Growth Stage Technology Business Assessment and Improvement - Final - Nov 2010 - Litwiller

8/8/2019 Growth Stage Technology Business Assessment and Improvement - Final - Nov 2010 - Litwiller

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David J. Litwiller 2010 1

Growth Stage Technology BusinessEvaluation and Strengthening

David J. Litwiller

Abstract Growth stage technology businesses present distinct challenges for evaluation and optimizationrelative to other phases of development. This paper provides a governance and general management operating

perspective of the success criteria and metrics that are the most informative to gauge and the most important to

advance for B2B enterprises in this stage. The goal is to detail performance indicators to monitor and

operational disciplines to improve in order to achieve the highest growth rate, financial return and strategic

impact.

Index Terms - keywords: growth stage technology business evaluation and strengthening, operational monitoringand reporting, technology entrepreneurship, venture-backed business governance

I. IntroductionGrowth stage business assessment with a view to furtheringsuccess in the form of investment, improvement or strategiccollaboration has specific challenges relative to earlier or laterstage businesses. Evaluation of larger technology companies,those that have achieved competitive scale and self-sustainability, is more capably done in a quantitative fashion:financial measures, complemented by classic key performanceindicators such as market share, relative growth, customersatisfaction, and opportunity pipeline. Earlier stageenterprises (those in concept, seed and start-up phase) are bestassessed based on the strength of the core management andtechnical team, merit of the envisioned technical and go-to-

market approach, and vibrancy of the application space. Atsuch nascent stages, internal operational and financialmeasures are usually subject to a wide range of interpretations,too premature to be meaningful on their own.

Between start-up and sustainability is the subject of this paper:growth stage B2B enterprises, generally viewed as those withbetween $2 million and $10 million in annualized sales, or 20to 100 employees, that aspire to much greater scale andsuccess. These are companies that are starting to hone in onthe winning product and service delivery package, internalprocesses, as well as pricing and channels, without being allthe way there.

Companies develop unevenly, even on the way to ultimatesuccess. There is head-fake potential for some early signsduring this phase that can be construed as overly indicative oflikely future success or difficulty because of the small numberof customers and limited history.

The criteria presented below are comprehensive measureswhich are likely to signal success or difficulty for growthstage businesses. While parts of the growth stage evaluation

take on a more quantitative nature than a seed or start-up stagebusiness, significant elements of assessment are still oftenqualitative, though more involved than at earlier phases.

II. SalesEfficiency Metrics. There is discipline about the productivitymetrics to apply to recently on-boarded sales staff as the basisfor retention decisions as well as to meet prior to additionalhiring. Typically, there is a firm criterion for new hires tohave generated incremental contribution margin bookings offour times their fully loaded compensation and direct expensesin their first year, as a condition of further hiring. Otherwise,

sales staff and management can often become defocused ontraining the next generation of hires, when the currentgeneration has not achieved acceptable productivity or skill,and may never do so.

Wide Net of Contacts within Prospect Businesses. There isego-less cultivation of contacts at target customers,particularly with respect to seniority. Sales staffers want toidentify early and engage with everyone that has knowledge,insight and influence over the purchase decision, acrossfunctions. Moreover, they identify and cultivate championsand coaches within prospect organizations early in the salesprocess who provide privileged information. Opportunitiesare rarely if ever rated above a 50% chance of closing withoutan energized coach or champion within the customerorganization aggressively helping the effort along.

Executive Support at Customers. There is senior technicaland sales support at target customers for revenue-enhancingtechnologies from an early stage in the purchasing process.There is even broader multi-functional support for internalprocess efficiency enhancing technologies, includingoperations and finance. Revenue enhancing technologies tend


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to attract advocates more easily, and can be sold more onconceptual advances. In contrast, internal efficiency toolshave to stand up to wider functional review and more rigoroussavings or performance measurement.

Advanced Pipeline Stage Conversion to Wins. A minimumof late-stage deals that were reported to be near signingspontaneously disappear. There is rigor about the process ofdiscovery and education as opportunities develop. Thisincludes technical and business needs, as well as reading thepolitical grain within customer organizations. Typically, thistakes collaborative business case development with customerson financial, technology and operational impact dimensions, todevelop and close deals. Better growth stage companiesachieve 80% and above close rates on late stage deals bydollar value, in the quarter that they are targeted to close in.High close rates on late pipeline stages means that the mostprecious resource, time, is being spent on the right deals anddeveloping them the right way. High later-stage conversionprovides one of the clearest summary looks back at earlier

pipeline stages to indicate that they are being done well.

Forecasting. Regular forecasting occurs. Projections basedon reportable pipeline (opportunities assigned 50%probability to close within the next twelve months) in pastperiods substantially match up with actual revenues orbookings, both in aggregate, and for major individualopportunities. Moreover, there is sufficient forecastgranularity and adherence to allow operational planning inprovisioning, production and delivery at a product platformlevel, usually with quarterly period revenue outcomes +/- 10%of projections entering the period.

Reportable Pipeline. The total value (not probability-weighted expected value) of the reportable pipeline is at leastfive times the value of projected revenue over the comingtwelve months. This multiplier typically provides enoughvolume for sufficient revenue to materialize in support offorecasted levels despite some over-optimism which iscommon. Upbeat probability assessment is typical with salesassociate self-reporting, the tendencies of customers to tellsales staff what they think the salesperson wants to hear, aswell as commonplace push-outs in time of some deals as theymove toward closing.

Large Account Plans and Plan Execution. Large account

plans are a reflexive expectation of staff and management.Few organizations develop high performing sales teamswithout developing good large account plans, or plans for howto turn footholds in large accounts into much larger revenuestreams. Large account plans are one of the most revealingnon-financial measures of sales performance for the way theyreflect method about being forward looking rather thanprimarily reactive, and making the most of proximateopportunities. Whereas pre-transaction prospect interest issometimes difficult to gauge for the way that it reflects upon

the sales effort, particularly separating positive, self-affirmingmeetings from real progress and escalating commitments fromeach side, the quality of sales management as evidenced bylarge account plans is much harder to deceive.

Lost Order Recording and Analysis. Deals from thereportable pipeline that got away are recorded, along with alow distortion view of the reasons why. This data is used asthe basis for periodic reviews and lessons-learned sessions tohelp guide future improvement in tools, processes andtargeting.

Sales is an Honorable Profession. Other functions of thebusiness view sales as an honorable vocation. They seek tohelp and demonstrate salesmanship themselves when facingoutward on behalf of the business. Reciprocally, the salesgroup earns and renews this respect daily. When necessary togo out on a limb to win business, the sales and deliveryorganization agree beforehand to go out together.

III. CustomersTime to Value. Customers deploy the technology quicklyrelative to competitive benchmarks, and are easily trained touse the product well and derive its intended benefits.

Satisfied and Promotable. Customers are reference-able,most are delighted or nearly so, and several name-recognizedcapability leaders are willing to lend their names as users forpromotion. They either love the experience with the productor service, or they get a new-to-the-world capability that is notavailable elsewhere. Individuals within customerorganizations see their use of the product as socially or

professionally advancing, or transformational for the benefitsthat it delivers.

Return-on-Investment (ROI). Customers achieve a knownand significant ROI. The ROI model and results are sharedsufficiently with the vendor to further product marketingcollaterals and impact knowledge. ROI feedback is used todrive increasingly targeted consultation and business casecollaboration with prospects in future sales.

Profitability Profiling. It is known which customers areprofitably being served and which arent. For customers thatthat arent, there is a clear understanding of how they will

move to profitability or be set aside over a defined andreasonable time.

Product-Service Clarity. There is an understood allocationof revenue and profit between product and associated service.As it is much harder to scale and build lasting value inservices, this distinction is usually made with a view tokeeping the growth rate and growth potential of the businessas high as possible.


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IV. Financial Impact for Vendor and CustomerThe following measures profile typical thresholds of pricing

and performance required to have lasting impact and

sustainable differentiation based on common models of

technology delivery, product positioning and service offering:

IP Licensing. Recovery of allocated development, legal andfiling costs from up front and milestone payments areachieved in year one after signing a new licensee. Subsequentmilestone and royalty payments provide a further overallaverage return in excess of 30% per annum. The year onecomponent is important to distinguish tire kicking customersfrom those that are motivated. Both the up front anddownstream elements need to be present as evidence ofcustomers seeing substantial strategic impact potential fromtaking a license.

High Performance Product. The vendor is able to defend adoubling of value relative to incumbent offerings, target a50% increase in price, and accept no less than 30% more.

Low Cost Product. Sustainable cost savings are delivered ofat least 25% for a product that is otherwise functionallyequivalent to the status quo.

Business Productivity. Business productivity improvementfor the customer is realized that delivers a 40% ROI,alternatively payback of four times the hard costs over thelikely useful life span of the purchased asset.

Industrial Productivity. An enduring 30%+ increase inspeed, accuracy, repeatability, reliability or flexibility isachieved in the customers system, or, alternatively a 10%+

reduction in scrapped output.

Business Process Solutions. Where the vendor assumes anentire business process on behalf of a customer withsignificant differentiating IP, it is able to charge twice whatthe hard costs of operating the process are expected to be.Alternatively, the value of the offering supports a realizedprice of double the cost of the bundle of required componentsand integration effort. Lesser pricing risers over hard coststypically signal that the solutions are viewed more as services,than as IP rich offerings that deliver significant, durable gainsfor the customer or appreciably faster time-to-value thanalternatives.

V. Pricing Structure and ProcessesConsistency. Similar pricing and discount structures areprovided to similar customers and channel partners. There areno special deals just for asking. Customers and channelpartners become trained over time to not expect special dealsas a reward for renegotiating or otherwise maneuvering apartfrom driving up volume and profits. Consistent pricingdiscipline saves everyone time to focus on higher value

dimensions of the business, imparting trust and integrity intoother aspects of the relationship.

Discounts Based on Results. Discounting rewards volume asit happens, not by forecast, and favors larger transactions oversmaller ones.

Exceptions. Exceptional pricing requests that have transpiredare periodically grouped and reviewed as the basis to evolvethe pricing strategy and structure so that such exceptionsbecome less necessary in the future.

Restricted Discount Authority. Discount authority isdefined and controlled, particularly for revenue streams oflong persistence or high expansion potential.

VI. Marketing InboundData-Rich Environmental Understanding. The competitivelandscape and benchmark companies strategies and financial

models are well understood, in as data-rich and fact-based amanner as possible (rather than largely anecdotal).Environmental monitoring is done with a view to outflankingthe competition and levering the collective investments andintellectual energy of those that have approached the samemarket before. Anecdotes are subject to selection bias, and inisolation can be used to argue for almost anything. A broad,ongoing data-driven external frame of reference is powerful asa tool to identify how to invent or redefine marketplaceexpectations where it matters most, sidestepping or deflectinghead-on competitive battles, and selectively settling for beingefficient enough and good enough where differentiation is notso valuable

Customer Requirements Five Whys. Those who gatherand distil customer requirements relentlessly ask why untilthe answer stops changing. They understand how the offeringcan add the most value to the system level challenge through acomponent or solution; the totality of the use case customersneed to fulfill is at an advanced state. Inbound bandwidth isfurther combined with implementation and deliverypragmatism to arrive at practical goals for product and servicedevelopment.

VII. Product Management

Short- versus Long-Term. There is balanced weighting ofdeal-of-the-day new inclusions, with longer-term featureconsideration processes. Both are necessary to create acompelling, competitively powerful product platform andvector of advancement that can be maintained, while stilldoing what is necessary to meet near-term revenue and growthtargets.

Complementary Product and Capability Strategy. There isan explicit strategy to either make complementary products


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much more powerful which are already in the hands ofcustomers and channel partners, or, to commoditize thosecomplements with sufficient power to re-apportioncompetitive power in the market web.

VIII. Marketing - OutboundAppropriate Communication Channels. Marketingcommunication channels are used that speak to the realinfluencers and decision makers. The right medium builds thestrength of relationships and mutual understanding appropriateto the investment stakes of the technology or service.

Instrumented. Metrics are monitored for how expendituresin each sub-segment of marketing communication convert toleads and qualified leads to stoke the sales pipeline. Outboundmarketing is not done in an open loop or scattershot fashion.

IX. Analysts and Influencers

Aware, Enthusiastic and Promoting. Analysts arededicating significant coverage to the company and itsproducts. The endorsement of outside analysts is a significantpredictor of future success, especially for technologies wherethe customers purchase decision is political and multi-functional, and more so when the technology addressesinternal efficiencies more than major revenue expansion forthe purchasing business.

X. ChannelsPragmatic Sense of Channel Power. The enterprise hasadapted to whether it is a technology- or channel-led business.

The appropriate one is the focus of activity. The underlyingissue is when technology businesses struggle, it is oftenbecause of a presumption that strong technical differentiationwill prevail to attract distribution channel partners in areasonable time scale, when in fact it is the channel that holdsthe real marketplace power. In channel centric industries, it isaccess to distribution players and their mind share thatseparates the winners from losers. The technology is tablestakes, but an insufficient condition for rapid success. Thiscan seem counterintuitive to some, especially those whichattain early localized success that is not indicative of thereasons for why a much larger swath of the entrenchedchannel would be likely to adopt and promote the product line.

This lesson is a difficult one for technology promoters thatwould rather envision a way that technical differentiation canovercome all else. Long-term winners develop an early senseof channel power, and adapt accordingly.

Self-Sufficiency. If it is a channel business, there issignificant evidence from channel partners of attaining self-sufficiency to originate and develop new deals. There is alsoongoing training, in addition to active pruning and re-seedingof channel partners.

Hit Above Weight. Sales channel partners see significantopportunity to cross-sell, up-sell or increase the margin richportion of their existing product or service offerings throughthe promotion and sale of the new technology. This requiresmuch more than just training, marketing communications andcash or near-cash incentives from the producer to its channelpartners to rent mind share.

Limit of Channel Involvement. If it is more of a direct salesbusiness, involvement for channel partners is largely restrictedto lead finding or recommending. A third party channel maystill be important to find or unlock sales, but its role needs tobe constrained.

XI. ProductIt Just Works. The product delivers consistent, repeatableperformance in the hands of customers.

Deployable. It requires a known, limited amount of service to

deliver, commission and sustain in most cases. Configurationis done efficiently by a peripheral technical team, rather thanthe core development group having to do most of the heavylifting.

Scalable. Theres sufficient knowledge and effort duringdevelopment and test to have reasonable confidence that theproduct can be stably reproduced over the next order ofmagnitude increase in demand volume and usage variety.

Demonstrable Quickly. Persuasive benefits can bedemonstrated easily, usually in five minutes or less, even if acomprehensive understanding requires greater time and

education.

XII. R&DTwo Pizza Rule. The core development team remains tenpeople or less. This is familiar start-up and early stageguidance, but there continues to be strong communication andco-ordination benefits to keeping a core development team assmall (feed-able by two pizzas) in the growth stage. Beyondthat size, further advantages of specialization begin todiminish and communication overhead goes up rapidly,driving additional proliferation of headcount, slowingtechnical responsiveness, and diffusing accountability. The

result of premature growth beyond this threshold is often thatservices (difficult to scale) start substituting for product (easierto scale), hampering downstream growth, profitability andvaluation. A smaller, leaner development team becomes self-reinforcing as it demands a product that is reproducible,deployable and scalable. Even approaching $10 million inannualized sales, results are usually much better restricting thecentral R&D team to this level, and architecting the productand the delivery model to allow customer-specific


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configuration by a less skilled peripheral technical team if alarger set of technical hands is a necessity.

Can-Do, but Learn Fast and Make Money Now. There is aa can-do attitude at the same time as having a grounding inkeeping implemented solutions as simple as possible, andincrementally advancing on larger objectives in individuallysale-able steps to keep learning and revenue cycles fast.Minimum viable product is a mantra not just for the firstgeneration product, but beyond as well. The only exception isget big imperative companies such as those in utility scaleenergy or certain life sciences fields where the magnitude ofinvestment and timeline to revenue are necessarily muchlonger than most.

R&D Inventory Awareness. There is a related awareness ofthe amount of cumulative R&D that has taken place that hasnot yet reached a revenue-generating state. R&D inventorylike this is a liability, since the longer it builds, the more risk itcould miss the mark of what paying customers want. A bias to

constrain it keeps up adaptability and minimizes outright R&Dscrap that cant be profitably marketed or reformed to a moreuseful state.

Schedule Adherence. Major products are released to themarket within 20% to 30% of the cost and developmentschedule formulated at the beginning of the effort.Consistently achieving such accuracy typically requiresscheduling activity to a granularity of two days per R&Dperson, or less, and involving R&D staff in estimating theirwork so they feel a sense of urgency, responsibility, and buy-in to the schedule. With coarser estimation, or lessinvolvement, there is too much work that usually gets

overlooked during planning and initial commitments, only tojump up during development to slow and frustrate the process.With more detailed effort estimates underpinning cost andschedule estimates, minor errors tend to cancel each other out,helping overall accuracy, as well as providing a moremeaningful reference framework for looking at deviationsafter the fact from which to learn to estimate better in thefuture.

Rapid Development, but Not Reckless. Developmentschedules are within 10% or so of the fastest competitors, withthe extra time spent on better front end planning, refiningrequirements, more thorough high level design, and attention

to critical risk areas.

Fast Cycles. There are no big bang development projectswhere R&D staff work for months before doing integrationand system testing of something resembling a shippableproduct. Development and testing infrastructure is created sothat new work can be tested individually every two days, andsystem integration testing takes place at least monthly. Newproducts get out to market at a frequency of every four to sixmonths. This way, feedback comes when ideas and

assumptions are freshest, so that errors can be corrected mostquickly, and errors do not propagate and amplifyunnecessarily. Trouble areas can then be quickly pinpointed,to dispatch help, peer review, or a fresh design approach.Moreover, fast cycles foster intra-team communication, amajor development productivity lever, as well as loweringdevelopment work batch sizes which improve utilization rates,creating more predictable outcomes. Fast cycles, small batchsizes of development work, and predictable outcomes set thefoundation for running multiple development projects inparallel as part of future growth.

Visual Status Control. Status and progress of developmentwork is made visible, self-reported by individual staff. Dailyreporting data and charts roll-up directly into weekly, monthlyand quarterly review reports, with a minimum of manualeffort.

Anticipation. The team is always thinking several stepsahead about the roll-out and deployment of the product, as

well as both the sources of foreseeable internal and externalvariation. They design and adapt the product and thedevelopment process to anticipate and be robust to subsequentdemands, including variability.

Reflection and Improvement. After-action reviews takeplace following each major development project to identifyand charter improvements for the next project. Thoseimprovements are implemented and followed up in subsequentdevelopment efforts.

XIII. Intellectual Property

Explicit Plan and Follow Through. There is a game plan forprotecting IP. It is not left to be an incidental outcome ofother activity. It reflects the competitive intensity of patentactivity, and identifies areas for retained trade secrecy andcopyright protection, all with a view to the future state of thetechnology and competitive landscape.

Compartmentalization. Where production, distribution orconsumption of the product or services takes place in nationswith weak IP rights regimes or contract law, there is a explicitcompartmentalization of activities to keep the entirety of thesecret sauce recipe out of view from those locales. They maysee part of the puzzle, but not all of it, and not enough to cause

fundamental distress if what they see leaks.

High Orbit Brands and Trademarks. Brand-buildingmarketing efforts focus on the company name or coretechnology platform instead of individual products. It isexpensive and requires substantial repetition to build brandawareness and equity. It is typically best in the growth stage ifthe company name or the branding of its core technologyplatform are the focus of brand-building awarenesscampaigns, rather than subordinate product lines or individual


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product names. It is just too expensive in most cases toconcentrate enough resources at lower levels to make much ofan impression.

XIV. Quality AssuranceQuality, but Consistent with Rapid Innovation. There is apassion for delivering the level of quality that customers inaggregate value, to drive sustainable growth. At the sametime, there is not overzealous pursuit that can slow innovationwithout sufficient offsetting benefits in customer satisfactionand sustainability.

Positive Tension, without Dysfunction. There is awillingness for the quality effort to constructively engage andchallenge R&D and/or manufacturing, and the businessoverall to improve quality, keeping everyone on their toes andmoving forward. The effort stops short though of tipping overinto systemic confrontation

XV. Financial Performance and OutlookExpanding Margins. Margins are growing with experience,volume and increasing pricing sophistication relative tocustomer value and competitor responses.

Rising Capital Efficiency. Revenues and profits are growingmore rapidly than required investments. A lot of intellectualenergy of management and staff goes into devising how tomake money now, and making do with a little less investment,rather than taking the easier way out of spending heavily tosupport growth. There are some exceptions at the defined sizeof business addressed in this paper, such as get-big-fast

companies, or massive investment scale endeavors such asgeneral on-line retailers, utility-scale clean energy, and manybiotech ventures. But, for the vast majority of growth stagetechnology businesses, a clear trend of rising capital efficiencyis a high correlation predictor of future growth and success.

Cost of Capital and Investment Hurdle Rate. The seniormanagement team is all acutely aware of the cost of capital forthe business, and the required investment hurdle rate forinitiatives. They then tend to bring this viewpoint intodepartment-level review and deliberation processes, so thatideas are screened early and well for being worthycontributors to the business.

Control Costs. As go headcount, rent and extravagance ofthe travel establishment, so goes the cost base of the business,more often than not. Things can get out of control quicklyonce headcount, rent and travel expenses start proliferating, asthey are major drivers themselves of costs, as well as sendinga strong signal about spending restraint standards to otherareas.

Dashboard. The most important measures of financial health,recent performance, and near-term outlook, usually no morethan seven in all, are the basis for daily, weekly and monthlymanagement course adjustments and business model tuning.Cash flow is one of them, so that there is absolute clarity aboutcash utilization and reserves. Cash is oxygen, and cashpositions can change quickly at times of rapid change. Thedashboard should also go on to address hypotheses for thetargeted business model and strategy that are not yet proven.If there are such questions, there should be a similar size set ofmeasures to confirm or disprove those that are monitored onthe same cadence. With such a shared set of measures, themanagement team then tends to have a more similar view ofpresent footing and the business model, and view opportunityand difficulty in more similar terms.

Forecast Assumptions and Dependencies. People spend asmuch time discussing the assumptions and dependenciesbehind projected revenue and budget numbers, as they doabout the numbers themselves. Operational linkages then tend

to be much better contemplated, improving success rates.

Re-Budget Once Revenue Varies by More than 10% vs.

Plan. The budget for the leading twelve months gets rebuiltonce top-line deviations of more than 10% from the mostrecent prevailing plan become likely. This includes the cashplan, operating expense forecast, and capital investmentmodels. Otherwise, divergence of spending and investmentviews can take place because of localized interpretations of thechanges, making efforts disjointed.

XVI. Accounting

Close the Books within a Week Past Month End. Businessprocess, accounting and administration are well in hand,without taking an army of people to generate the monthlynumbers. A rapid monthly close generally correlates with thecompany not undertaking gyrations to recognize revenue inadvance of when it really should, or similarly defer expenses,providing a fair near-time sense of how the business isperforming from which to make course adjustments. Complexinterpretations are reduced to systematic operating procedures,so that few entries each month need to undergo timeconsuming analysis and debate. Simplicity, clarity, speed, andintegrity in financial reporting is difficult to achieve andsustain without similar characteristics throughout much of the

rest of the business.

Minimal Period-to-Period Reversals. Intra-periodaccounting is reasonably accurate on an activity basis, anddoesnt need to undergo reinterpretation routinely based onfuture events.

Monthly Process Consistency. The quarter-end and year-endmonths are almost like any other month, without excessivescrambling to address unallocated charges or income.


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Reluctance to Capitalize Development Charges.Capitalizing development charges can impair managementdecision making down the line. There can be hesitation toacknowledge impairment or otherwise move forward astechnology and operating conditions change. Often, sizeablecapitalized development charges distort the balance sheet,complicating interpretation of financial condition.Capitalization is typically only appropriate when thedifference in time is long (usually well over a year) betweenwhen an asset is developed and when it is released. This isinconsistent with a rapid develop-release-learn imperativedescribed elsewhere in this paper.

XVII. Strategic PartnersFear, Greed and Commitment. Strategic partners work withthe young company because they have both a pressing greedreason with roots in growth and strategic influence, as well asa fear factor of significant damage to their existing businessesover time were they to not. Also, there is clear evidence of

significant investments of money and time of top talent withinstrategic partner organizations to the advancement of theirjoint effort with the earlier stage company. There is no hold-up in sight where partners engage with the new technologyprimarily to gain blocking influence to slow its progress ratherthan advance it. Absent too are press release only partnershipswith little substance behind them.

XVIII. AdvisorsTop Shelf Help. The company is advised by top tier tax,accounting, and legal representatives. They are responsive,efficient, and proactive. This streamlines downstream growth

and financing, among other benefits, saving managementhaving to rip-up and re-do tax, financial and legal items laterthat were poorly done.

No Parasites. The company is not unduly burdened byadvisors. There are plenty of retired executives that wouldlove to catch on for lucrative retainer-based advisory work,particularly in business development, citing their industrynetworks as their stock in trade. Such people often havecomplex personal agendas. Strong firms that go on to greaterthings have the energy, networking skills and managementcredibility to open the doors they require on their own, withouta lot of help from such people with asymmetrical objectives.

XIX. Board of DirectorsBeen There, Done That. Board directors collectively havedirect and successful experience with analogous technical,operational, sales, finance and growth trajectory businesschallenges.

Supportive, But Willing to Challenge. The board issupportive of management, seeking to offer help, providing a

sounding board, delivering constructive input, and spendingthe time to learn the business and its environment. They comeprepared to board meetings, to make the most of the workingtime together. At the same time, they are independent andtake initiative. They are not shy about challengingmanagement and standing their ground on pivotal issues.

Strategic Alternative Discussion, with Limits. The board ispresented with a few possible variations on major strategicthemes that need to be decided upon. Doing so brings out aricher debate and range of input than simple yes-no responses,while not overwhelming directors and diluting the discussionwith infinite possibilities. At the conclusion, timely decisionsare made and put into action.

Management Transparency. The CEO, CFO and any otherinteracting management are up front with the board aboutwhat is worrying them most. There are few surprises for theboard. Senior management knowledgeably articulates in aforthright manner the different sides of major issues that are

confronting fiduciary management and the board.Management makes concise recommendations, but leavesroom for board influence.

Second Level Management Interaction. The board hasregular access to the most senior layer of management belowthe CEO from whom to gain unfiltered information, andeducation about the internal and external circumstances of theenterprise.

Clear Goals and Feedback. There are clear goals for thebusiness, and evaluation criteria for fiduciary management bythe board. These goals serve as the basis for ongoing

monitoring and performance feedback.

Executive Sessions. The board carries out regular executivesessions to discuss how the board can do its job better, whatmanagement needs to do better, and the delivery of thatfeedback to management

Monitoring Discipline. The board is disciplined aboutmonitoring financial matters, as well as satisfaction ofcustomers and partners, sales pipeline progress, R&Dexecution, culture, talent development and strategicdevelopment.

XX. ManagementCoordinated Approach. Senior management has a similarview, though not cult-identical, of the most pressing issuesfacing the business. Wide differences in outlook are workedout among senior management privately, vigorously at times,to come out to present a unified front to more junior staff,partners and customers. Rank and file have a voice, butleaders make decisions and abide by them.


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Lead by Example. Enough said.

More than Just One or Two Spark Plugs. Salesmanship,technical depth and catalytic energy exude from more than justone or two key figures, so there is sufficient engagement toignite others to behave similarly as the business scales up. Aswell, key capabilities are institutionalized in the processes andinfrastructure of the business, rather than remaining the privatedomain of just a few people.

Coherent Strategy. The strategy evolves and adapts, butdoesnt change profoundly on a regular basis. Otherwise,there is compass failure, the business thrashes, and momentumis lost.

Monthly Operating Reviews. There is a regular monthlyrhythm of bringing the leadership team together to reviewperformance versus plan, adjust to address gaps, and seizenewly emergent opportunities. The focus is on deliveringcurrent period tactical and financial plans.

Quarterly Business Reviews. These reviews are led bysenior management, but with the spotlight on functionalmanagement in a peer-review forum to present results anddelivery of mutual commitments to support overall financial,customer, technology and operating goals. Greater emphasison strategic level issues takes place in quarterly sessions thanin monthly operating reviews. Culture and staff on-boardingdiscussions should be part of quarterly reviews.

Communication. Communication with staff keeps up at alltimes, and especially in difficult circumstances.

XXI. EmployeesTheyre Smart, and Get Things Done. What more is there?

Strength Attracts Strength. Strong candidates, those withoutstanding reputations for excellence earned elsewhere, areseeking the company out as a place of prospectiveemployment, particularly past colleagues of current staff. Thegold standard is to attract the best 5% or so of top performersformer colleagues. These should be the strongest colleaguesthat the most effective staff have worked with in the past andhave ties with, seeking to challenge and prove themselves, notmerely the top 20%.

Low Voluntary Turnover and High Effort. People areexcited about the work, and stay with the company. Theywork extra hours not principally because there is social orexplicit pressure to do so, but because they are pumped upabout what theyre doing and the difference theyre makinginternally and externally.

Methodical On-Boarding. New hires are provided with clearperformance targets, learning objectives, challenging but

attainable early assignments, and regular feedback. Pivotalmoments in the companys history that exemplify desiredbehavior, and counterexamples, are presented. New staff thenhave the highest chance of adapting to the culture and standardof excellence that the business aims to achieve. The ultimategrowth limit of a technology business is often determined bythe pace at which new hires can be mentored and trained toproductively contribute, and themselves on-board the nextgeneration. On-boarding is a fundamental growth-stage skillto sustainably thrive and expand.

Active Pruning and Re-Seeding. Mis-hires are pruned,especially during the first year of employment. Weakerplayers or misfits are regularly moved out and do not becomedetrimental to a climate of achievement and high performance.

Reflexive Performance Feedback. Managers provideencouragement, actionable criticism and advice as events areunfolding, or very shortly thereafter, not waiting for a semi-annual or similarly low frequency performance review event

when memories often have faded, and perceptions shift.Constructive advice is delivered in real- or near-time.

T-Shaped Development for High Potentials. Employeeswith the highest potential to grow into more senior or cross-functional roles are given ad hoc broadening assignments.These projects are designed to give them additionalperspective and experience in the business, cross-trainingbeyond just their functional specialty, as well as an extendednetwork of internal contacts. Doing so also providesimproved resource balancing options at times of high demand.

XXII. CultureDrive and Belief. Employees and management have a strongbelief in the future of the business and for its products andservices to be transformational for customers. But, there isalso an underlying paranoia that success has to be earned, andthat complacency can be the seeds of the undoing of thebusiness at any time.

Substance. There is a depth to employees technical andapplication enthusiasm for the product, grounded in drivingreal, sustainable value for end customers. This is differentfrom superficial enthusiasm and a glossy pitch that cant holdup well to direct drill-down questioning and informed

skepticism. Staff and management can advocate for thebusiness technology and market position without summarilyresorting to the sliver of infinity argument to fend off doubt(Its going to be huge) or circular, self-fulfilling argumentsfor future success to deflect critical analysis. There isintellectual honesty, to see situations objectively and actaccordingly. Businesses with this capability of testing ideasand actions make better day by day decisions, to accumulate asuperior capacity across functions and market presence over


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time. People who cant handle the argument often dont careenough or understand enough.

Improvement Obsessed. Double feedback is evident. Thefirst is to fix problems as they arise, not conceal them. Thesecond adapts the underlying process or system to betterhandle similar situations in the future and avoid recurrence.There is a culture of continuous improvement. Absent arewhack-a-mole dynamics where one problem is summarilyexchanged for another, or reminiscences of the movieGroundhog Day where the same issues keep recurring withlittle progress.

Common Goals. Everyone is able to articulate the valueproposition that the company, its products and servicesprovide to customers, and the way the business is collectivelycommitting to fulfill its commitments internally andexternally. There is Esprit de Corps. Employees are guided inday-to-day decisions by more than just what their immediatemanagers and colleagues are saying and doing at the moment.

The ego and ambition of the company is greater than the egoof the individuals.

Demanding but Rewarding. The workplace is demandingbut rewarding. It expects much of people, and holds themaccountable, but supports, provides guidance, and rewardsthem. There is an absolute minimum of BS.

Energy with Control. Enthusiasm, initiative and energy areabundant, but with control to maintain efficient execution.Risks are carefully researched and weighed before taking bigdecisions. Wherever possible, project commitments aregraduated, so that progress and opportunity are regularly re-

evaluated as the basis for future investment or repurposing.

Strong Negotiation Skills. People are encouraged andmentored to be tough negotiators, particularly towardcapturing full value for the companys contribution to thecompetitive ecosystem.

Integrity. When theres one version of the truth, theresnothing to keep track of, and corners dont get easily cut.

XXIII. ConclusionThere are always exceptions, and the above list is broad wherethere is room for variation. But, with strong recurrence I havefound that businesses that go on to achieve considerablesuccess through the growth phase have a consistent, earlydiscipline on a strong majority of the above. And, in theminority of cases where they do not, enterprises are able toidentify and regularly improve shortcomings to move towardthe preferred state.

Growth stage technology firms that prosper usually meet 90%or more of the above criteria, where they are good, andactively getting better. Almost always, companies that sustaingrowth and go on to much greater profitability and scale aresolid on at least 80% of the described attributes, and strivingto improve.

About the AuthorDavid J. Litwiller is a senior executive in high technology,

based in Waterloo, Ontario. His background is in wirelessdevices, precision electro-mechanics, semiconductors, electro-optics, MEMS, biotech instrumentation, and enterprise software.He serves as an advisor for various private corporations inmatters of strategy, technology, operations, and businessdevelopment. Mr. Litwiller is a frequent speaker at technologyentrepreneurship forums and executive conferences on businessstrategy and turnarounds, having worked extensively withgrowth stage businesses.

He is the COO of Prinova Inc., and most recently was inprogressively more senior R&D, marketing and M&A executiveroles with DALSA Corp. Mr. Litwiller is the author of Rapid

Advance - Mergers & Acquisitions, Partnerships, Restructurings,Turnarounds and Divestitures in High Technology,http://www.amazon.com/Rapid-Advance-Acquisitions-Partnerships-Restructurings/dp/1439200874/ref=sr_1_1?ie=UTF8&s=books&qid=1287516364&sr=1-1.

Growth Stage Technology Business Assessment and Improvement - Final - Nov 2010 - Litwiller

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