Archive for May, 2011

Linked UP!

May 24th, 2011 No comments

It’s like the days all over again. Tech start-up LinkedIn just had their initial public offering (IPO) and pocketed something like $130 million for the company. The stock (LNKD) was set to open at $45 a share, but it opened closer to 85 and shot up to a high of around $120 before the day was out. (As of this writing it’s down around $90 again.) That sure sounds exciting, but who really profits when a stock pops like that on open? One thing’s for sure, it isn’t LinkedIn.

Morgan Stanley and Merril Lynch were the investment bankers who supposedly did the due diligence for the LinkedIn board. Lot’s of folks are taking note of these shenanigans, this oversight, but few are mentioning some of the reasons it is allowed to happen.

The investment banks are hardly incentivized to offer the maximum amount the stock will fetch to the newly traded company. If they don’t come up with that cash, it’s likely to come out of their pockets, and there won’t be much to reward their investors with before the IPO if those investors get the same price you and I get. The disturbing thing is that the executives at LinkedIn aren’t incentivized much either. When the company is valued very low and pops like this one did during it’s IPO, the stock options that executives hold shoot up like crazy and make them rich (on paper anyway; they can’t sell for a while) over night.

So where’s the harm? Who gets hurt? Well, LinkedIn for one. Instead of over $300 million to expand their business, they only get $130. Hardly pocket change, but missing out on all that value may be the make-or-break for them over the long run. You can bet that some of the better ideas might have survived if they’d actually gotten what they deserved on the stock market.

Of course, investors are hurt as well. They are led to believe they are investing in a company with a chance to grow, but the company is hampered from the first moment as $100 million of stock buyers cash is pocketed by pre-IPO investors on opening day. It’s buyer beware and savvy investors know it. Hopefully, they weigh their chances before acquiring the stock. Still, it certainly sounds like a flaw in the system, doesn’t it?

It’s the goal of many small tech firms to go public, and it’s a sound one at that. If your company’s goal is not only to get rich, but to ensure that your world-changing idea gets out in to the world, an IPO may be the only way to reach a big enough market. Just remember, people perform to their incentives. Think first about what’s motivating your board, your executives, and your investment bankers.

Different differentiation

May 13th, 2011 No comments

Differentiation crops up more often than you might think. Most anyone can recognize that whatever product or service you’re selling will be easier to get into customers’ hands if they can distinguish how it’s different from other offerings. It’s just that differentiation doesn’t stop there.

I often find it easy to file competitors into two categories: those who do what you do, and those who solve the same, or even similar, problem. The first one is obvious, but the second is just as important. It’s easy to identify the people who make the same thing you’re offering, but dangerous to miss the folks competing for the same money.

A classic example I once heard goes like this: who are the Denver Broncos biggest competition this year? The Steelers? or the Saints? Hardly. It’s the Denver Nuggets or the Colorado Rockies. When the Broncos play another football team, win or lose, they make money. It’s other entertainment choices, such as local teams from other sports, that make up their real competition. Money spent on baseball won’t be spent on football at all, whether you root for the local team or someone else.

Sometimes selecting how you advertise is influenced by how your product is differentiated. Suppose you’re a contractor painting houses. Once choice, ServiceMagic, is a web-based advertising product that generates leads from interested consumers. That sounds better than advertising in the paper alright, but you have to look closely at how they do their business. In order to avoid overwhelming the consumer, ServiceMagic provides only three vendors at a time, chosen at random from their pool of contractors. You compete with these three to get the business. No problem, you’re the quality leader and you are confident you can win over your competitors. Except this isn’t a typical playing field where the consumer compares from a wide range of offerings including national companies and mom and pop shops. If your bid just happens to be included with two low cost leaders you look hopelessly expensive, even though, in reality, you’re right in the middle of the range. Your ability to differentiate yourself only works if the consumer gets to see all of the choices. ServiceMagic is going to work well for the big names (they can afford to miss a few deals and look awesome compared to the mom and pops) and small names (he’s that much cheaper? wow!) alike, but the guys in the middle might look worse than they should.

Tech startups face both of these kinds of differentiation problems. They are often offering a first-of-its-kind product, so they may forget that they still have other competition. How many other ways are there to skin a cat! Furthermore, they have to get the word out somehow that is most favorable to their offering and not try to out-shout their competitors. It doesn’t take a genius to think all this through, but it does take some effort. That’s where Eye On Technology can help. We’d love to work with you to identify your issues and make your business development efforts as effective as possible.

Categories: Business Tags: ,

Advertising is so last millenium

May 11th, 2011 No comments

Typically, small technology firms are founded by incredibly talented engineers-turned-entrepreneurs. They have the vision to develop a product that people will need and they’ve been successful enough finding customers, otherwise, they wouldn’t have gotten as far as they have. While they’re not marketing people, they are smart enough to have an idea how to get the word out about their products. If they’ve tried advertising, or worse, engaged an advertising company or consultant, there is a good chance they’ve been turned off.

“My customers find me by word-of-mouth, I don’t need to advertise.”

Well, for many businesses that is absolutely true. The problem many advertising companies and marketing firms have is when all you have is a hammer, everything looks like a nail. There are excellent companies out there with experience in print advertising, web marketing, or search engine optimization. When faced with your company’s needs, they figure what’s worked for other clients should work for you. Since most companies offering to help small businesses with their advertising needs know, well, advertising, that’s what they recommend and often it ends up  leaving that smart entrepreneur wondering why she engaged a consultant in the first place.

In fact, for some businesses, advertising in leading journals and industry publications works, and for some it doesn’t. If word-of-mouth is working for you, what are you doing to get more word-of-mouth? If you think trade-shows are too expensive, are you considering other ways of using them?

Have you thought of motivating people to spread the word? Do you have a vehicle for them to do so? Maybe they can comment on your company blog, or present a paper at a trade conference? Print advertising and web banners may not be the best thing for your business, but that doesn’t mean you should sit back and wait for people to hear about you. Eye On Technology can work with you to identify the best channel to communicate with your customers and then develop the tools to do it. If you don’t have the time to edit a blog, we can be a resource. Whether it’s downloadable PDFs on your website or a simple content management system customized for each prospect, these modern tools provide value long after your customers have turned the page past your last, expensive, print ad.

There’s no question that, for some companies, print advertising is a critical part of their business. It might even play a part in your business now or in the future. Just don’t complain if the one-size-fits-all solution you get from some advertising firms and market consultants didn’t make you look as good as you thought.