Create Value Faster


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	Venture Catalyst

	— Create Value Faster

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Money and time are wasted when new ventures diverge from the optimal value creation path.

Many new technology ventures fail¹, and many more fall short of their potential. All too often this happens as a result of repeating one of a set of common (avoidable) mistakes made by many others in the past.

In other cases, the management team knows what needs to be done, but lacks bandwidth (and, sometimes, the necessary skill sets), to get it done in a timely fashion.

Entrepreneurs repeat mistakes of predecessors We believe that it is possible to substantially increase the chances of success of a new venture, if only the management team can absorb the lessons from history, and apply them to their own situation.

In studying a wide cross section of high tech startups, in fields such as medical devices, telecom/datacom, and various applications of nanotechnology and photonics, we have found that there are strong patterns that emerge of a set of mistakes that entrepreneurs make. It’s as if entrepreneurs have no knowledge of the mistakes made by their predecessors, have not learned from history, and are doomed to make a similar set of errors to those who have gone before them. The truly frustrating thing is that many of these errors are avoidable, and often one can see them coming sufficiently far in advance that there is time to take corrective action.

For more details see the article: Ten Common Startup Errors
View Full Article Here (PDF)

Choosing the right value-creation strategy is vital We believe that there is an optimal value creation path for a given venture: a set of milestones that need to be accomplished, and an order in which they need to be attacked.

In many ways, a new venture is a race. It’s a race to get across the finish line (building a successful company) before the reservoirs of time and money are depleted. Often this manifests itself as a race to accomplish the next set of value enhancement milestones, before needing to raise the next round of capital.

Increasing value as rapidly and efficiently (in terms of time and money) as possible, translates directly to:

better valuations;
lower overall capital being required;
getting across the finish line sooner; and
a higher overall probability of success.

Diverging from optimal path wastes time and money All too often we see companies that have diverged from the optimal value creation path. This usually leads to longer time to market, lower financing valuations, and more difficulty attracting capital. In extreme cases it leads to death of the company, as it becomes impossible to attract the next injection of capital into a company that is not creating value.

For example, many new ventures leave lots of value on the table at each financing, because they neglect to accomplish certain key commercial milestones that add great value, and reduce risk, yet be can be accomplished relatively quickly and inexpensively.
Read more: Balanced Execution.

Over-emphasizing technical progress destroys value Perhaps the most common pathology we see among new ventures is an over emphasis on the technical aspects of the business, and an under emphasis on the commercial aspects of the business. This commonly leads to actual value destruction — when the team attacks value milestones in the wrong order, and then has to go back and redo things.

The classic example is developing a product without first understanding the need being addressed — and then having to start again when you realize that customers need something different. We frequently meet startup teams who have spent $millions developing a product, only to find that it is too early to market or too late to market, or is somehow not quite what the customer needs.

Mostly we find this has happened because of an early lack of focus on achieving certain key commercial milestones.
Balanced Execution: creates more value; saves time and money.

Avoiding errors is easier with an experienced guide Sometimes, entrepreneurs take a suboptimal value creation path through lack of resources. Sometimes it is through lack of experience.

After all, most entrepreneurs are learning on the job, even if they are on their second or third startup! And its a rare entrepreneur who has had the luxury of studying, as we have done, large numbers of emerging ventures in diverse fields — and synthesizing from that study specific guidelines for maximizing value, and avoiding missteps along the way.

Bandwidth, or the right skills, are often lacking A common reason that commercial milestones are neglected, or attacked ineffectually, is that the skill sets which are needed to master the key early commercial milestones tend to differ substantially from those needed in the day-to-day operation of an emerging new venture.

Often what is needed to attack the initial commercial value milestones is a combination of:

relatively sophisticated industry analysis;
a deep understanding of the competitive landscape; and
the ability to go out and objectively research things like “What does the customer need exactly?”, without being unduly influenced by the internal view of things.

There are usually also complex strategic questions to be answered, such as “At which layer of the industry food-chain will profits be most attractive, and my competitive advantage be greatest?”

The management team of an emerging venture often needs these skills only intermittently (although when they are needed, they are really needed). So CEOs rarely choose to add full time team members specifically to attack these problems. And when they do, it is hard to find suitably expert candidates, because resolving the big exciting challenges is not a long term, full time job.

Sometimes the CEO himself/herself has the skills to attack these commercial milestones. However in that case, bandwidth constraints usually prevent the problems getting the degree of attention they deserve.

To take the next step

Learn More: about our Venture Catalyst Service
Resources: Articles & videos of talks illustrating our approach to problems.
Live Recordings: of a workshop on Value Creation.
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