BC Business
Quick-hit blockbusters get all the love, but the real world requires patience. Perhaps I am just getting old. Having been around B.C.’s technology community since 1994, I am starting to see a pattern: a technology startup just takes a lot longer than others. Part of the reason is that a tech startup is even harder than others because you have to build something that traditional banks won’t fund (start a restaurant, get a loan; start a manufacturing business, get a loan; start a software company, get a blank stare). ?
Perhaps I am just getting old. Having been around B.C.’s technology community since 1994, I am starting to see a pattern: a technology startup just takes a lot longer than others. Part of the reason is that a tech startup is even harder than others because you have to build something that traditional banks won’t fund (start a restaurant, get a loan; start a manufacturing business, get a loan; start a software company, get a blank stare).
Conventional wisdom is that technology markets move so fast that a startup can go from zero to profitable or to IPO in a couple of years. Conventional wisdom is wrong because very few success stories are “quick hits.” What happens more often is something I like to call, “the 12-year overnight success.”
Too often, local angels or retail venture-fund investors have been burned by expectations of a “quick exit.” Instead, they should subscribe to the immortal words told to David Carradine in the Kung Fu TV series: “patience, young grasshopper.” We dream of rocket-ship rides such as Club Penguin, raw startup to US$350 million in two years. We worship legendary exits such as Abatis Systems, which went from a gleam in Paul Terry’s eye to US$680 million in under three years. But we have to cast these aside as outliers to the reality of growing and creating value. You can’t base a startup business plan on a sale to Microsoft inside 18 months. It ain’t gonna happen.
Look around town at some of the successful technology companies today. Absolute Software, started in 1996, saw sales take off in 2007 as its product gained a critical mass of users of its computer tracing and recovery software. Make Technologies, a local software company that modernizes ancient COBOL programs still running some of our biggest institutions, is killing it in the market today – nine years after startup. Layer 7 Technologies is a relative speedster, finding its lucrative market niche in web application security in 2010, just seven years after its founding in 2003. In March local storage software company Bycast was thinking of raising more money when it was bought by NetApp, 12 years after its founding in 1998.
B.C. is no different than any other emerging technology market around the world. Growing a company to significant value takes time – and a lot of luck. A new company started by a team of experts, each with two or three startups already behind them, can typically build a product, a customer base and a lot of buzz very quickly. Why? Because they execute a plan built from experience. Think of their path to success as a straight line. Now, take a new company with keen but inexperienced management. In order to be a success, the founders have to figure out the thousands of challenges involved in running a business. That means iterating on product, processes and business plans. Think of their path to success as a jagged line. Like a drunk staggering home from the bar, an inexperienced team takes a lot longer to go the same distance.
Rather than be disappointed with the progress of our technology companies compared to the unrealistic expectations set by the rocket ships in Silicon Valley, we should plan better to help those that take time to succeed. For instance, Canadian venture funds have always been 10-year funds, just like their U.S. brethren. This puts pressure to exit investments before they have matured. VCs with 12-to-15-year funds would likely generate better returns for investors, even when considering the time value of money. Also, we need a better talent bridge between the startup technology CEO, usually a technologist, and the growth-stage CEO, someone who knows how to take the first few sales successes and grow revenue into the tens of millions.
I know my ’70s cultural references will date me, but the band Foghat had a great message for our technology industry: “It’s a slow ride; take it easy.”