Startups square off on path to success

Though they have the common distinction of dramatic revenue growth in the midst of a declining IT market, two of Canada’s top technology neophytes disagree on the best route to startup success.

Herb Woods, CEO of Sigem Inc., a Kanata,Ont.-based telematics company with approximately 20,000 per cent revenue growth in two years, said a startup’s business plan is absolutely crucial.

Woods told the gathering of startup companies and venture capitalists at the Toronto Board of Trade that VCs allow startups few chances to alter their business plans, making it wise for new companies to be meticulous with their planning from day one.

“I would encourage everyone to focus hard on the business plan,” Woods said.

Peter Beck, president of Toronto day-trading boot camp Swift Trade Securities Inc. sees the plight of the startup very differently.

“I don’t believe in writing business plans. I believe for a startup, it’s a waste of time,” Beck told the audience celebrating Canada’s 50 hottest startups, as chosen by Profit magazine. Sigem topped the list; Swift Trade, which clocked two-year revenue growth of 3,917 per cent, finished seventh.

Beck also dismissed VC funding as unimportant, if not detrimental, to startup companies.

“When you have money, you get used to throwing money at things,” Beck said. “The dot-coms had too much money and not enough brains. When the money ran out, they had problems.”

What is important, Beck said, is a startup’s ability to change.

“You have to keep your ears open, your eyes open . . . and change,” he said, adding that the prescription for survival applies equally to small and large companies. “Microsoft switched on a dime and became an Internet company in 1996.”

Matthew von Teichman, president of Jobshark Corp., echoed the importance of adaptability, saying he was unable to predict what his online recruiting company would look like in the future.

“When all is said and done, the market will determine what you will be in four years,” said von Teichman, whose Jobshark finished 20th on the Profit list in 2001, and 13th in 2000. “We keep changing and changing and changing.”

Debra Granatstein, an investment manager with Toronto-based venture capital firm Working Ventures, agreed with Beck’s assertion that many now-deceased dot-com companies threw money at problems rather than fixing them. But she said a startup’s prospects for success rest most on its leadership.

“The No. 1 thing is management,” she said. “You can have the best technology in the world, but the management has to execute. The technology can’t win the war.”

Granatstein said she looks for management teams where a couple of the members have successful track records.

What was not in dispute Monday was the promise technology companies hold. While dot-coms had a much smaller presence on Profit’s list in 2001 than in 2000 – two of the top three spots were filled last year by dot-com outfits – tech still rules. Nine of the top 10 finishers in Profit’s 2001 survey were technology companies.

“Even in today’s economy, technology companies can still have an advantage in generating growth,” Woods said. He admitted it is harder for tech companies to get funding today than it was a year ago, and that more discriminating VCs mean the companies mean the startups that do break through are of a higher quality.

“The fittest survive,” he said.

Granatstein also expressed optimism towards the tech sector because of its potential for growth. Especially promising, she said, are wireless communications companies with technology to maximize spectrum use.

“Even though the market has retracted on the technology side, there’s still huge opportunities in tech,” she said.

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Jim Love, Chief Content Officer, IT World Canada

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