Problem 4—Loss of Focus
It is commonly accepted not to put all your eggs in one basket, but taken too literally has hurt another half-dozen companies that I know of. One company acquired technology that had nothing to do with the company’s own proprietary technology. Outside investors were not interested in investing in a small company with two completely different technologies. Commercializing both technologies simultaneously drained the company’s funds, particularly because of the learning curve required to profit from the acquired technology. Eventually, the acquired technology was abandoned.
Two other companies were each trying to commercialize at least three different technologies and ultimately had to settle for just one. Then there were three startups whose business plans anticipated commercialization of multiple unrelated technologies. Needless to say, all three startups had to focus on a single technology before obtaining investment capital.
Factors key to success of startup businesses include sound business planning, sufficient investment capital, strong management skills, creative talent, and, ultimately, products and/or services that satisfy unmet or underserved needs. The problem areas described above deal with deficiencies in business planning, obtaining investment capital, and/or management skills. The deficiencies were really simple to fix.
With respect to the piggy factor, all the CEOs of the underfunded companies had to do was to accept dilution, which in my opinion was not excessive. With respect to the business plan put on hold, again all the CEOs had to do was make business planning a high priority. Regarding the irreplaceable employee, it is simply better to proceed sooner than later to replace that employee. In every case organizational performance improved once the problem employee left the company. Finally, regarding loss of focus, it wastes investment capital, so one should think carefully before branching out in unrelated directions.
All of these fixes are simple, yet resisted mightily by entrepreneur CEOs. Moreover, close to 40% of the 69 small companies with which I have worked have suffered because they did not make the necessary fixes in a timely manner. In summary, while much can be done at the macro level regarding changes in government policy to foster innovation, as Dr. Cohen has proposed, much can be done at the micro level by the entrepreneur CEO to jump-start innovation.