Friday, August 22, 2008

The Next Big Thing is?

Giant secular change. That is what Wall Street pays strict attention to, particulary when it comes to evaluating IPO candidates. In my investment career, I have seen a few of these. The eras of biotechnology, Internet, alternative fuels, commodity inflation are some of the big ones. I mention this because I routinely am presented with business plans for perfectly good companies. And yet, my firm, Clearstone Venture Partners, regularly passes on these 'perfectly good' businesses? Why? Because we are looking for the kind of businesses that are tapping into a giant secular trend that will provide substantial growth and earnnings power.

These opportunities don't come along very often. And when they do, it is easy to miss them. I have been a VC for a long time, and I can tell you that the fantastic business ideas do not come with a bright ribbon on them saying "Please open, this is the next Google, Microsoft, Paypal, ect". To see the hidden value of a business, particulary an early stage one, an investor must have a view of the mega trends unfolding in the world. How is the business under consideration positioned to take advantage of whatever large trend it is playing to? Entrepreneurs would do well to think through this concept before meeting with investors.

Web Marketing for Tech Businesses...

I recently began examining corporate web marketing practices. I was curious at how things have evolved in the past few years, particulary among supposedly web savy technology companies. What a surprise. The sophistication of B2B web marketing techniques falls considerably behind what is happening on the consumer web.

What is equally surprising is the disparity among companies in the same industry. In the enterprise networking space, for example, F5 and Riverbed are quite sophisticated in their web lead gen practices. Riverbed, as a benchmark, generates close to 100% of its sales leads from web based marketing. Imagine what that does for its sales and marketing expense line. For most companies, however, the web is little more than an online product brochure. A huge missed opportunity.

I don't believe this condition will last forever. But on the web, there is a big advantage to being first. In the end, those companies that begin taking their web sites seriously as sales tool will show superior operating margins to their off- line focused rivals.

So here is some advice to technology company executives in the B2B world. Ask your marketing staff how many leads come from the web today? If it is less than 10%, you probably have little or no web marketing direction. A good goal to shoot for is 25%. Keep in mind: the higher that figure goes, the lower your cost of sales. Also consider that most corporte purchase decisions are well researched. The web is the starting point. Your business should be the first place potential buyers go to get informed and ultimately make a purchase.

Next up: The Bail Out of Detriot

I just read that Representative John Dingell of Michigan has proposed a $25 billion federal bail out for the Big 3 auto manufacturers located in his home state. Hard to believe it has come to this. Though not suprising. After the bail out of the airlines in 2001, followed by the bail out of the major wall street invesment banks, home builders and now Freddie and Fannie in 2008, it was bound to happen. In fact, it is hard to make a principled argument against Dingell's proposal based on recent precedent. How do you tell an American auto executive that he is less worthy of charity than the coalition of agribusinesses that benefited so handsomely from this years Farming Bill.

Which makes me wonder: Why didn't the tech industry request federal funds after the dot com and telecom bubbles burst in 2000? In hindsight, it seems like a grave mistake. The tech industry employs a large number of middle class voters. For some reason, there was no cry for help as this important industry shed millions of jobs from 2001 through 2004. Perhaps this is a reflection of the way we in this industry think. We are more open to the good and bad of market forces. Start-ups are risky and routinely fail. We don't expect people to feel sorry for us or to provide us a hand out when poor management or bad luck works against us. What is surprising to me is that I thought this was a strongly held American belief. The last few years have changed my outlook.

The most troubling implication of this recent massive federal intervention is the precedent we have now set for federal hand outs. The bar is quite low. When the next American industry experiences hard times, how do we stand up and say "you got yourselves into this mess, you need to solve the problem yourselves"?