Regional Technology

 

June 3, 2002

 


Tough times make great companies

San Diego is having a rough year. Although there are pockets that seem to have withstood the recession -- and we haven't been hit nearly as hard as the Silicon Valley -- the economy of 2002 has had a sobering effect on business across the board. But if we remember the pain of the early '90s one thing becomes clear -- when good people with great ideas are reluctant to look elsewhere for jobs, San Diego can be a veritable hothouse for entrepreneurship.

Ten years ago, when the defense sector collapsed, it was the IT professionals who led the effort and gave birth to our deep and promising wireless and telecom industries.

These days the defense sector is alive -- if not humming -- again. But now we're building anti-terrorism products and services. The software folks are doing network security, telecom is seeing the emergence of sensor technology and biotech is busy adding anti-toxins to our regional fare. But the environment now is one of fiscal conservatism and corporate belt-tightening. And this back-to-basics philosophy has left many people un- or under-employed. So, what do smart folks do when they've fallen in love with this town? They start companies -- what else?

In fact, the May 27 issue of Forbes Magazine calls San Diego the "best place to start your business" based on our diversified high-tech economy. And at the RTA's recent StartUp 2.0 seminar, Steve Domenik, a partner with the venture capital firm Sevin Rosen, was bullish on the times. His comment on new starts was, "Go for it! Your timing is perfect."

If you are fundamentally a resourceful person and can be clever about carving out a distinct niche in the marketplace, opportunities abound. These days, there's a good chance that the bigger guys will leave you alone for a while -- they are busy refocusing. Now is a great time to build value while staying off the radar screen. Sooner or later the market leaders will be looking around for growth through nimble affiliates -- and you'll be positioned for stronger alliances.

And, in case you haven't been paying attention, venture investment in San Diego has been relatively strong recently. According to Growthink's analysis of the fourth quarter of 2001, "San Diego had a very strong quarter, and received $342 million in investments across the board -- more than half (50.2 percent) of the venture capital invested in Southern California," which placed our community at number five nationally in venture funding for the quarter.

And, although Growthink was measuring more than startup activity, the June issue of Business 2.0 cites $36.2 billion in investment funding nationwide as having gone to startups last year. Although national statistics may not completely reflect the local landscape, that same story predicts that "venture investment in startups this year will roughly equal the total of the period from 1990-1996," while last year saw "the tech sector dominating at two-thirds of all capital secured."

With that said, starting a business has never been easy, and in this economy technology startups are certainly not for the faint-of-heart. So how can you tell if now is the right time for you? Well, try this checklist first. If you don't see too many reasons why not, maybe it is your turn to seize the moment. But first, look at a couple of factors:

Personal assessment

This is a "do not pass go" action item. No matter how compelling your idea may be, if you aren't reasonably risk tolerant -- that is, if your personal and financial situation can't sustain a roller coaster ride for the next three to five years -- then I hope you haven't lost your day job. Or if you are under any illusions about growing a company so that you can experience "being your own boss," then a tech startup probably is the wrong next step. Growing a company in tough times is more likely to be a humbling experience than an ego boosting proposition.

What problem will you solve? There are some excellent technologies languishing in this wait-and-see marketplace, so rather than focus on a product or application, why not start with a market need? Perhaps you have that "better mousetrap" calling out to you, but if you aren't deeply entrenched in a particular product idea, why not look carefully at the markets that you know well?

Are there consumer or business issues that make you crazy? When was the last time you said, "Why don't they just do ... x ..." when you were out in the community? Are you ready to hunt for a breakthrough technology to commercialize? Do you have the science but lack the business savvy? And though the dot-com era has passed, the June Business 2.0 story noted that over 21 percent of last year's funded startups were Internet or Web-based companies. So you may not need a brilliant technological breakthrough, just an innovative idea, for starters. That said, however, you should also remember that ideas are the easy part. Executing well on a good idea will be the force that turns these times in your favor.

Market opportunity

One of the painful lessons of the late '90s was the failure of innovative new companies to identify real customers in real markets. If you are starting from a validated need, you are at least headed in the right direction. But it is very easy to be seduced by our own creativity. Can you identify an emerging market opportunity? Can your concept be scaled appropriately to sustain revenue growth? Is there a reasonable path to profitability based on predictable revenues and costs? Have you tested your core assumptions and secured qualified, objective feedback?

Is it a business or a project? Many technologies and product ideas die untimely deaths because they were not positioned to be businesses. Science projects are stimulating for sure, but without a credible enterprise plan you will not likely make your first million. While you may want to do some proof-of-concept in your garage, or after hours, your potential for success will definitely be proportionate to the sophistication of your business model. But all the more reason to be starting here and now to build a strong management team. San Diego has tremendous professional resources, and lately there are some pretty smart business folks looking for the next opportunity. Whether you need advisers, advocates or technicians, this a great time to be bringing it all together.

Have you made it through the assessment? Well then maybe it's time to lay out your action plan. Over the coming months I'll be bringing more detailed support for your business, market and financial development processes. In the meanwhile, I invite you to mix a bit of inspiration with some perspiration and see what shows up!


Orion is president and CEO of the San Diego Regional Technology Alliance, a private 501(c)3 corporation, supported in part by the California Technology Trade and Commerce Agency and private sector partnerships, and committed to growing a tech-savvy region.


 

June 3, 2002