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March - 2003 - issue > In My View
On Periodically Re-inventing Your Company
Ajay Chopra
Friday, February 28, 2003
ONE OF THE EARLY INVESTORS IN MY COMPANY once noted that, “the half life of a new start-up is measured in days.” I did not comprehend this, until I later came across some appalling statistics on the success rate (or, shall we say the lack thereof?) of start-ups. According to this statistic, only one in every 66 start-ups that get an initial round of funding returns the investors’ money. But even more appalling are stats on companies that do not fail but continue to linger on without much direction or vision. The VCs like to call these companies the “living dead.” Usually, these companies live off large VC investments (or even an IPO) consummated in the “go-go” days of the late 90s. In many instances, the founders, who were the keepers of the driving vision, are long gone and “professional managers” have been brought in to bring these companies to some kind of a respectable state (a sale, merger or dissolution).

So, what factors distinguish companies that move ahead of the pack in troubled times even as their markets shift and competition becomes more intense? My belief is that each enterprise needs to fundamentally re-invent itself periodically to assure that it is not headed in the direction of the living dead. A younger company needs to go through this re-invention more frequently than a more mature one has to. A brand new start-up re-invents itself every day as it tries to position itself in the dynamic competitive landscape. What is this re-invention about? It is about making an honest assessment of your company’s markets, its competitive position and doing a “gap analysis.” It is not just a minor tweak in that general direction direction. It is about re-defining the vision for the company. And then, most importantly, acting on it!

Here are the essential steps to re-inventing your company:
• Make an honest assessment of the markets you serve: Throw away the rosy projections you gave your VCs. This is the time to get some objective data on your markets and their growth. Add up the revenue of all your competitors. What was it last year? What was it the year before? How much is the growth? A common mistake that technology entrepreneurs make is to assume that people will move to a new technology rapidly. Remember that technologies can take discontinuous steps; but markets evolve more gradually. If your markets are not growing, you need to think about broadening the definition of the markets you serve or moving to a different way of serving your customers. In some instances, you may need to move to whole new markets to find areas of growth.
• Assess your position in the market. This is the time to look at yourself in the mirror and truly gauge your market standing versus your competition. Has your market share grown? Has a new competitor emerged? A fun process to go through is putting yourself in place of your primary competitor(s). What would they do to challenge you? What does their roadmap look like? Where are the opportunities and the threats? What is your “unfair advantage” over them?
• Assess where you need to take your company. There are two parts to this: where do you want your company to go and where your company can go, given resource and market constraints. A grand vision is excellent, but you must be realistic about the best way to move forward with your re-invention.
• Define specific steps you need to take to re-invent your company. What areas aren’t in line with the new direction? What gaps do you have that need to be filled? What is the best way to fill these gaps? Do you need to develop your organization, acquire another entity or, for that matter, be acquired, to fulfill the new vision?
• Act on your re-invention. Perhaps the number one reason for companies to join the ranks of the living dead is that they do not act, even when they know what needs to be done! There is no excuse for inaction. Even a bad decision is better than no decision at all. Remember what Yogi Berra said, “When you come to a fork in a road, take it!”

At Pinnacle, we have been re-inventing ourselves, on average, every three to four years. We started as a niche player in the video special effects business. The entire market for this sort of stuff was less than $50M. After the first three years, when the company grew to $20M, we realized that we had to re-invent ourselves as a platform supplier for video editing. This allowed us to move to a broader market, expanding revenues to $50M. Three years later, we faced the challenge that PCs were becoming faster and powerful enough to process video and we realized that the value-add of the hardware platform would decline. We then re-invented ourselves by entering the applications software business with a consumer video-editing product . This allowed us to expand revenues to over $150M. The next re-invention came four years later when we realized that we must offer complete solutions, not just point products, to our customers. This led us to make a series of acquisitions to transform our professional video business from a hardware business to an applications-based solutions business. This fueled the company's growth to over $300M. What will the next re-invention be? We do not yet know, but we do know it is no more than two years away! Constant re-invention is an important part of the culture of our company. And, we have noticed that this search for re-invention in itself drives us to look for new avenues for growth.

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