Busn 101:
This is the second in a 4-part series in EDA Confidential addressing some of the Business Issues in EDA. The topics in the series include: * After the M&A This week's installment is based on a conversation with Steve Sapiro, Vice President of Marketing at Stelar Tools, Inc. In a conversation earlier this year, Steve made the comment that if you're involved in a high-tech start-up, you can choose to try to bootstrap the operations indefinitely – or you can go out and seek/find some VC money to make the thing viable. Steve said the two options come down to a choice between: 100% of Nothing versus 10% of Something Eventually, according to Steve, you've just got to get in touch with reality and go get the investment dollars required to actually sell product. We re-visited our initial conversation on the topic of venture capital in a subsequent phone call on December 9th. What follows are my impressions of Steve's principal ideas. It's clear that Steve Sapiro is a very seasoned EDA veteran, and that his experiences have fostered in him a significant commitment to Reality Thinking. Before we bring, here is Steve's bio lifted straight off of the Stelar Tools website. ************************ Steve Sapiro Steve Sapiro has more than 25 years of experience in the EDA and electronic products industries. He has held marketing, business development and engineering positions at Intel, CAE Systems, and AMI and has consulted to various EDA companies during his 15 year consulting career. His design expertise is in custom ICs and ASICs. He has also founded several high technology start-up businesses including, CAE Systems Inc., which was sold to Tektronix for $75 million. At Cadence Design Systems, Inc. he defined a long term VHDL strategy, including product plans and marketing requirements. At DOSIS GmbH he provided business development, product definition, development and marketing of a new layout translation tool (Silicon Compilation) for process migration of standard cells. In addition, he founded two other successful start-ups, ProCASE Corporation and SiidTech Inc. Sapiro teamed with Larry Carner to develop the first product for Stelar. Sapiro holds a BSEE degree from City College of New York. Sapiro has published over 20 papers in the areas of ASIC design and EDA design tools. He is the co-author of The Handbook of Design Automation and The Fault Simulation Handbook. ************************ Steve Sapiro, paraphrased ... I always like to take the business perspective on things. To do that, I have to dis-engage my ego from the process. I know that a lot of people feel that their IP is like their children, but if you can't let go of that idea – it's like when the children grow up. You have to let them go eventually. Of course, it's natural to feel that your technology is your child, and you want to protect it, but in business you just have to check your ego at the door. Getting Venture Capital money means giving up some control, but Venture Capital and their Board Member representatives are able to hear from customers, and potential customers, about what has to happen in the company to make the product viable. VC board members can see where the competitors are, where the company stacks up against the competition, and how quickly the company can get to market in the face of that competition. Certainly, you can try to bootstrap a company for 4 or 5 years – you've become so convinced that you can do it alone. But no matter how hard you've worked to create your technology IP and to start your company, you will need help in getting your IP to market. That's just the reality. In my case, for instance, I know that I'm not necessarily good at managing people – even if I am a good technologist. So, as soon as I knew we were going to be getting outside money for the business, I knew that I wouldn't be the head of the company after that. I knew that I just wasn't CEO material. That doesn't mean I didn't want to drive the direction of the technology within the company, but if I can bring in people who are more talented in business than I am, with more experience in start-ups than I have – people like angel investors and VCs – then, from the long-term business perspective, it means that there will be a group of people in the company who have experience in technology, and in business. This is crucial for a start-up. Someone's track record in technology and someone else's track record in business are both important in establishing a team and a company. And, the reality is that past history is a good indicator for future performance – both for technologists and for business experts. In a previous business venture that I was involved with, we had developed some great technology, but for a market that was very, very small. Between the small size of that market and the fact that it was a fairly unknown segment of the semiconductor industry, it turned out that we just weren't fundable. We did get one patent on our technology, and got a few more after some time – but in the end, from a business perspective, it just wasn't worth the time we put into the thing. It's true that when you bootstrap, you hear directly from your customers about what they do or don't like about your product. You also may hear from those people about other companies like yours that are failing. Sometimes the customer will ask you how quickly you think you can get your product to market, or instead they may say that the world's not ready for your product – even if you're able to bring it out soon rather than later. In the end, it's only when the customer can prove ROI on your product that your company and your technology are going to succeed. In any case, the one advantage of bootstrapping is the close communication with your potential customers. But how long you should go on that way is what I call "The Bootstrapping Conundrum," because whether it's one month or one year – and I don't know what the right number here is – eventually you have to move on and look for some investment money. At that point, it's best to talk to people you know and get advice from them on what to do. Getting venture capital isn't just a matter of going out and knocking on some doors on Sand Hill Road. If you don't have the contacts to open those doors, the reality is that you have to start by raising money from friends and family. Again, it depends on how fast you perceive that you need to grow. I've worked with some enterprises that just needed enough money to finish up their product development, and then just needed some limited additional funds to do the marketing. That's often the case, for instance, with doctors and dentists who can use non-equity money from friends and family to meet their cash flow needs in the early phases of the business. They might say, "I just need to have access to these funds over the next 18 months or so, and then I'll guarantee to return the money and to double your investment in the process." If you're in high-tech and you're within 6 months of finishing up your product, and you just need enough money for a couple of engineers, this process may work for you as well. However, if you're talking about an enterprise that needs a full-blown R&D organization to get going, then you really have to go off and take the financial risk. And there really are a lot of alternatives here. For instance, you may find some customers who are willing to fund you in building your product, because they're interested in the technology. It doesn't just have to be through traditional investor channels. There are alternatives. But no matter what, you have to put your reality hat on and ask yourself, "How quickly do my customers think I need to take this product to market?" And it's important to remember that, no matter what your source of investment is, there's no way of getting around the fact that you're going to be putting your own blood, sweat, and tears into the enterprise. Although, the question of how much and for how long is different in every situation. Also, don't underestimate the value of networking – or whatever you want to call it. Having the right customers, the right investors, means that maybe 5 years down the road – maybe somebody will call you with an idea, or an opportunity. I'm not saying that it's luck that determines how you'll do or who you'll know, but certainly there's a level of serendipity in all of it. Finding potential customers, good lawyers, and good investors – it's always a combination of the hard work and some element of serendipity. Some people in business have had instant success with all of this, but those cases are rare. I'm an eternal realist – that's just the way I am – and that's why I know that if a company is successful and it does well, 10% of the 'something' that it produces can be a lot. From an ego point of view, going it alone is a great choice. But from a business point of view, it's a lousy choice. You have to check your ego at the door, and look to do what's best for the company. Going it alone is certainly a way to guarantee autonomy and control. But the reality is that you may own 100% of your technology and your company, but 100% of nothing will never trump 10% of something. That's why in my view, the best CEO is an outside guy who's brought in to run the company. The CEO has to have a different perspective and a viewpoint that looks outside the company. Sometimes, they can be so outward looking, in fact, that they actually lose track of the reality within the company. Still, the perfect model is to have the outsider brought in as CEO, someone who serves to set the business processes, and the marketing and sales vision for the company – while the founders or technology guys, maybe the CTO or somebody in marketing, is the driver behind the technology. And, importantly, is also the person who's able to keep the CEO's feet on the ground – or at least one of CEO's feet on the ground. Of course, when I was young, I didn’t know any of this. Now I've discovered that one of the reasons that it's good to be old is that you've been blown up so often by business situations in the past, that you're totally grounded in reality. So maybe that's my job now, Chief Reality Officer.
December 14, 2004 Peggy Aycinena owns and operates EDA Confidential. She can be reached at peggy@aycinena.com
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