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| Home - Venture Profile - Jun 03 Issue |
Venture Profile: Tom Kippola, Voyager Capital
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Angel Mehta: Right.
Tom Kippola: Which will probably help them a lot if the fourth company they go in to has similar characteristics. However, if that VP of Sales candidate has spent his or her entire career selling post-Chasm technology products and they’re suddenly thrust into a pre-Chasm company, their skillset is probably not that relevant because in a pre-Chasm company you have to evangelize a new category before you can actually get a customer to buy it. In a post-Chasm category there’s already demand for the product category…prospects are CALLING the vendors and saying, “Come on in, show us why your product is better then your competitor’s product. We’re going to buy one of these three…show us why we should buy yours.”
Angel Mehta: There’s another common problem for portfolio companies that I wanted to ask you about, in terms of dealing with questions about viability. How would you coach an early stage company to deal with that? Could all the focused marketing in the world or all the correct messaging really overcome the objection of, ‘are you going to be around in twelve months?’ How does Voyager get involved in helping the portfolio companies to deal with that in various prospects?
Tom Kippola: I think there are two answers to that. One, is at the end of the day you need for your first 2 or 3 customers to be somebody that’s willing to take on a lot of risk. They need to have that kind of risk assumption profile. Equally, if not more important, you need to find somebody who needs to get from Point A to Point B and potentially the only path for them to get from Point A through to Point B is with some new product from some new vendor. So it gets back to what we call the ‘compelling reason to buy’. How COMPELLING is that reason to buy. Is it an urgent ‘must have’ compelling reason to buy?
Angel Mehta: Which is the crux of selecting a viable business plan, when you think about it. Still, so many would-be entrepreneurs, not to mention venture partners, are finding it hard to identify that one segment that is both underserved and has very clear pain. Do you see any segments that exist right now with those two qualities?
Tom Kippola: Yeah, I see tons of them. I’ll give you an example. There’s a company that we’re invested in at Voyager that is a homeland security play. Imagine a local police officer that gets an APB that there is a terrorist suspect believed to be within their precinct. The way that APB goes out is either verbally through a radio, or it goes out through some kind of text. Well, if a description of a terrorist suspect is going out verbally or in text…I mean you could look at the text and say, male 6’ tall, 35 years old, blah blah – but that’s not enough information to be able to quickly figure out whether the person standing in front of you or the car that you just pulled over is the terrorist suspect. But: what if you could have a photo immediately right at your finger tips along with the description? That kind of benefit is something that local, State and Federal authorities are looking to have as part of homeland security.
So I think that’s an example right there of something that’s very compelling because the alternative to not catching that terrorist suspect might be that somebody dies…or a lot of people die.
Angel Mehta: Which means the consequences to that local law enforcement district are huge, just in terms of political consequences…
Tom Kippola: Exactly. It’s like, ‘We had the text description of the bad guy, we actually pulled him over, we were looking at his face, and said, ‘Nah that’s not the guy’. That’s not acceptable.
Angel Mehta: Does that kind of mistake really happen?!
Tom Kippola: Yes. You’d be surprised.
Angel Mehta: Back to the point…you know I’ve heard from a lot of venture partners that the reason deals aren’t getting done is because there’s just a lack of compelling spaces….that every segment that could be automated already is…
Tom Kippola: I don’t buy it. I don’t buy it at all. Sure, there’s a lot of technology out there…there is an abundance. But what I find rare is companies taking their technology and matching it to a benefit in the marketplace where there is an urgent and important reason for that prospect to solve some problems. There are plenty of opportunities for that, Angel…plenty.
Angel Mehta: That are not currently being served?
Tom Kippola: I would say there are technologies out there to serve those needs but the companies haven’t….[pause]….
Angel Mehta: They haven’t matched up yet.
Tom Kippola: They haven’t matched up, no. They haven’t translated the technology into solutions for those needs. You might have a category, for example, where there are 20 competitors but only one or two have figured out how to take their technology and aim it on helping local police forces catch bad guys through giving them pictures instantly.
Angel Mehta: So let’s go back to the whole concept of mapping executive skills and competencies…this is a big part of what Sterling-Hoffman gets paid to do with every search, so it’s interesting to me. What advice would you offer to other venture partners as to how to evaluate whether a CEO or entrepreneur’s personal competency zone is correct for any given opportunity.
Tom Kippola: The way I think about it is to first simplify it. Break it down into post-Chasm versus pre-Chasm. Pre-Chasm, companies are essentially running an experiment. You’re not scaling the business. The goal of crossing the Chasm is to essentially conclude the experiment with findings that suggest that a workable, replicable formula has been found that can be scaled. Once a company has found the secret formula, then it’s a matter of bringing in executives that can scale the recipe. To use another metaphor, pre-Chasm is the search for the recipe, post-Chasm is to bake that recipe over and over again. That’s not to say you’re not going to have to find derivative recipes to go after other solutions and other markets - you will. But the biggest thing that small companies are trying to figure out is, quite frankly, a recipe for something that people are willing to eat.
Angel Mehta: and eat over and over again…
Tom Kippola: Right. Eat in quantity.
Angel Mehta: Let’s take that concept to the CEO – how does he/she identify whether the team is appropriate? What are the warning signs that would indicate otherwise?
Tom Kippola: Pre-Chasm, you want executives that understand that it’s an experiment. The team has to be a very strong learning organization so you need mindsets that are willing to run a structured experiment …or even run through some unstructured experimentation with the goal of eventually finding a recipe that works. It requires individuals who are willing to think out of the box, act out of the box, but do so in a somewhat structured way. I say somewhat ‘structured’ because you don’t want a business that’s completely unstructured otherwise it starts going off in way too many directions… too far too fast.
Angel Mehta: How do you achieve that balance though? It just seems to me like a near impossible challenge to do that without running out of money!
Tom Kippola: It’s incredibly difficult, but I don’t think it’s impossible. As evidenced by companies who have succeeded. Now, you might come back to me and say, “Tom, look at how many companies have failed”.
Angel Mehta: Tom, look at how many companies have failed! [Laughter]
Tom Kippola: Which suggests that it is tough, but that’s the business Chasm Group is in or Voyager is in - to help companies be able to identify that recipe more efficiently so that they can get to a point where they can start scaling more quickly.
Angel Mehta: Okay. Here’s something else I always wonder about authors. You’ve participated in writing a couple of books, ‘The Gorilla Game’, for example. It’s been a few years, we’ve been through some challenges as an industry, clearly. So how have some of your perspectives changed since. If you could go back and revisit certain principles and republish them based on what you know now…
Tom Kippola: First of all, probably the #1 reason I wanted to participate in ‘The Gorilla Game’ is that I felt that the world needed a book that helped tech investors understand the linkage between certain competitive advantages that are available to tech firms and the ultimate stock price that those firms could enjoy if they were able to leverage that advantage over time. So being able to link advantages that are related to proprietary architectures, high-switching costs that create network effects…those elements manifest over time in an ever-increasing stock price. That said, I think that one of the things that we will do in Version # 3 (Version 2 was out in Q3 ’99) is have a chapter on valuation. Right now, the book works if you take markets as a constant. Geopolitical or oil concerns or what I heard in a conference a few weeks ago - ‘STINKO: Scandal, Terrorism, Iraq, North Korea and Oil.’ Those have an impact on stock price and so readers or investors need some tools to help them understand not only gorilla game theory but whether or not a market is currently trading out of bounds in terms of historical valuations so that they can make some of those decisions, as well.
Angel Mehta: Any idea as to where all the tornadoes went?
Tom Kippola: [Laughing]…I think what’s interesting about tornados is that often, they come from places that were not previously predicted because they sort of sweep through an industry where technology may have been purposed for one particular use and it gets repurposed into something else and all of a sudden it becomes a tornado. The Internet, as we know at least in this country, is originally a government network. Even if they were making it public, people felt and forecasters said, “This is going to be a research thing, researchers will use this”. Of course, we know that’s changed.
That said, I do believe that the whole wireless data movement has a lot of opportunities for tornados. This device that I’m holding right here (Shows a Blackberry), made by a Canadian company…
Angel Mehta: I know them well….RIM.
Tom Kippola: This ‘Blackberry’ is something that has become mission critical for me because it allows me to use little scraps of time that were previously wasted. Yesterday, I went to meet a client of mine at noon and the client didn’t show up in the lobby until a quarter after. Normally I would sit there and fidget, pull some things out of my briefcase, maybe make one cell phone call but instead I was able to rattle off about eight e-mails. I am now able to use that time.
Angel Mehta: Let’s talk about surprises. The way I see it, you’ve got exposure to not only Voyager’s portfolio but also the intellectual capital of the Chasm Group – which to me indicates that you’ve got a tremendous knowledge base in terms of having seen patterns and common problems. So I’m really interested in the last time you remember feeling caught off guard, or the last time something surprised you. When was the last time that happened?
Tom Kippola: Hrmm….that’s a good question. I think that one of the things that I’m most surprised about is, over the last 4 or 5 years, a lot of senior executives from large high-tech companies took Board seats with small companies and ended up treating them more as a luxury than a duty. They kind of wanted to just join a club for a little while…get a little stock…get a little pop when the company went public. They were along for the ride and they didn’t really add a whole lot of value.
Angel Mehta: We see that all the time…
Tom Kippola: Yeah….whereas I think a Board seat is really a duty. When you sign up for a Board seat, you have to realize that you are one of the 5 or 6 or 7 representatives that sit around a table and speak for dozens or hundreds or thousands of employees who don’t have a voice at that table, but are putting their life into that company. I think that some of these Board members with very strong pedigrees didn’t treat it like a duty, didn’t put the effort in, were sort of casual about it. I was surprised by that because I just think there’s so much at stake in a small company, what with how much money is being raised from venture capitalists as well as the hopes and dreams of the entrepreneurs. I would have expected a larger number of these senior executives and ex-senior executives who sit on Boards to treat it more like a duty. That’s been both surprising and disappointing to me.
Tom Kippola is a Venture Partner at Voyager capital, Managing Director at the Chasm Group,
and co-author of 'The Gorilla Game'. He can be reached for feedback at: tkippola@chasmgroup.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm that focuses on VP Sales & VP Marketing searches exclusively for enterprise software companies. To send feedback to Angel, email: amehta@sterlinghoffman.net
 
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