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September 14, 2006
Tips On Creating A Billion Dollar Startup Or How To Be CSR
We've got some advice today excerpted from an article by John Hodgson, the former CEO of Cambridge Silicon Radio. It's the British company that went from zero to sales of greater than $700M in seven years, three of which were the worst to hit the tech sector in recent history.( Image source: Scottish Equity Partners Venturer newsletetter. Issue 4)
A couple of recent interviews with chip startup founders and their backers suggest that they might be the next CSR, with a bit of luck and lots of execution. To slant the odds a bit more in their favour we think that listening to what Hodgson has to say is worthwhile. He was CEO of CSR through its £20M pre-IPO VC round and its successful subsequent IPO.
Below is a quick stab at summarizing several points he makes in an article he wrote for Scottish Equity Partners' Venturer newsletter, followed by a link to the full text.
1. Raise more money than you think you need and spend carefully.
... raise far more money than you think you’ll need to avoid expensive and time-consuming additional rounds. The well-known cliché that “cash is king” is absolutely true, and the CFO needs to be a Scrooge at heart who can ensure that all levels of the organisation understand that each dollar raised can only be spent once.Many of us at CSR had to constantly travel around the world and we went everywhere in economy class. It meant miserable 10 hour trips squashed into a seat too small to even open your laptop but that was just the way it had to be. At the peak we were burning $5 million each quarter. There was no way we could justify extra expense where it wasn’t absolutely necessary.
2. Raise money before you need it
... and always set up a competitive process [he means make sure that more than two VCs are bidding for your equity] to ensure the valuation of a round is set by the market. Securing funding is more important than the source, although VCs and strategic investors with respected names do usefully lend their stature to an enterprise. The price of the money and consequent dilution is less important than getting enough resources to do the job, and it helps to remember that it always takes longer than you expect to deliver on the commitments made.
3. Hit milestones on schedule
Market, technology, and funding are only as useful as the practical execution. And here, timing is critical. The company must strive to hit its plans on schedule, and the solution that best meets the requirements as the market takes off is the one that will win. Being too early can be as disastrous as being too late. CSR was not the first to market. Pioneers Ericsson and Digianswer (acquired early on by Motorola) were first, but in the end failed to deliver competitive product when the market opened up.
4. Marketing costs more than product development, so be prepared
Technology and product development are relatively cheap compared to ramp-up costs for marketing and manufacturing where timing is essential and spending must be in phase with market developments. Setting up sales, marketing, and field applications organisations at the necessary locations around the world requires significant energy and money.
5. Know that getting design in wins is an order of magnitude harder than you think.
...Persuading customers, especially the high-volume, major corporations that you must win, is orders of magnitude harder than you can imagine. A new vendor is a major risk for a customer, and your products will be used only if you can deliver, and be seen to deliver, a significantly better solution than their traditional and trusted suppliers. Even that is not always sufficient to secure business.
Read - Smart venturing: CSR’s journey from Bluetooth to blue-chip (Scottish Equity Partners Venturer newsletetter )
Posted on September 14, 2006 04:21 AM | Posted to entrepreneurship | Permalink
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