it's a ball! Hard work combined
with hard play - at every level, from executive down and back
up again."
Source: http://www.todaysengineer.org/archive/v1n4vc.htm
