Lecture 11
20th November 2012

If there was one word I might choose to describe tonight’s mood I suspect it may be ‘fatigued’.  I had the sense that many were low on energy.  The workload in this, and presumably other subjects, is high and the pressures of final assignments is mounting.

Tonight’s running sheet suggested that there was a lot to cover.  As I scanned the list I felt it was decidedly administrative and wondered whether we were in for a long session.

In his customary energetic style, David opened the lecture with an announcement which I suspect was received with a mixture of relief and sadness: there will be no more pre reading, no more reflections and no more mentoring.

Perhaps he is making tangible the fact that the course is drawing to a close. And whilst the students have gained a little time to focus on their assignments, my guess is that the reality that it is over, that this is the last ever iteration of the course in this form, is starting to hit home.

Keeping it Alive

As with many endings, there is an accompanying invitation to consider a new beginning.  And David does just that.  He asks the students to ponder whether they wish to maintain their network and the entrepreneurial eco system they’ve created, and what form this may take.

Their discussion is preceded by a somewhat confronting observation.  On average, each student in the room has approximately 2000 productive weeks of their life remaining.  How best to use these weeks?

And a little guidance : if your plans are in the service of others, they are likely to endure, to be lively and to generate the interest of others.  If they are merely self serving, they will not flourish.

As always, the discussion gave rise to a very thoughtful set of responses…

  • a shared central theme may be helpful;
  • the notion of ‘pay it forward’ is important – if you receive advice from a mentor you should be willing to mentor a young entrepreneur;
  • clarity around ‘who’s getting what out of the arrangement will be key;
  • shared values across the group;
  • on-line connections augmented with regular (perhaps quarterly) catch ups is seen to be important in keeping the group productive;
  • mentoring is seen as one of the most valuable aspects of the course, and giving as important as receiving;

David concludes the discussion by observing that this is an exceptional group of people.  The level of trust and support across the group is higher than he has experienced in any previous group.  May it live on.

Preparing to Exit

The students have read Dr Tom McKaskill’s book, Ultimate Exits, which provides a detailed examination of the preparation process for both financial and strategic ventures.

A financial venture will provide a buyer with a business model which will drive growth.  That is, the buyer will gain a robust business with high revenue growth potential.

A strategic buyer, on the other hand, is buying intellectual property or deep expertise which has the potential to create sustainable competitive advantage.

David illustrates the difference  between the two…

And now to a story.  David recounts the true story of a software company in the US whose niche was HR applications.  The company had been established for seven years, had 100 employees, a good customer base, strong sales pipeline, regular maintenance income and no real competition.

Until one day IBM announced that in 9 month’s time it planned to have a superior offering.  Potential customers decided to wait for the release of the IBM offering, the pipeline evaporated, the 70 days cash on hand was rapidly eroding.

The CEO, a successful businessman, was threatened on both a personal and commercial level.  What to do?

Students tossed ideas around, including…

  • look to competitors of IBM and have them buy you out (albeit from a weakening negotiating position);
  • contract staff out as resources to secure some cash flow;
  • sell to IBM (again, from a compromised bargaining position);
  • talk to the customer base to identify what additional features they may want that will provide a competitive advantage.

It was an interesting conversation…

The real outcome was in fact, rosy.  The CEO sold the business to Oracle for $16m by playing IBM off against its competitors.  In seeing interest among other players, Oracle fought to secure the business in order to jump ahead of IBM during their development phase.  This yielded both defence against IBM’s upcoming offering and also a sales advantage for several months, worth many times the $16m purchase price. Sounds easy?

The key learning is be prepared.  Sales rarely happen in a timeframe or in circumstances of your choosing.  But preparation for such an eventuality serves to make it easier for a potential buyer to make a rapid decision.

How Might I Exit?

Students were asked to reflect on whether their own initiatives fell into the Strategic or Financial category.  Interestingly, the vast majority saw their businesses as having the potential for a Strategic sale.

They were then asked to put themselves into the shoes of a potential strategic buyer, and to consider what would make the sale more attractive to a buyer.  A great checklist emerged…

  • an up-to-date set of audited financials;
  • knowledge of the customer base – how many, retained, lost etc;
  • documented processes and procedures;
  • a vision – where do I see my business and the market in 5 year’s time?
  • patents, trade marks, licences in order;
  • third party vendors, suppliers, agreements well understood and documented;
  • employee contracts in place;
  • critical employees identified;
  • IP documented;
  • outstanding legal issues known, resolved;
  • key shareholders identified.

And whilst it’s a terrific list, (and perhaps I’m showing my age here), as I listen it occurs to me that these things simply make for good business practice!!  It seems however, that when in start-up mode, it’s easy to neglect these.  Reassuringly for me, this is also David’s view of the world…

Coming Up Next Week

Next week is the final lecture of the series, and the lecture in which student syndicates present their businesses.  A quick run through of the requirements, and then a dash for the board where students vie for the right to present first…or last!

Until next week…..


1 Response to “Lecture 11”

  1. 1 thushara (@excda) November 23, 2012 at 1:06 pm

    The Four Fears Blocking You from Great Ideas – An interview with Tom and David Kelley

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