Newport Board Group West Florida partner Pete Savage has had a distinguished career as an executive, advisor and entrepreneur in the high tech sector, especially with telecommunications and network management companies. In the first part of this Q&A we focus on Pete’s insights about high tech company business strategy, product development and marketing.
Advice For High Tech Company Business Strategy, Product Development and Marketing
Pete, what are some issues entrepreneurs should focus on when they are in the early stages of creating a business?
It may sound paradoxical: many years of working with entrepreneurs have convinced me that entrepreneurs need to spend more time in their company’s early years thinking about how they will ultimately exit the business - or at least the business in its current form.
Many tech entrepreneurs are convinced that their company has a chance to become the Google of its market industry or niche, the dominant company that will go public and use its high flying stock as currency to acquire a host of other companies.
In most cases it doesn’t work out that way. At some point an emerging middle market company tends to run up against barriers to further penetrating markets and developing products on their own. One reason: many large companies that entrepreneurial high tech companies want to sell to don’t want to buy from a company that has only $20 million or even $100 in revenues. They’re skeptical that what they consider “small” companies will survive or will have adequate resources to support their customers. From an early point in their evolution, high tech companies need to bake into their thinking a strategy to be acquired.
When that time comes, a smart buyer evaluating the synergies of a combination will look beyond the company’s products and technology. They will also evaluate how well the acquisition fits from the standpoint of people and culture. I suggest that entrepreneurs keep that in mind as they build their companies. An example: in one transaction I was involved in, some of the Canadian employees seemed mostly focused on whether the new owner would recognize their “right” to take long vacations. That was a problem for the acquirer.
What kind of a buyer is ultimately best for an emerging growth company?
Under the right circumstances, acquisition by a private equity (PE firms) can be a good outcome for an emerging middle market company, especially one that finds itself in No Man’s Land where they are too big to be small and too small to be big. In this scenario, investors cash out partially - while the new owner retains the founder/CEO for a period of time during which the company “earns out” its sale price. That’s necessary because at this stage the business and its customer relationships are still dependent on the CEO. One of the real advantages PE offers is the ability to help a company get eventually acquired by a much larger company, a strategic acquirer. At that point the founder might depart for good.
For all this to happen, the CEO and Board must be thinking about a long-term strategy to make the company attractive to an investor.
What should be the role of the Board of a high tech company?
Many boards do not sufficiently challenge management to look down the road at the future evolution of the market, technology and customer needs. Directors need to address the risk that the pressures of creating and marketing products for today’s market keep management from understanding what future trends mean for the company’s strategy. Boards should focus more on strategy possibly even have a Strategy Committee.
In the second part of this article Pete will focus on other issues that are important to emerging high tech companies, including how to market their products internationally.
About the Expert
Pete has been CEO and Board Member of several innovative telecom firms. Pete’s deep background in technology has led him to entrepreneurial roles in many industries. He currently leads a company organized to commercialize technology developed at the University of South Florida to support video imaging systems for minimally invasive surgery. Contact or learn more about Pete here.
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