No, Cisco Didn't Flip Out; A good, Fast Lesson for Start Ups

When I first read about Cisco's decision to shut down its Flip division, I was stunned. This technology/product seemed like a no brainer. Even though the capability is quickly being built into multi-purpose, networked devices, surely Flip cameras would be needed or could be repurposed.

I don't know if there is a case to be made for that argument, but Cisco has just taught start ups a really important lesson:

if you have piece of your business that doesn't focus on your core capabilities, don't let it sink slowly. Kill it quickly.

It's hard for any company to do that, but it's really hard for a big business to do it. Because they often have the resources to support the ship in hopes of finding a solution. But with start ups, where every penny matters, that option is not available. Make these decisions quickly.

Of course, this depends on understanding clearly what your core essence is. Because you don't want to kill businesses that are key to that essence. That's what makes the fast decision so hard.

But Cisco's lesson is really important; they know their essence and saw that the Flip wasn't part of it.

A Sad Day for Progress

Today, a wonderful client of ours, PolyFuel, Inc., announced that it is ceasing operations. This is a refrain we have all heard too often these days and it is certainly tough on the people involved with the company. We are thinking of them.

But, with this news, there is a greater concern to be focused on as well: PolyFuel has been a leader in developing important next generation fuel cell technology. With this shut down, as a result of the poor economy, the research and development that has happened to date will just go fallow.

This is a shocking outcome. While PolyFuel had forces working against it and it didn't get to commercialization soon enough to survive, the most distressing thing is that all of the work it has done will essentially be lost. And we are not talking about a company in the entertainment space or other market where progress may mean more fun but . . .

And, sadly, PolyFuel is not the only company with truly meaningful development that is being shut down as a result of the economy. I have spoken with a number of my friends who invest in life science venture capital and they each have stories to tell about important companies on the road to commercializing life-saving treatments that have had to shut down. This is bad.

I don't really know the solution to this tremendous problem. But it seems somehow we need to find a way to support companies that are just at the wrong stage of the cycle during this economic downturn.

The Art of Start Ups: Doing what it Takes

It's a hard time for start-ups. We all know that. But on a positive note, I was watching the NBC Evening News (yes I still do -- but on the TiVo) and saw a story that reminded me of a conversation I had yesterday that made me smile. The NBC story was about a company in Peoria, Illinois that has made its way through the recession by having employees who can do many jobs. They are flexible.

The conversation I had yesterday was with a new guy with one of our clients who said, when asked what his job was said (something like) "Whatever helps the company succeed." This made me smile because, after working with nearly 100 start ups through the years, we have seen that the best people in start ups are those that have that attitude. If pushing the broom is what it takes to get there from here, that's what they will do.

And mind you, this is a guy with substantial credentials and a track record of experience across several disciplines. He could claim specialization but instead is just focusing on being a meaningful part of the team and using all of his strengths to accomplish that.

Of course, not everybody can do everything: if you aren't a developer, you probably shouldn't try to write code. And more than that, we at Roeder-Johnson, try to keep focused on what we do well -- hoping to execute in our discipline when needed but always looking at the bigger question: of "how can we help the company succeed."

And, by the way, if pushing the broom is what we can do, then hand us the broom.

What exactly is a "seedling"?

A lot of the VC's I have spoken with recently are increasingly interested in funding "seed" stage companies. Of course, that has to do with the seemingly attractive economics of these companies. Valuations are quite low now so a large piece of the company can be acquired for less.

That is, of course, what venture capital is all about: funding companies (that often might not get off the ground without them) and having everyone end up ahead of where they would be alone. I am a huge believer in venture capital and its role in promoting innovation. It is (or should be) one of the great sources of long term growth we have.

But there's a problem with what I am also hearing from some of these same VCs: they give their seedlings a few months and then they have to have a clear path to "monetizing" (I use that word because it is such an important piece of the industry jargon).

That's what worries me: We have a seedling lemon tree in our front yard. According to all the experts, each time you see a bit of new growth in this seedling, you are supposed to pinch it off; this is so that growing the new shoot doesn't completely sap the whole tree. And you are supposed to do this for a few years.

The approach to the lemon tree is the way I have traditionally thought about seed funding: plant a seed and then nurture it till it realizes its potential (within reason). We have a few clients that are great examples of this: Canesta, today the leader in 3-D vision sensors, has been nurtured and is today hitting the ball out of the park. And cPacket, with a revolutionary approach to chip design has the most efficient approach to "complete packet inspection" (a networking and IT concept that is just coming into its own) is in just the right position today to be capturing that market. And I just learned about a friend's company, ZettaCore, that is doing some really important stuff in materials science and has investors who believe in this nurturing approach to building winners in the long term.

It's not clear, however, the most investors have that "lemon tree" approach to investing. They give lip service to seedlings and then are apparently willing to only give them a little time to turn their big idea into big business.

Sure. Everyone is under a lot of pressure today and needs to see "positive momentum" to keep funding companies. But, has the definition of "positive momentum" become too limited among most VCs? And does this mean that many of the seeds that have the potential to grow into important trees may be killed before they have a chance to blossom?