Options, Leverage, and Focus in the Startup

Posted on November 8, 2007. Filed under: Company Financing |

Two roads diverged in a wood, and I–
I took the one less traveled by,
And that has made all the difference.
The Road Not Taken” Robert Frost

Whenever you’re faced with multiple paths forward, choose the most difficult one. It is almost always the right one.
Thomas Cannon (my first boss)

I’ve worked for some great leaders in my career, and I’ve tried to learn from each of them. They each seem to have a few gems which they hold as core beliefs which govern their decision making and how they run their businesses. Working with John for the past two years has been no different. This is his third company after leading each of his first two to positive acquisitions. It is fun for me to watch which things he’s refining in this third company, and which core tenets still apply. One of these tenets is that John likes to ensure that we have options at key inflection points. If you don’t have options, you don’t have the opportunity to make decisions — to lead. So, we’ve worked very hard through these first two years to look into the future and work to ensure that we have multiple options at each critical juncture in the growth of the business.

About 90 days ago, John and I sat down and agreed that we were approaching another milestone point in the growth of the business, and that we needed to work hard to give ourselves options for this next step. In our case this next step will be the launch of the 2.0 release of our COBRApoint SaaS application and the simultaneous launch of our BPO services. We started with the goal of securing three simple options —

(1) “stay the course” meaning continue on our current path and grow organically;
(2) secure a strategic relationship with a large industry partner who will potentially make a stratetgic investment in our company and who will actively drive our system and services into their existing customer base in return for equity and/or revenue share;
(3) secure a capital partner to fund a significant ramp in our marketing and sales and customer support efforts to stimulate more rapid growth in return for equity share.

When we first defined this high-level goal, we didn’t consider these to be mutually exclusive options. In other words, options 2 and 3 were intended to simply be accelerated market penetration strategies with the potential trade-offs of reduced revenue or equity in return for more rapid growth.  Given the right opportunities, we may have even chosen to pursue both options 2 and 3 simultaneously.

The result though has produced several very interesting and attractive options which, for the most part, are mutually exclusive.  We still have the “stay the course” option, but we have two potential options from a capital partner (one significantly more aggressive than the other), and we have found two potential strategic industry partners.  The interesting twist is that three of these options — the agressive option with the captial partner and each strategic industry partner option — will require some unique and significant development work and the bulk if not all of our attention for at least the next year or more.  They also require slightly to radically different approaches to capturing the market.  The great news is that each of these three has the potential to be a real “home run,” but given our size and maturity, we must realistically now pick only one option and then focus on execution.  We simply don’t have the bandwidth at this stage in our growth to try to do more than one of these options at a time, and to try to do so would at best result in two half realized opportunities and at worst…

So here is what we’ve learned. 

(1) Having options is good.

(2) Having options is even better, because having options provides you significant leverage in negotiating the best possible deal for the option you choose.

(3) For most startup companies, when faced with several mutually exclusive options, you must pick one and only one and focus your attention and resources on executing the chosen path.

Stay tuned for the path we choose, as I’m sure it will color the future of this blog just as it will the future of the company.  By the way, having to make these kinds of decisions is what makes startups so much fun!

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  • About

    Mark Waterstraat

    VP Sales

    Benaissance

    www.benaissance.com

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