Tech Capital Partners Blog

Last week I attended one of the CVCA’s professional development events in Toronto (full disclosure I am a member of the CVCA professional development committee). The topic for the session was “Going Global” and quite honestly, despite the line up of high profile folks, I was expecting the event to be similar to other events on this topic, filled with motherhood statements about the benefits of going global with very few suggestions on how to pursue a global strategy. I was wrong. In fact, there were many valuable insights and suggestions. I’ve attempted to filter “some” of the content through the lens of information I’d like to share with our portfolio companies at Tech Capital Partners.

Jennifer Brooy, Vice President of EDC Equity talked about the shift to the “communication age” and our use of the internet to interact and communicate — how markets are now telling us exactly what they want. She suggested that we look and listen to the large and rapidly growing markets like China, India, Brazil, Russia and Southeast Asia. A couple of years ago there were a flurry of “India/China” events… I wonder how many Canadian companies have explored opportunities in either of these countries. Looking at the chart below, at a macro level, the US is still a huge market. Looking at growth of GDP: China, India, Russia, Southeast Asia… all growing at a more rapid pace than the US. And the population bases and export growth — China and India — huge. And import growth — Brazil and Russia.

But what do these types of charts mean to individual Canadian companies? I think the question each company needs to think about is: Where is your market? Where is your biggest and best opportunity? Not necessarily in your own backyard. And not necessarily in the country with the largest GDP. Think about the specific segment of the market you should be addressing and think about it in a global context. Now where is your biggest and best opportunity?

Jennifer spoke about the strengths of our country:

• We have a strong fiscal discipline.
• We have a solid economic base not withstanding what’s going on right now.
• We have a sound banking system — some of the soundest banks in the world.
• We have water and energy resources.
• We have diverse and talented human resources — multi cultured, multi language, multi coloured.
• We have the highest educated population base in the world. We have the highest per capita of post secondary graduates.
• We have proven ourselves as technology leaders and we are innovative and adaptive.

We have some amazing resources we can capitalize on. Jennifer spoke about the reverse brain drain phenomenon where people have come from China, India, Brazil, and Mexico to North America, Britain, and France. These talented people have been educated in our best universities, have worked here, and have learned our culture, our ways of doing business, and our approaches to innovation. She suggested that Silicon Valley might not always lead the pack in terms of innovation due to this reverse brain drain. These educated and experienced people are going back to their roots and exporting this intelligence back home. How do we encourage these people (both Canadians and non-Canadians) to work for our companies? How do we make sure they are aware of the opportunities? How do we incent them to stay once they’re here? We need to make sure we are providing challenging, fulfilling career opportunities and compensating fairly. We need to make sure our companies have the financial resources and market opportunities to thrive. Jennifer expressed concern about our floundering venture capital industry and its impact on our tech industry. And the impact of globalization on our small and medium sized enterprises that make up the lion’s share of our economy.

EDC has developed a number of programs to help Canadian companies address these concerns and take advantage of these opportunities. Some of these programs, like the equity/investment side of EDC, are not well known. EDC invests directly in Canadian companies that are born global or that want to grow and go global. EDC also invests internationally in funds (one more disclosure, EDC is one of Tech Capital’s LPs) and now has several fund investments in China, India, Southeast Asia, Turkey, a pan European investment, a fund in Israel, a couple of funds in the US, a Caribbean fund, a Mexican fund and is starting to roll out into Latin America and next year Africa. They are actively building a network of people and companies in other countries that Canadian companies (venture capital firms included) can reach out to, learn from, and work with. I would suggest that companies look to EDC for assistance in building relationships with companies in other countries. “EDC Equity is your investment partner with global reach. We’re here to help. Going global is not easy but we’re here to demystify, to de-risk, and to get you connected.”

Rajiv Pancholy, Chairman and CEO of TenXC Wireless challenged startup companies to think about going global as a strategic imperative, rather than an afterthought. He broke his presentation down into three segments: (1) reasons for going global, (2) what you need to do to go global, (3) the challenges you will face in going global and who you can turn to for help.

Rajiv made an interesting point that in the technology business, there is now clear evidence that the adoption cycle for new ideas and new technologies is significantly shorter in many other parts of the world vs. the more entrenched conservative thinking that permeates through the big customers in North America and Western Europe. “Customers in Asia and the emerging economies will pull you along faster than you ever thought possible.” In a world where there is less and less capital available for technology companies, a quicker path to market and revenue certainly sounds attractive…

Rajiv made it very clear though that “going global” should not be an afterthought. Most startup companies don’t have the human capital and resources to go after multiple markets at the same time so companies should pick and choose carefully. “Going global requires a lot of effort, focus, and staying power. You must have right resources in place. Going global requires a lot of long journeys, a lot of long stays in foreign countries, and dealing with different cultures. You must have people on your team who are willing to pay the price on a sustained basis.” I certainly remember my time as Director of Marketing at a startup technology company — supporting sales teams in Asia Pacific, Europe and North America. Almost all of our resources were devoted to the North American market… I’m amazed at what our remote teams were able to accomplish on their own.  Certainly not an ideal situation… 

You also need to rethink your business model. Rajiv referenced management guru C. K. Prahalad and his big warning to North American businesses. To go global, companies need to completely change their business models to properly address the target market. Work from the market backwards rather than relying on your traditional ways of doing business.

Some additional tidbits from Rajiv’s presentation:

• As a young company, you need to understand that when selling to companies in developing countries it is not just your product they are buying. Yes, they want your product and they understand your value proposition but they see you as representative of your company and they are attempting to build a relationship with you. They are hungry for the knowledge behind the company and want to discuss the thought process that went into the product. Reps and agents typically fail in these early stages although they can be helpful later on.
• Patience is a bad word and breeds a sense of complacency. Do not be “patient” to develop your business in another country. If you put in a sustained effort anywhere in the world you will get to your goal sooner rather than later.
• There are obviously some local complexities and it can be hard to know who and what to trust. There are many rumours, assertions, and stereotypes and you need to learn to navigate them. Doing business in other countries is not necessarily that different at the end of the day. Beware of falsehoods, rumours, and innuendos.
• Getting to meet the decision makers is a big issue. When you are representing a small company you typically struggle to get an appointment. You need people who can open doors for you. You also need to project an image to convince customers to trust you with a significant piece of business. TenXC has used what Rajiv calls “force multipliers”: Canadian Trade Commissioners and EDC to help broker introductions. EDC has helped TenXC by “opening doors, giving introductions, speaking on our behalf, facilitating meetings, to extending to us certain financial tools and capabilities to be able to handle that level of business.” EDC invests in organizations and companies so when they make a phone call, they are not making it on behalf of a supplier, they are making it as an investor to the group CFO. EDC can also introduce you to an ecosystem of people who have been part of major transactions and have been vetted.
• Other groups that can help: the Canadian expatriate community all over the world, networking organizations like The Indus Entrepreneurs (TiE), and the ethnic communities here in Canada.

“Don’t be afraid of going global. Yes you’ll have to pay the price, yes it will be arduous, yes it will be physically draining, but it can also be extremely exhilarating and can make success happen a lot faster than you think.”

There were a number of other interesting speakers who also spoke at the event including:

Scott Aldsworth, Vice President and East Coast Regional Director, High Street Partners, Inc.
Peter Crombie, Partner, Emerald Technology Ventures
Robert Genieser, Managing Partner, Vertex Venture Capital
Ajoy Mallik, Global Head, Venture Capital for the Co-Innovation Ecosystem (COIN), TATA Consultancy Services
Jevon Macdonald, Founder, Firestoker.com, (co-Founder of StartupNorth.ca, WirelessNorth.ca, CommunityNorth.ca and StartupIndex.ca)
Rob Lane, CEO, Co-Founder, Overlay.TV
Maggie Fox, CEO, Social Media Group

Hold the date for the next CVCA PD session on “Deal Trends” taking place on February 26th, 2009.

At Tech Capital the investment team looks at three main things when evaluating potential opportunities – team, technology and market opportunity. It seems obvious that team is important because even smart strategy can be replicated. For companies this means that people are the prime source of competitive advantage. Given people provide companies with competitive advantage, I think it makes sense to stop and consider employee engagement for a minute.

Employee Engagement in Growth Technology Companies

Thousands of dollars are being spent by corporations annually to define employee engagement strategies, measure engagement through employee surveys and other methods, and track how successful engagement programs are at achieving desired results.  It’s understandable given the positive impact an engaged workforce has on both productivity and financial results. Watson Wyatt’s Global WorkAttitudes research, confirms that “when engagement is high, so is financial performance”.

I was surprised when I read the results of a Towers Perrin Global Workforce Study that found, “just 21% of the employees surveyed around the world are engaged in their work, meaning they’re willing to go the extra mile to help their companies succeed”. All this said, one of the things I love about working with early stage or growth technology companies is the passion of the individuals that I have the opportunity to work with. Without spending money defining an engagement strategy, employees are committed, passionate, and engaged.

Engagement to me means employees are committed. They understand how their contribution has a positive impact on the organization, and they feel a real sense of making a difference in helping to build a successful organization.

My thoughts on some engagement ingredients:

• Exceptional Leadership – engagement is driven from the top down. Great leaders have the power to both empower and engage their employees. Enough said.
  
• Collaboration – there are many things that can help facilitate an environment of teamwork and collaboration. Considering things like ideal team size, ensuring teams don’t get too large and become counter productive. Facilitating good working relationships between team members and across work groups is important. Finally, trust is key – of course something that can only be nurtured, not demanded.
  
• Empowerment - fostering an environment that encourages team members to share ideas and come up with creative solutions to unique problems. It’s important to ensure that the sense of empowerment is real. If employees are given a false sense of empowerment, they will soon realize their ability to elicit change is not backed by the organization and they will be less likely to push to drive the organization forward.
• Tools / Resources – hire smart people that have passion for what you are trying to accomplish and fit within the culture of the organization, then give them the tools they need to accomplish the task at hand.

Then stand back!

Those of you who know me well know I’m passionate about people, always willing to meet new folks and figure out how they fit into my world. I’m sure this passion stems from a traumatic experience I had during one of my first “real” job interviews (age 25). I was asked “Who do you know?” My response was, “Well nobody… I’m pretty much fresh out of school.” The interview went downhill from there and, needless to say, I didn’t get the job…*

From that point on I vowed to make meeting people, getting to know them, and building relationships a big part of my life. I remember being incredibly frustrated with the whole “networking” process early on in my career. Nobody really wanted to meet with me… What value could I bring to the table? Who else did I know? Who could I connect them to? What could I do for them? My networking activities centred around going to Communitech events and peer2peer groups, getting a group of people together to play poker, volunteering — every opportunity seemed to be “event” driven. Over time, these group activities morphed to coffees and lunches and discussions became more intimate, focusing on mutual interests and how we could each benefit from working together.

I wish someone had suggested early on (while I was still in school) that I keep in touch with my friends from university. Thanks to Facebook and LinkedIn I’ve managed to reconnect with a bunch of these folks and have reached out to some of them who are working in related industries. It’s amazing to see where your friends end up 10 years after graduation. What an amazing group of people. I would highly recommend pulling out your old yearbooks and reconnecting with old friends.

Social networking technologies have revolutionized my ability to reconnect with old colleagues and build new relationships with people (yes “relationships”, not superficial meaningless contact databases). I’m straddling two worlds at the moment (as I’m sure many of you are). One world that has embraced these new technologies, understands their impact, and is using them to effectively build networks and companies, and the other that doesn’t quite understand what all the fuss is about. It’s difficult to comprehend the impact “online social networks” can have before you’ve developed your network and it takes time to build your network (although not as much time as it would if you were to go for coffee or lunch with each person).

Here are a few concrete examples of how these technologies have helped me connect over the past few days:

1. I twittered that we are pulling together a list of “strategic partner” type companies to invite to this year’s Entrepreneur Week. I received a bunch of suggestions from my friends on Twitter. Some of these people work at startup technology companies and have identified specific companies they’d like to meet; while others work at larger technology companies, want to get some exposure, and peek under the covers to see what’s being developed here.

2. A local technology company, High Jump, announced cuts to its Waterloo workforce due to a change in corporate strategy. I did a search on LinkedIn for High Jump employees based in Waterloo Region and reached out to them directly and through my LinkedIn network (because Tech Capital portfolio companies are hiring as I’m sure you all know: http://www.techcapital.com/careers.asp). I also “tweeted” that I was looking to connect with employees from High Jump and several folks passed my message along.

3. I reconnected with Marcel LeBrun and David Alston of Radian6 (formerly of iMagicTV) who I haven’t seen since my days at PixStream.

4. I gathered some information: David Crow on StartupNorth: “Ten Web Startups to Watch” (he forgot a few…) and Michael Hiemstra posted a link on Facebook that Open Text has acquired a division of Spicer.

5. I tweeted that Andrew Abouchar had posted to the Tech Capital blog: So you are looking for the next RIM are you?

I also use Twitter, LinkedIn and Facebook regularly (and now FriendFeed although I’m just getting started there) to build and maintain relationships with people who are geographically challenged (you know… folks in the Valley, Boston area). And I recognize that I need expand these networks beyond Canada and the US to other places where our portfolio companies are doing — or want to do — business.

I’m having a blast meeting and working with really interesting people from all over.

[*Note: 5 years after the job interview, the same guy who didn't offer me the job emailed me to go for coffee... He was looking for a new job and a number of people had suggested he speak with me. Sweet.]

I write a “gadget” column for a newspaper and a magazine in Waterloo region (www.gadgetcolumn.ca).

Like most product reviewers I will contact marketing departments to ask for product information and where appropriate ask for a loaner unit. Usually companies have a set of products they will loan to the media for a few days at a time. Obviously this is not feasible for a 100″ plasma television but in most circumstances the companies are happy for the free publicity and will send out the review units.

Last week I came across a gadget I wanted to review for my column. The item in question retails for about $100 and is the size of a USB thumb drive. I contacted the company’s marketing group and asked it they had a media loaner program.

The reply I received is copied verbatim below. Needless to say we don’t encourage our investees to take this approach to free publicity!

Tim,

I am not trying to be rude, but I find it very very interesting how the MEDIA thinks that any business make a living and make a profit if they are sending out FREE product to everyone that asks for a FREE unit.

Think about it.

Product costs money to manufacture.

Product costs money to mail out to those requesting a FREE LOANER unit Product costs when it is returned/it is now used.

How does a business stay in business when it is so busy sending out FREE product for those media that requests so.

Doesn’t media have a budget to try out and evaluate gadgets?

Doesn’t media have a duty to report based on research, or does it really have to be first-hand knowledge and experience to report on a reported item.

If it takes money to get coverage in PRINT media, why wouldn’t a company just use the Internet to get FREE press?

I’m a marketing major, I don’t believe in spending money to make money.

There’s no need to. If your product is good, especially in this day and age with the Internet. You can do it at no cost to you.

I thought for my first post I’d share some points from one of the sessions I attended at Web 2.0 Expo a few weeks ago. The session was held by Todd Wilkens from Adaptive Path and while many wouldn’t consider the content to be groundbreaking, there was some real value in the approach presented by Todd when thinking about product strategy driven by user experience.

An important message during the presentation was: The Experience is The Product. What does that really mean? Well, in many instances the approach has been to think of the product as being built from the bottom up. You have Data, add a layer of Logic on top and and then a User Interface (UI) to facilitate user interaction. With experience driven product strategy this notion is flipped around. As always, you consider the problem you’re trying to solve but then focus on the User Interface (UI) and the User Experience (UX). Let these elements decide the shape and strategy of the product. This might seem like a basic concept but what Todd is really getting at here is that when we consider The Experience as The Product we understand the product from the user’s perspective. The user doesn’t see the logic layer and they don’t understand (or want to know) how things are working in the background. To them it is all magic, a black box, and all they interact with when using your product and the only thing they can truly evaluate is the UI and UX.

You might be wondering, is this concept that important and does it really matter? It does and Todd gave an obvious example of how the iPod experience was able to displace the Diamond Rio MP3 player in a rather short amount of time even though the Rio had a considerable head start, had more features, and cost much less than the iPod. You may have all the latest and greatest features but if the user finds your product/service too complicated and overwhelming to use you will lose them.

I should note that what constitutes a good User Experience is not necessary limited to flashy designs, pastel colours, rounded corners, etc. Take craigslist as an example, it isn’t much to look at but it focuses on creating a simple, ad free, and consistent user experience that has obviously worked very well across many geographies and cultures.

Whether you’re familiar with this concept or if this is the first time you’ve been introduced to it, hopefully you will begin to think of focusing on the user experience from a top down approach and remind yourself that there is merit in planning and continuously revisiting an experience-driven product strategy.

I really enjoyed Dave McClure and Hiten Shah’s Startup Metrics presentation at this year’s Web 2.0 Expo a few weeks ago. What really struck a cord with me was Dave’s 5-Step Startup Metrics Model.

We get to see a good number of web-based companies who, when they come to the section of their slide deck that deals with revenue or business model, say “At this point, we’re focused on building the community.” which sometimes means “We really just want to focus on building the technology side of the business.” or “Once we have a really big community, it will be easy to make money, we’ll just add advertising.”

My biggest issue with companies in the “focusing on building the community stage” is that many of these companies have no plans for actually building the community. We seem to be back to “if we build cool technology, they will come.” which is absolutely true if a site has a significant viral growth factor but why not build the site with this in mind… Use metrics to think about how you can build your business and then measure your efforts. The beauty of web-based businesses is you can see in almost real-time the impact of decisions you are making.

Dave’s model breaks startup metrics down into five categories (for more insight, strategies and tools for identifying and tracking metrics in each of these categories, I’ve included Dave’s presentation below):

1. Acquisition: Where are users coming from? Which channels are best-performing? Which generate the largest-volume? Which are the lowest-cost?

2. Activation: How are users engaging? What are your activation goals?

3. Retention: How do users come back? What are your retention goals?

4. Referral: How do users refer others? What are your referral goals? What’s your viral growth factor?

5. Revenue: How do you make money?

He also suggests that companies focus on Critical (key to the success of your business) Few (less = more) Actionable (if you don’t use the metric to make a decision, it’s not actionable) metrics. And, to make sure the company stays on top of its key metrics, each key metric should be delegated to someone to OWN.

How are you using metrics to make decisions at your company?

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