Product Development and Engineering Challenges
Up to this stage, Ned had done all the market research and product development. “My market research had a lot to do with banging the pavement and going out and talking to people to get their opinions on a product.” Ned’s savings, and consulting earnings provided the funding for his work. His plan was to validate his concept with market research and then to hire an engineering firm to develop the technology.
The step from technology development to commercial application proved to be challenging indeed. “When the product concept crystallized, the next step was going to be to put together a technical specification document. In hind sight that spec I put together was very amateurish. Basically I listed the functional capabilities but no technical details.” With his specifications outlined, Ned’s needed to find an engineering company. “Because I had no money, finding the engineering groups that would participate took a while. One group that I found pretty quickly took six months before they conceded they could not develop the technology. A later engineering development group took nine months to create a viable concept definition and iron out the technical requirements.” Money is always the operative word when it comes to any venture, but Ned feels his strong selling skills also play a big role. “When you’re cash poor it’s really tough to convince someone to do this on your own. The focus was to create a technology that worked first, because I knew the technology could propel a company, and this would be the first product in a long line.”
ST’ s search for the right organization was arduous and painstaking. “That was hell. I met with tons of engineers. One group started laughing at me when I showed them my first tries at a technical spec sheet. I reacted defensively to that and I realize I should have instead been patient and listened to what they had to say. It showed me how naive I was and how tough a road this was going to be. My goal was to see if they could do it and could they do it without me paying them for it right away. That was the tough part.”
Ned recruited the help of Design Automation, Inc. of Massachusetts to develop the technology of the two-way tracking through radio waves which was ultimately called Phase Shift Technology (PST). PST monitors the distance between the units and activates an alarm when a certain distance is exceeded. The distance is calculated by the time it takes the radio waves to travel between the units. Also, another Massachusetts’ engineering firm was contracted by Ned to produce the “proof of concept alpha unit.” After Ned had completed these initiatives, he incorporated ST in July, 1993. “When the engineers were ready to release their concept and had built the alpha unit, I incorporated us and started to go out and get real hard core market information.”
It was at this time Ned took a telemarketing position to supplement his income, and quickly became the organization’s top producer. “All the while I was working at US Telecenters during the day, I was not only managing and working with the engineers, but assembling market information and going out at night to meet investors at the Marriott and Guest Quarters.” According to Ned, he could never be a corporate employee because of his disdain for bureaucracies. Although, the job’s flexible hours allowed Ned to exceed his quotas. “I knew I could sell, but I didn’t want to take on a career that would be a career. I needed to be free to move and shake with ST.”
ST’s distinct stages of growth – from concept development, to technology development, to prototype production and to incorporation -have allowed Ned to gauge his expectations for the product development process. “I look at this whole process as just steps. If you look too far down the road you’ll just get boggled. I look back at what has happened and my mind is just blown. I can’t believe the stuff I’ve gone through and what we have accomplished even though we’re still not out of the gates yet or where I want to be. If I had looked at that at the time I’m sure I would never have done it. You’ve got to take it one step at a time and stay focused.”
How does an entrepreneur stay focused? How do they summon the strength to carry on for so many months with slow progress and a shoe-string budget. “You’ve got to have this crazy unsubstantiated faith that this is going to happen. Because you get so focused if one step doesn’t happen your mind is blown. If you’re really doing this right I think you should focus because you’re more effective. But each hurdle is one to be taken at a time and you’ll rebound from the other failures…it’s temporary. I don’t have any doubts it will happen. This is more of an art form than science and I think I’m good at it. What really sits sour with me if I wasted other people money. You go through period that once a big no-no happens you feel like your whole world caves in. Bu t if you’re resourceful, and you have to be in this line of work, you’ll get over it the next day and you get back on your feet and say ‘What happened? What can I do to rectify it?'”
Financing on a Shoe-String and Doughnuts
The first round of financing was budgeted to develop a functional alpha unit. “The first engineering firm was hired and payment was arranged totally on my own and I paid them off with doughnuts and a promise that this young kid could actually pull it off. Once I had the core concept I could then explain it to people. I raised the first round which was $300,000.” The initial financing came through Ned’s perseverance and resourcefulness, rather than from connections to the investment community. “I didn’t know anybody so I put an ad in the newspaper. I found financing anyway I could because I did not come from money.” Whatever his sales pitch was to potential investors, Ned succeeded in collecting the funds. He was now faced with an interesting challenge: “Once the money was is in the bank I would say to myself ‘Oh my God! What did I do?!'” This influx of capital added pressure on Ned to provide his investors with an adequate return on their investment.
The development of the technology and the prototype was the first step in Ned’s carefully crafted plan. “Once you have a technology you can demonstrate a little bit…things will start to happen for you.” Unfortunately, plans do not always follow their design. “The first alpha unit did not work well, but I took this and packaged it to say we need another round of financing. I still don’t know how I did that.” This next round of financing was enough to hire the second firm to create the “proof-of-concept alpha unit.” For the first two rounds of financing, Ned approached any potential investors. “I really had no network. The second round was the most scary…we didn’t have enough to justify it as a good investment, but enough to continue on. It’s a real juggling act.”
Ned’s strategy of creating a core technology has several benefits; it can be flexibly promoted while under steady development. His financing success can be attributed partially to the primary product’s adaptability, thus suiting the interests of the investors. “People couldn’t grasp the dog product as much as they could the child product. Hearing this so many times made me change to appeal to my investors mind set. You can’t be so judgmental about this to think that you have the right answer. Put your own directives behind you and listen to what you audience wants.” It meant more work to create a whole new business plan with the child market research, but was necessary to raise money with a concept that would appeal to investors. “It’s a one technology company, with multiple products in multiple hundred-million dollar markets.”
The third round of financing was completed earlier this year and has added a new dimension to ST. Ned wanted a more formal investment group to add some credibility to the operation, so he solicited venture capital firms. “After the first two rounds I didn’t know where I would go for the third round. I was fortunate in searching for a VC firm that I found one that who gave me the valuation that I asked for, that let me operate how I wanted to, and one that didn’t beat me up on rights.”
To further establish his firm’s financial credibility, Ned appointed a board of directors to advise him on operational matters. The board’s formation and the VC funding were completed coincidentally, with a VC principal becoming a board member. The board usually has more business experience than the entrepreneur. Ned feels his board has provided him with valuable assistance. Though they may be his toughest critics, Ned realizes they only want the company to succeed.
Partnerships and New Technology Opportunities
In the company’s three year existence, Ned has publicized ST’s unique concepts and technologies in various print periodicals, at conferences and at emerging business events. Ned is not shy about telling people of his company’s plans and products. This is an intriguing approach considering that most companies are secretive about their new product ideas. ST can be candid about its products because of their uniqueness and complexity. “The technology is so niche and proprietary and we have the whole thing tied up in a patent application that nobody could come near this and try to do it.”
ST’s publicity has also led to new business opportunities. The most significant opportunity is the possible partnering of ST with a large corporation, who will assist with technology development and product assembly. This deal would not be an acquisition of ST, but a joint venture; Ned would retain ownership and share in the profits from the sale of the products. “Once the partnership comes together then we’ll be in good position to earn funding to get it through to beta units with the chances for final development, being bought out, or the chance to earn a lot of cash. To have a real lot of sizzle. We will have a product with good technology working in three patent applications.” Not one to leave to chance, Ned has hired technical experts to maintain the progress in the technology development. If the partnership does not materialize, he will still have the completed technology to attract additional funding.
Other development opportunities involve the different applications of the core technology. His InReach product could be modified for the elderly or dementia patients. To reach this market, Ned is considering an alliance with a paging company to expand his product’s range and notification options. Envision a person with Alzheimer’s disease wearing an InReach unit. If that person strays from their home, the base unit sounds an alarm and transmits over a phone line a message to a paging center to contact the person’s guardian. The guardian’s pager would instantly notify them of the situation. According to Ned, the paging technology can be added easily to the core technology and their is ample interest from the paging industry.
With the numerous potential market applications for his core technology, how does Ned stay focused on his targets? “I have to say to myself, ‘Ned, just keep it in mind once you get to this step, the market opportunities are huge. You have to keep slugging it out to get to that next step. Once you get to that point then you can lift your head up and look around.'”
These potential opportunities are available because of ST’s continued commitment to product development and its reputable pool of investors and advisors. “There was no way for the partnership to happen unless there was something substantial to show the potential partners. We have had extensive technical meetings with the potential partner, and all have not gone perfectly. We had an issue with technology development for future products that nearly broke the deal for us. The partner firm is a multi-million dollar company and we had a face-off with their president and chief legal officer, and I had a representative from my VC firm and my toughest director from the board of directors to work it out. If the venture was in its early phases we couldn’t demonstrate a technology or show the potential for deep pockets and prove that they we are really savvy. The other company got to see I had stuff behind ST and not just me.” For Ned, “It was easier to raise money and hire the engineers at that early stage than to partner with a big firm because of what I had in my corner to offer them.”