Social Icons

Friday, November 30, 2007

Aiming for the top

Are you on your way to building the next Google or Genentech? A new listing of the fastest-growing private companies in the US gives a little insight into what makes an entrepreneur successful

What does it take to build a business that works? Well, if you bolster your immune system with a mix of 17 herbs and nutrients, process credit card payments quickly and flog some add-ons for the iPod, you stand a pretty good chance of making it.

That, at least, is one conclusion you can draw from the 2006 'Inc. 500' List, a ranking of the fastest-growing private companies in the US just released by the magazine of the same name ( Topping this year's list is Litle & Co., which provides credit card processing services and has grown at a staggering 5629 per cent over the last three years to reach a turnover of $35m. Second was Airborne Health, maker of a snazzy health tablet, and third was Digital Lifestyle Outfitters, which provides accessories for portable devices (including, incidentally, a rather fetching pink case for your iPod nano with a 'workout-ready' armband). DLO was only founded five years ago and now turns over $84 million with 72 employees, which just goes to show what you can achieve if you really work out how to tap into mass market chic.

For the rest of us, labouring in the less flamboyant corners of the tech community, the Inc. 500 list provides some kind of insight into the things that help make businesses succeed. The companies that populate the Top 25 demonstrate that you don't necessarily need to have a great idea - in fact, one or two are terminally dull - but you do need to be tapping into a real need.

So while issues like security will always be a hot topic, it's how useful your security offering is that matters. PatchLink, which pulls together security patches for different types of software and then updates all your computers, seems to have found a sales pitch that combines fear of attack with a way to ease day-to-day IT aggravation, good enough to land it 14th place. Similarly, fear of attack from regulators appears to have propelled OpenPages into 22nd place, based on sales of its corporate governance software. One place behind it - and playing in a somewhat more interesting space - is digital marketing company Booyah Networks, which does search engine marketing for websites and provides an online marketplace for video advertising.

Other companies appear to have got where they are by taking a tried and tested idea and applying it to a new market. San Francisco-based StubHub, number eight in the list, is an online exchange where you can buy tickets for sporting events, theatres and concerts - a sort of eBay for the entertainment business. Sixteenth-placed provides Voice over IP, Internet services and managed network services - nothing new in itself, but it makes its money by specialising in selling to small and medium sized businesses.

And then there are the guys who tried something different in sales or marketing. In sixth place is United Bank Card, another player in the credit card processing game. According to Inc., the company broke the mould in the industry by giving away its terminals to customers rather than forcing them to buy or lease. At number 24 meanwhile, is IT consultancy LanceSoft: Inc. quotes its founder crediting its success to the high rewards its salespeople earn for bringing in customers, suppliers and employees, effectively turning each of them into entrepreneurs.

The list goes on, but it's a fair bet that the messages from companies in slots 26 onwards won't be radically different. All of them have dipped into the melting pot of products, services, market awareness and execution, and somehow managed to pull out the right ingredients to make it work.

What would be just as interesting, of course, would be the list of the bottom 500 performers in the US - the ones whose sales plummeted by record percentages to send them crashing into oblivion. How many people simply gambled on the wrong technologies? How many failed to keep control of their costs? How many had a great idea, threw everything into it, got some early successes and just ran out of time and money? How many hired the wrong people? And how many were just plain unlucky? The top 500 performers have clearly done a spectacular job - but that doesn't necessarily mean there's a huge gulf between them and some of the others who never quite made it.

*Details of the Top 25 performers in the Inc 500 are available at The full list is available to subscribers

By Keith Rodgers, Webster Buchanan Research

Saturday, November 24, 2007

The Importance of Business Location

Are Los Angeles, San Diego and other cities starting to steal Silicon Valley's thunder in the tech world? And does your choice of location - whether it's San Francisco or London - really matter?

Is Silicon Valley in danger of losing its position as California's technology centre? Sacrilegious as the thought may be, it could just happen. Southern California - better known for Hollywood glamour, the naval centre of San Diego, the fruit fields of the Central Valley and an unhealthy obsession with surfing - now employs almost as many techies as its Northern counterpart.

That's the conclusion of a report* last month from AeA, the national trade association formerly known as the American Electronics Association. Studying official data from 2004, it concluded that there were 214,900 high-tech jobs in San Jose and the rest of Silicon Valley in 2004, with the San Francisco-Oakland axis a few miles further north adding another 156,700. Once you take into account less fashionable cities like Sacramento, the state capital and official residence of Arnold Schwarzenegger, northern California is home to a grand total of 439,000 technology workers.

Surprisingly, the southern half of the state is just 21,000 jobs short of that figure. Hidden in the smog of the great parking lot we know as Los Angeles, some 165,700 tech workers flood the freeways each morning. Further south near the Mexico border, San Diego ranks as the fourth largest tech hub with almost 100,000 jobs, while Orange County follows closely behind.

Why does this matter? Because location, whether it's downtown San Francisco or the London suburbs, will always be a big influence on corporate success. Michael Porter, professor at Harvard Business School, has famously argued that clusters of industries and supporting institutions help improve the productivity of the companies within them and provide significant competitive advantages, from closer relationships to better information. And John Preston, associate director of the Entrepreneurship Center at Massachusetts Institute of Technology, points out that if you want to build a semiconductor business, you're better off doing it in Silicon Valley than Cleveland, for the simple reason that it'll be easier to find the employees and supporting infrastructure that you need. There are also soft benefits that rub off, as anyone from a British university town will testify. Just because your biotech office is a ten minute walk from a top-tier college doesn't automatically endow you a PhD, but mentioning Oxford or Cambridge University on the international circuit will immediately earn you kudos.

To an extent, this is a counter-intuitive concept for an industry that has made the real-time global economy possible through its own information management and communications technologies. If aircraft manufacturers can design planes using virtual teams located around the world, you'd think that US and UK tech developers would be able to telework from around the country. Yes, many start-ups require access to labs, high-performance systems and other research facilities - but you can do a lot of software programming on your laptop on a beach in Bournemouth with a simple remote connection to your central servers.

San Francisco, however, is a great example of why location really matters. If you set up a business here, you have an extraordinary choice of support partners on your doorstep, from high-tech public relations specialists to experts in patent law. If you're looking for funding, there are numerous angel networks to call on, and the home of the technology venture capital community is just forty-five minutes down the road. Similar arguments apply to London, of course. There are enormous benefits to operating in a financial capital because of the quality of companies it attracts, the physical infrastructure that grows up around it, and the support network that has evolved to help take London start-ups forward.

So what can London learn from California's experiences? Sadly, the challenges facing its different tech centres will be wearily familiar. Transport is still a problem in many parts of the state, from the clogged freeways of LA to the rush-hour congestion that blights the Bay Area's bridges and highways. The cost of housing in many cities is prohibitively expensive. And as Julie Biagini, chair of AeA's Bay Area Council, points out, there are further social challenges ranging from schooling to US immigration policy. 'San Francisco, Silicon Valley, and California have to be seen as friendly places to do business and to live. To this end, our schools need to be institutions of excellence, where all kids learn the necessary skills to compete in the 21st century, particularly in math and science. And to remain competitive, we must press our national leaders to allow the best and brightest from around the world to work for our companies, study in our world-class universities, and start new companies here.'

*California Cybercities 2006, published by the AeA. Visit

By Keith Rodgers, Webster Buchanan Research

Wednesday, November 14, 2007

Growth Issues for Google

Susan Wojcicki has first hand experience of what it takes to be a successful start-up - after all, Google was set up in her garage. Ten years on, she's begun to reveal some of its early secrets

Everyone knows you can't be a true Silicon Valley icon unless you started up in a garage. The 12 x 18 foot building at 367 Addison Avenue in Palo Alto, where Bill Hewlett and Dave Packard first started working together, is probably the most famous of them all - so much so that HP recently restored it to its 1939 condition. Almost sixty years later, it was Susan Wojcicki's garage that served as the critical real estate for Google, providing the first office premises for co-founders Larry Page and Sergey Brin.

Wojcicki, who didn't even work for Google at the time, has as good a handle as anyone on what it's like to take a start-up from angel funding through Initial Public Offering - and in Google's case, on to become Silicon Valley's flagship Internet success story. Joining the company as employee number 16 and now vice president of product management, she's been part of a local legend characterized by the founders' insistence on doing things their way. As keynote speaker at a Women's Technology Cluster event in San Francisco earlier this month, she talked through some of the lessons she's picked up on the way.

Google actually spluttered into life at Stanford University in January 1996, when Page and Brin started collaborating on a new search technology known as 'BackRub', reflecting its focus on the 'back links' that connect to a website. The early years were characterised by a lot of R&D and a fair amount of improvisation - the 'data centre', for example, was actually Page's dorm room. Their first big break came when they cornered Andy Bechtolsheim, co-founder of Sun, on an acquaintance's front porch, and after the briefest of product demos landed themselves a $100,000 cheque (remember - this was the dot-com era). With contacts and family taking the start-up funding to $1 million, the two founders formally incorporated the company and hired their first recruit, Craig Silverstein, who's now director of technology. They also took out space in Wojcicki's garage and rented a couple of rooms. In these early days, the Google brand didn't carry a great deal of weight with its landlady - Brin, Page and their clients were forbidden from using Wojcicki's front door.

The challenges Google faced in its early years will be familiar to every start-up. To begin with, their business plan needed a credible revenue stream - but no-one knew for sure where the money would be coming from. They predicted three equal revenue streams - one third from licenses, one third site searches, and one third advertising. For what it's worth, they were wrong: today, advertising accounts for 99 per cent of the company's revenues.

Then there was the marketing, part of Wojcicki's initial remit. When it launched, Google was operating in a competitive market, with companies like Excite and Alta Vista making much of the running. Wojcicki recalls that Alta Vista in particular was spending millions on marketing, but Google took the decision not to splash out, reckoning that doing so would force it to go through more funding rounds than it needed to. Instead, the bulk of the funds were spent on the product, and most marketing was done through public relations and word-of-mouth initiatives.

Like many start-ups, much of the Google story was simply about making things happen. Computing power, for example, was always a problem. In the early days, much of the infrastructure consisted of low budget, cheap systems - at one point, they tried bungee cords and velcro to earthquake-proof the machines. Not surprisingly, they nearly ran into capacity problems when they struck their first deal with AOL/Netscape, which selected Google as its web search service and pushed traffic to three million searches per day.

Despite these hiccups, they also got a lot of things right. Most important, says Wojcicki, they had a clear vision of where the company was going and they focused hard on the product, believing that if they built a great product the users would come. That's not always a successful business philosophy, of course - the early Apple user interface beat Microsoft hands-down, while Betamax lost out when VHS won the video standards war - but it's been one of Google's strengths. Even today, Google engineers spend 20 per cent of their working time on their own chosen projects, helping to sustain a culture of innovation.

That unwavering focus demonstrated itself in Google's relations with its VCs, where Page and Brin controlled the product vision and pushed through one or two controversial ideas, such as developing their own advertisement platform. 'If you as a VC or angel know more about the product and market than the entrepreneur, you've got a problem,' says Wojcicki. What the investors did bring to the party - aside from cash - was a high-level focus on the key issues, acting as validators for Page and Brin. The VCs also brought practical assistance, helping with complex deals like the AOL/Netscape agreement, difficult legal and corporate governance issues, and key hires. Recruitment was also taken seriously from the beginning, says Wojcicki, and Google's still keen on flat organisational structures. That was occasionally taken to extremes in the early days - at one stage, the VP of engineering had 150 direct reports.

Summing up, Wojcicki passed on eight lessons to start-ups looking to emulate the Google story:

1. Build a great product that users love

2. Think big

3. Solve an important problem. Google, she says, wasn't always sure if search would make money - but the founders knew it was a problem

4. Rally the company around a vision and be focused

5. Hire the best people you can

6. Question accepted practices, and invent the right ones for you. Google's product launch philosophy, for example, is based on doing things fast rather than building comprehensive business plans - if it thinks a product is right, it launches it and then sees how it works out

7. Base decisions on data. Wojcicki stresses that the company has always put value on business and statistical analysis

8. Make decisions for the long-term. 'We were willing to wait,' she says

By Keith Rodgers, Webster Buchanan Research