Who in their right mind would start a high-tech computer-based firm in today’s market? A savvy firm! As most of you know, I publish a free newsletter (subscribe by going to www.tulenko.com), and receive many reader questions of a how-do-I or how-do-we do something or other. I answer many of the questions directly; and post some in the newsletter where people like you come up with answers. You’ve already solved the problem, and are willing to share your experiences. I also give credit where due. Now back to the high-tech company, a real one and their question: “Is this really a good time to start a business?”

A QUEST
Jim writes: “A present co-worker and I would like to start a business using a patent I generated while working for a high-tech firm. We hired an attorney who has done a good job of clearing all of the legal details with our present employer, have located a venture capital firm that will partially fund the new company, and our respective banks has agreed to lend the rest of the start-up money. Our present employer has agreed to be our major customer, and is even kicking in a large sum of money for development.”

“So far, it's just the two families involved in the business. My wife has agreed to take on the duties of bookkeeping and running the office while holding down a second job, and I will do most of the primary engineering and manufacturing work as well as work an outside job part-time. My friend and his wife will both double in sales while keeping their present jobs. Both families will be stretching budgets to the limit, and it looks like we’re in for a couple years of those 16-hour days; but we’re all young, no children, and are eager to succeed. We've sketched out a business plan and it looks as though we can make a success of the business. My questions are, "Have we thought of everything? What problems can arise that we should be on guard against?"

AN ANSWER
Four major problem areas stand out among high-tech firms that tend to cause them to fail. Highest on the list are problems dealing with the business plan, next the basic management of the firm followed by problems dealing with finance, and lastly are the problems associated with understanding the basic marketing concept.

BUSINESS PLAN
Don’t kid yourself. The Business Plan of today is a worthless piece of paper, especially to a high-tech firm. You would be a lot better off designing a plan that starts with what your firm will look like in three years … exactly … to the dollar, then figuring out exactly what absolutely must happen to reach your goal, and finally, deciding what you must do from day to day to make your goal happen. Anything less is merely material to put on the shelf to be read when your firm goes belly-up, with you wondering what happened.

MANAGEMENT
According to the SBA, almost 90 percent of all business failures are caused by a poor, ineffective, or incompetent management. Specific problems include a failure to practice good basic bookkeeping, unwillingness to cope with day-to-day operations, inability to get along with employees and customers, promotions through nepotism rather than qualifications, and not having workable business and marketing plans. We suggest you hire professionals to manage your firm and not try to perform these tasks yourself. Your talents lie in the engineering, design, and manufacturing of your product; don't dilute these skills with tasks best left to others.

FINANCIAL
From our experience, about 50 percent of all high-tech start-ups have serious financial problems from the day they start operations The largest cause of these problems are because the venture was undercapitalized, the firm took on too much beginning debt, or the firm developed an adversarial relationship with the venture capital/ parent company partner. We suggest you make an effort to raise the capital required through a private stock offering rather than personally borrowing the money. This will lower the debt load at start-up and permit a time cushion before you have to start generating income. To accomplish this you need a great attorney, one that has a track record of success. Chances are this is not the same person you’ve been doing business with on the patent question.

PRODUCT/MARKET
Not understanding the market process is a problem in about two-thirds of the high-tech firms with which we have worked. The problems often begin with a dependency on a parent firm for business, and when that business drops off, so does the high-tech firm. From the way you’ve described your firm, this could be your future! Other causes are related to product design, timing of the product offering, and not having a distribution or selling network in place. We suggest you have a comprehensive marketing plan as described above prior to your start-up which addresses both the current and future market of your product and it's potential spin-offs. For more information and ideas contact Paul at paul@tulenko.com.