| As recently as a year ago, analysts were
predicting that 2002 would be the breakout year for a commodity market in
bandwidth. With the proliferation of dot coms and the sizzle of the
Internet, there was every reason to believe the global market place was on
the doorstep of a broadband service revolution. Service providers were
racing to expand their networks, capital expenditure was going through the
roof, and the answer to every question seemed to be fiber optics. As a
result, there were more optical startups being funded by VCs during 2000
than ever before. Optical equipment suppliers, both public and private, were
enjoying inflated growth projections and valuations irrespective of whether
they were bringing in revenue.
Then came the telecom market implosion. As the market entered recession
in 2001, suddenly business success in the new economy was all about cash
flow balance and profitability. The dot coms were disappearing as quickly as
they were emerging and service providers, having over-built their networks,
were realizing their forecasts were way off. There was only one direction
for the market -- straight down. Forget new technologies and forget the
bandwidth revolution, business focus quickly became: do more with less. The
optical startup world was hit particularly hard by the downturn. Today,
securing new venture capital and surviving the telecom winter has become a
startup's biggest challenge.
Some would say running an optical startup in this weak economy is like a
death wish. Certainly, this perception is not surprising given the number of
companies that are closing their doors or receiving wash out investment
rounds. In reality, the telecom market is going through a correction and
being restored to its original growth projections from the tech bubble days.
Therefore, while demand for optical equipment is not as large as during
2000, service providers are still spending on equipment. The difference is,
today they are spending far more selectively and only pursuing those
projects that address their immediate business priorities -- that is network
cost reduction and service velocity.
With the telecom market growth expected to return over the next 12-18
months, the challenge for the optical startup today is how to survive and be
successful during this period of downturn. Here are ten rules (not in order
of priority) we have used at Polaris Networks to effectively address this
challenge.
1. Define And Focus On The Right Product And Market Strategy
Make sure the go-to-market plan is rock solid and aligned to both the
customer's short term and long term needs. The market strategy should be
completely focused on solving the customer problem. Also, the start up
should perform its due diligence to fully understand the market as well as
the competitive landscape. Carve out target markets finely and restrict
yourself to two or three well-defined segments. The days of throwing great
technology against the wall and seeing what sticks are over. Proprietary and
sustainable technology is a necessity, but not a condition for success.
2. Line Up Strong Customers
While this can be a challenge in the current climate, this is the
foundation for the company's success. A startup must be able to demonstrate
customer traction through commitments to trial its products, ultimately
leading to a path of sustainable revenue. Aside of the revenue potential
this milestone also serves as market validation for the startups offering.
3. Ensure Financial Stability
The startup must have sufficient funds to comfortably last through
product development to initial revenues. Remember, product units shipped for
initial trials are typically not revenue generating. Therefore, this fact
should be factored into the financial plan and the organization should be
prepared to solicit new investment if necessary. While maintaining company
valuation is important, it should not be the highest priority when seeking
new investment. The key to survival and success is cash flow. The valuation
will increase inevitably once the product is field proven and revenues pick
up. The organization's financial plan must be realistic and provide a
balance between revenue and business ramp up costs. The plan must also be
revisited and adjusted whenever an organizational change is made. It should
also provide a projection of at least 12-18 months. Bottom line advice -
ramp up just in time and be realistic on revenue projections.
4. Establish A Solid Team
The team's ability to execute is critical to the success of the company.
Having a good business plan is worthless unless you have the right team to
deliver. Hiring should be kept very selective, seeking individuals with the
right expertise and a proven track record. The quality of the team will
ultimately determine the company's success.
5. Market Positioning And Awareness
With the level of skepticism in the market right now, you will be
challenged by the audience for reasons to believe your story. Identify your
target analyst and press contacts and present your solution in a manner that
is easy to understand and clearly identifies the value proposition. A value
proposition that can be quantified in economic terms is the best since
everyone relates to money. Having successfully positioned your company and
solution among the analyst and media community, the common mind share will
help build market momentum.
6. Strike Strategic Partnerships
With the number of competitive service providers (Competitive Local
Exchange Carriers) slowly decreasing, startups have no choice but to focus
on the large traditional carriers (Regional Bell Operating Companies,
Inter-Exchange Carriers). The challenge is whether the RBOCs and IXCs are
prepared to do business with a small private company. Therefore, striking a
partnership with one or more large system vendors, that can offer turn-key
services and support to the service providers, will ensure success in the
field.
7. Spend Wisely
As a part of managing closely to the financial plan, it is important
that all managers with spending authority understand the important of
shopping and negotiating the best deals possible. Completing projects that
are close to budgets is good, but achieving the same objective with further
cost savings is even better.
8. Leverage New Technology
Cutting-edge technology that offers significant price-performance
benefits is usually a startup's competitive edge. However, companies need to
be careful about pursuing a technology that presents high risks and
potentially causing schedule slips to the extent that the window of
opportunity is lost.
9. Motivate Employees
Establishing a good culture in the work environment is absolutely key.
Employees should be kept focused, compelled to work hard, and play hard.
Focusing on teamwork is also important since successful companies are not
made of individual celebrities but of highly motivated cross-functional
teams.
10. Plan Continuously With Contingencies
Every project should be accompanied by a plan that outlines the tasks to
be performed, who performs them and by when. Similarly, there should also be
a contingency plan -- for some reason if the primary plan did not go as
anticipated the company has a backup.
Ray Kao is the founder, CEO and Chief Technology Officer of Polaris
Networks, a developer of optical transport switching systems for metro core
networks. You can reach him at rkao@polarisnetworks.com.
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