The Importance of Scaling
A watershed moment happened to me in December 2009 following a pivotal customer meeting. I was the CEO of a nanotech company and we had a meeting with our executive sponsor at a company that, at the time, was our largest customer. For several years they had been evaluating our technology and offering it selectively to their customers. We, of course, were eager to have them offer it broadly throughout their product line. Keep in mind this was a $2.5 billion global company with 40% market share in their space.
The executive said to me something along the lines of, “We believe…we’ve tested your technology every way we know how, and we like it. We see its value. We understand what it can do for us and our customers.” I clenched my first as though I had just kicked the winning goal in the World Cup. There was a pregnant pause and I knew there was a “but…” coming. He went on to say that he had major concerns about whether our company could serve them as a reliable vendor if they really got behind the technology. They were concerned (justly) whether our 15 person company with one location would be able to meet their needs if they really turned the crank. He proceeded to rake me over the coals with valid criticisms of our unimpressive track record of meeting their delivery and quality expectations. I walked out of the meeting and instinctively knew that our company was at an inflection point.
My epiphany was that our success from that point forward would have little to do with our technology. Our R&D 100 Awards, technical articles, invited talks at technical conferences–none of that mattered any longer (except for marketing purposes). Our customer acknowledged that our technology had value, that it was better than the competition and it worked. That box was checked. Our critical success factors were going to be all about execution and meeting the expectations and demands of global customers. My life flashed before my eyes and all I could see was the need to implement ERP systems, quality control, ISO 9000 certification, engineering change forms, CRM, getting our phone system to work, and the like. Up until that time the nexus of our company was all about the technology and pushing its boundaries. Going forward it was going to be all about our business performance. And I also realized in that moment that we didn’t have the team we needed to make it to the next level because we had plenty of people who knew the technology well but not enough people with the operational expertise that was now needed.
We always had investors ask us whether our technology would scale–meaning, “Could we make our products in high volume?” I never worried about that. That was a risk that was easy to grasp, and easy to focus on. Walking out of that meeting in December 2009 I recognized that we needed to turn the ship and invest heavily in businesses processes–scale the business–to make good on the promises we had made to our stakeholders. Going forward that would be our critical success factor. The 18 months that followed that meeting were painful. They involved a lot of changeover in people, new investors and a reconstituted board of directors.
It’s interesting to me now that I am working with several early-stage companies with emerging technologies how pervasive this issue is. And I am personally aware of several venture-backed companies that are about to hit a wall over this very issue. Proving that there’s a value proposition associated with your technology does not guarantee you a successful business unless you also can get the operational metrics right.