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Tuesday, January 24, 2006

A breath of fresh air

Marty Pichinson knows as much as anyone about why start-ups fail - after all, he's closed down 148 tech companies. Now, he wants to pass that knowledge on.

Short of turning up with a hood over his head and wielding a scythe, it's hard to see how Marty Pichinson could have created much more fear when he appeared on the doorstep of Silicon Valley's troubled start-ups in the wake of the dot com bust. This, after all, is a man who's helped close down no less than 148 technology companies, representing $5bn of investment. If anyone knows why businesses fail, it's him.

But while his company, Sherwood Partners (, still gets regular calls from investors to put troubled firms out of their misery, today Pichinson is building a reputation for himself as a friend and mentor for start-ups. True, his track record errs on the side of failure rather than success, with only 18% of companies saved from wind-down. But as he points out, often when he's called in it's because the investment has already been terminated. What he's now focusing on is getting into companies earlier so that he can head off problems before they become terminal.

In many respects, Pichinson is the entrepreneurs' entrepreneur. With a colourful background that encompassed a spell managing bands - they included the Miracles, albeit without lead singer Smokey Robinson - he moved onto restructuring companies in the garment industry before turning his eye to the technology scene. And while the tech collapse spelled the end of the road for so many entrepreneurs, for Pichinson it kicked off a period of frantic opportunity.

His experiences give him good insight into the kinds of problems that beset start-ups. From a cost perspective, for example, he says the problem is less about uncontrolled spending than about knowing what to buy. It's not uncommon for companies to blow five-figure sums on a telephone system when they could do it for a couple of thousand pounds. Likewise, they might get a great deal on office space by negotiating a multi-year lease, but don't insert the option to give six months notice - so when their business goes through a lean patch, they find the cost of switching to smaller property prohibitive.

What these start-ups lack, Pichinson argues, is advice - and he has plenty of it. 'Look at the Olympics,' he says. 'Twenty per cent of the countries - like Great Britain, Germany and the US - get 80 per cent of the medals. What makes the athletes special? It's the trainers and coaches. We're management's best friend - we're your trainer, your confidante.'

Pichinson describes his approach as 'extending the runway' for tech companies. Say you have 13 months of funding left - you don't know it, but it's going to take 15 months for your company to make it. Come month 12, there's every possibility your investors will pull the plug - but if you could make your original money stretch another four months, that would be the difference between success and failure. The scenario doesn't even need to be that stark: extending the runway can simply mean that start-ups make it through without the need for an additional round of funding.

Much of the advice Pichinson gives combines established business practice with an understanding of common start-up failings (see box). His approach to time management, however, is guaranteed to raise eyebrows. This, after all, is a man who did a time management study on himself and discovered that he could save 46 minutes a day by keeping his Treo handheld by his side - now, if he's queuing for the movies, he uses the time to fire off emails. But his philosophy is rooted in practicalities. From a personal perspective, where previously he'd spend two or three hours when he got home every evening on the computer, now it's 30 to 40 minutes. From a business perspective, his focus on 'Return on Time' reflects a simple fact of life. 'Time is not a variable,' he says. 'You either manage it, or you lose your company or your relationship.'

That might explain why Pichinson struggles to understand how many European entrepreneurs can take a three or four week holiday but don't take their mobile phones with them. It's nothing to do with a culture that confines many Americans to just two weeks' holiday a year - after all, Pichinson himself takes seven weeks. The difference, he says, is that no-one knows when he's on vacation. 'When I'm skiing, the first thing I do when I get off the ski lift is check my email and voicemail. What's the big deal?'

Five pieces of advice from Marty Pichinson:
� Work out your business model and plan, and make sure you're accountable to it. Follow the model and if you're not going to make a particular goal, readjust it on a daily basis if necessary
� Don't overpay on anything, including people. Make sure every pound is well spent
� Communicate at all times with your management team, personnel, investors, attorneys and mentors. You don't know it all
� Make sure you don't oversell to customers - if you don't deliver, they're not going to be your customers
� Don't be pigheaded - you're not going to be the best in the world, you're not going to be bigger than Bill Gates. 'Always be polite to everyone. It's a very viral industry, and there's no room for jerks.'

By Keith Rodgers, Webster Buchanan Research