Semaphore Forms Joint Venture with Topline Strategy

to Provide Technology Due Diligence

As you may have read in our last S4 Reporter, Cris Miller, the founding director of our Technology Due Diligence Practice retired last Friday September 30^th. With Cris’ departure, we decided to form a Joint Venture with Topline Strategy, a Boston-based provider of strategy consulting services to technology companies, in which Topline will take over day-to-day management of the practice.  It will operate under the name The Semaphore Technology Diligence Practice.

Over the last 5 years, we have formed a close partnership with Topline Strategy, working on dozens of engagements together. Together we’ve been able to provide our clients more complete answers to questions about their technologies and the markets for those technologies. 

With the retirement of Cris Miller, who was the driving force behind our Technology Due Diligence practice, we thought the best way to continue our commitment to clients as well as grow the practice was through a Joint Venture with Topline Strategy. Through our long partnership, the Topline team has demonstrated a true understanding of Technology Due Diligence as well as built strong relationships with our principal technologists and major clients. Having them take the business forward was a natural.  We have been working together on the creation of, and transition to this, Joint Venture for the last three months.

As part of the agreement Cris Miller will be joining Topline Strategy as an advisor and Topline Strategy will continue to work closely with our Private Equity Advisory group, providing both strategy consulting and technology due diligence services to Semaphore’s clients and portfolio companies.

As Topline Strategy will be the operating partner in our Joint Venture, going forward, please feel free to contact Jon Klein (jon@toplinestrategy.com) with any questions about Technology Diligence or visit its website www.toplinestrategy.com. Of course, you can also reach me (mdisalvo@sema4usa.com) if you have any questions.  I know you join us in wishing Cris well in his retirement as Topline and Semaphore  continue to fulfill our common promise and commitment to aiding investors and the M&A community with the right knowledge and correct solutions to ensure success.

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management. Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, is a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Cris Miller is getting ready to move on to the next chapter of his life - retirement.  Before he leaves behind Technology Diligence, difficult markets, anxious GPs and the usual headaches of deal making (and breaking) to discover new art galleries, photography locations and the calm Maine landscape with his wife Marcia, Cris agreed to share the more important things he discovered over the years.  Cris, you will truly be missed by each of your colleagues, clients and legion of friends.  We will always have memories - and now this wisdom.  Good luck, Godspeed and enjoy life!

Read on for Cris' "Things I have learned in business".

See Ya

Some people never know when to say goodbye.

At 66 my “bucket list” has out weighed my need/desire for full time employment. I have made the decision to retire.   Ten years ago Mark DiSalvo invited me to join Semaphore and we started the Semaphore Technology Diligence practice - to run side by side with the funds under management business.  Call us silly, naïve or just plain blind but September 1, 2001 was not the best of times to start a practice catering to VCs, Growth Equity, low and mid market Private Equity.  The “bubble” had busted but we figured we were at the bottom of the business cycle so there was only one way to go.  WRONG.  The tragedy of 9/11 put a halt to any belief there would be a quick start to this new business.  Nonetheless, we went all in anyway.  Thanks to much encouragement from the investment community we persevered and finally got our first engagement.  Literally hundreds of fascinating engagements later we have serviced billions of dollars of invested value and, I truly believe, fulfilled the promise and hopes of that hopeful September day a decade ago. Thank you.

The practice goes on without me (we’ll write about that in a very short bit).  Here is a list of a few things I learned not only in this endeavor but in 4 other start-ups and a number of different career positions.  So here they are – “Cris’ Commandments”:

Things I have learned in business in the past 50 years:

1. Make friends and influence people – thanks Dale C (that’s Carnegie for all you folks under 66).
2. Measure your impact and make adjustments immediately – even if they are the wrong ones!
3. Learn from everyone. Remember, each person you meet has something of value…even if they can only be used as a bad example.
4. Relationships are the most important thing in business, for that matter, in life.
5. Collaboration is the key to success. Partnerships can take many forms and it’s OK to invent new types.
6. Work the ecosystem.  Even if you cannot reciprocate keep up the effort.    
7. Setting expectations is critical. 
8. If you can’t do it – DON’T!
9. Hoping for a good outcome does not work.  Smart planning and strong execution is all.
10. Be kind to everyone.  Your Mother was right, you never know from where the next referral may come.
11. Stay in touch – people and positions change. We’ve earned hundreds of thousands from calls made 5+ years ago.
12. Ego and hubris is trumped by good judgment and logical thinking.
13. Due Diligence is required in all aspects of life. Try, say, marrying without it.
14. The expression “no good deed goes unpunished” is not true.   All good deeds are rewarded – eventually.
15. Sometimes the best deal is the one you do not do.
16. Loyalty is a rare commodity. Give it and treasure those who provide it.

It’s been a sometimes tiring but almost always fun adventure. I’ll be thinking of you all - whether on the lakefront in Maine, shooting photos in Madras or eating blowfish in Kyoto. Thanks again.

Retiringly,

Cris

Next week, Apple will announce its first earnings since Steve Jobs stepped down from his role as CEO of Apple on January 15, 2011 due to health reasons. So far, the market has taken a wait and see attitude as to what it means for the company. After a relentless rise where the stock has more than tripled over the last 2 years, it has been trading in a narrow range for the last 2 months. The market is undoubtedly waiting for the next earnings report and the future guidance that comes with it to reassure them that Apple will be okay without him. Or, to confirm their fears that it won’t.

Often the market overreacts to news like this. In the end, one person rarely makes a critical difference in a company as large as Apple. But this case may be an exception. Read on to hear why…and what the implications are for other companies.

To understand Steve Jobs and his unique position, first, let’s consider the cases of some of the other technology visionaries. Starting a world-changing company is a very, very difficult feat and in our view, Bill Gates, Sergey Brin, Larry Page, Mark Zuckerberg, Larry Ellison, Michael Dell, Jeff Bezos and a few more deserve the billions that they have earned.

Yet, without diminishing their accomplishments in any way, greatness does not come from genius alone. In his book Outliers, Malcolm Gladwell makes a compelling case that timing is equally as critical to creating mega-success. Bill Gates was fortunate to have been ready when the PC was born, Jeff Bezos when the Internet first took off, and Sergey Brin and Larry Page as the Internet’s growth was making it too unwieldy for first generation search technologies to handle.

Strengthening Gladwell’s case is the fact that there are very, very few cases where companies, despite the presence of the same visionary founders, are able to replicate their initial success within an order of magnitude (or maybe even two orders).

Google is a great example. Google has probably tried harder than any other company to create new transformational innovations outside of its core business. Yet despite all the investment they’ve made in Google Mail, Google Docs, Google Books, Android, and countless other products, Google is still a one product company. Over 96% of their revenue in 2010 came from Internet advertising.  The only part of the business where they have achieved leadership outside of search is YouTube, which they bought.

Microsoft is a similar story. Practically all of the company’s success can still be tied to having DOS chosen as OS of the IBM PC. In 2010, the company earned over 73% of its operating profit from the sales of the Windows OS and Office Suite. If you include the contribution of the Backoffice tools (SQL Server, Sharepoint, Exchange, etc.), which could easily be considered extensions of the Windows Server OS, that percentage goes up to 93%. Everything else – Xbox, Windows Live, Bing, MSN, etc. – contributes just 7% of the operating profit.

This brings us back to Steve Jobs and Apple. What makes Steve Jobs truly unique is that he has done it more than once on a grand scale – In 1984 with the Mac, 1995 with Pixar, 2005 with iTunes, and 2007 with the iPhone.  My belief is that there are many individuals who can take what Steve Jobs has already created and take it forward. Assuming the company picks the right CEO to replace him, Apple should continue to soar on the strength of what Steve Jobs has already done. What is at risk is the next innovation that could take the company to new heights.

So what lesson should you take from Steve Jobs, Google, and Microsoft? The answer: Unless you have a Steve Jobs on your staff (not just a Bill Gates or Sergey Brin) you can't count on 'The Next Big Idea' to fuel your growth. Even if you do everything right, there is just too much uncertainty. Instead, what you should focus on is maximizing the opportunity you have. While Microsoft and Google may not have created a second transformational innovation, they made the most of the businesses they were in. They deeply understood their markets and competitors, strategically expanded into adjacent areas, made smart acquisitions, found new channels, expanded globally, and capitalized on new technologies.

In our Corporate Growth Planning practice, we work with executive teams on creating strategies to grow revenue 3x, 5x or more. While there are rarely shortages of good ideas, companies often struggle in sorting through and prioritizing them. In our experience, there seems to be a natural human reaction to pursue the 'Next Big Thing', especially in entrepreneurial companies. The real challenge is creating a disciplined and fact-based process that leverages all of the growth avenues available, not just the brightest shiniest objects.

This article was contributed by Jon Klein. Jon is the founder and general partner of The Topline Strategy Group, a strategy consulting and market research firm specializing in emerging technologies. Jon brings a unique blend of strategy consulting and hands on operating experience to The Topline Strategy Group and works closely with Semaphore on a variety of engagements.

Blog 3 of 3 in the Due Diligence Often Discovers Discrepancies series

I expect that there are many folks out there who will challenge our analysis.  I’ve anticipated some of the objections and have addressed what I think are the three major ones below.

 1. Shouldn't some of the points that we reallocated from Watson to Ken have gone to Brad, lowering Ken's revised total? While that is true, Brad would have also taken additional points from Watson. If we had data from Brad, we expect that the gap between Watson and Ken would be narrower, but that Ken would still enjoy a solid lead.

2. What about Game 1? Watson did even better in Game 1 than it did in Game 2. Wouldn't that have kept Watson the winner? Probably not. The reason Watson racked up such a huge total on Game 1 was that it answered 29 of 32 questions correctly in Double Jeopardy.  I didn't have a tape, but I believe Ken and Brad also knew many of those answers and were shut out by the buzzer. Allocating those responses across players would have put one or both players within striking distance when they got to Final Jeopardy. Watson blew Final Jeopardy with a comically bad answer to an easy question.  So, what would likely have happened is it would have been in second if not third place heading into Game 2

3. What about the humans' own "unfair advantage".  Humans tend to ring in before they know the answer and then have several seconds to figure it out. If they had to answer right away like Watson, wouldn't Watson cream them?  While this is true, I take exception to the notion that this represents an advantage for the humans.  Instead, this represents a fundamental difference in how computers and humans process information.  While it can take humans a few seconds to work out the right answer, we can intuit nearly instantaneously whether or not we will be able answer the question. Great Jeopardy players have great intuition and rarely get questions wrong after they ring in, as Ken Jennings demonstrated by getting just 1 question wrong in Game 2. Watson on the other hand seemed to either come to an answer very quickly or never got there. It doesn't have intuition and more time didn't appear to help it significantly. Changing the rules to take out the intuition factor would shift the advantage to Watson but would be counter the goal of the contest - figuring who is better at answering questions.

Let us hear your objections and observations.

__________________________________________

This article was contributed by Jon Klein. Jon is the founder and general partner of The Topline Strategy Group, a strategy consulting and market research firm specializing in emerging technologies. Jon brings a unique blend of strategy consulting and hands on operating experience to The Topline Strategy Group and works closely with Semaphore on a variety of engagements.

Blog 2 of 3 in the Due Diligence Often Discovers Discrepancies series.

As I said in my previous Watson blog earlier this week, Watson, a computer built by IBM, faced off against Ken Jennings and Brad Rutter, the two greatest Jeopardy players of all time and trounced them.  In a two day match, Watson earned $77,174 to Ken Jennings' $24,000 and Brad Rutter's $21,600. While the results seem to show that the human race's crown as Jeopardy masters has been passed, a deeper analysis of the facts tell a different story.  I have no doubt that one day a computer will be Jeopardy champion, but that day isn't today. What you saw wasn't a fair match among opponents but rather something that was closer to an infomercial demonstration where the product produces "too good to be true" results based on a tilted playing field.

Now back to the game...In Jeopardy, you're not allowed to push the buzzer right away. You have to wait until Alex finishes reading the question.  At that point, a light goes off and then you can ring in to answer.  If you try and anticipate the light and ring in too early, you are locked out for a quarter second, meaning that there is next to no chance to win the buzzer race. This is where Watson's unfair advantage comes in.  If during the period Alex is reading the question, Watson comes up with an answer that it thinks is right (based on my observation, that would be an answer that it has scored as having an 80% or more probability), it can ring in just 10 milliseconds after the light goes off - enabling it beat the human contestants, with their mere mortal reflexes, to the buzzer every time.  So, even when the human contestants know the answers, Watson gets all of the points. The Jeopardy results didn't accurately reflect Watson's question answering ability, they reflected the combination of its question-answering ability plus its superhuman reflexes.

So how would Watson have fared if it had to rely on just its question-answering ability?  To answer that question, we analyzed the results of Game 2 of the two-game series (Ideally we would have analyzed both games, but since we only TIVO'ed Game 2 and the match isn't available online, it'll have to do). In Game 2, the three contestants scored as follows:

-                Watson: $41,413

-              Ken Jennings: $19,200

-              Brad Rutter: $11,200

 However, final scores aren't necessarily a good measure of how each player fared. They are highly dependent on how players bet in the Final Jeopardy, who gets Daily Doubles and how much they bet on Daily Doubles. Taking out Final Jeopardy and Daily Doubles, the players scored as follows:

-                Watson: $25,200

-              Ken Jennings: $14,600

-              Brad Rutter: $5,600

In watching the game, it was pretty easy to tell when Ken Jennings wanted to ring in but was beaten to the buzzer by Watson.  He held the buzzer chest high and you could see when he pressed the trigger and lost. Since Brad Rutter kept his buzzer below the podium, it wasn't possible to tell when he tried to ring in.  But, the data from Ken Jennings is enough to figure out the impact of reflexes.  Of Watson's $25,200, $19,200, all but $6,000 worth, was won on questions where Ken Jennings tried to ring in.  Had Watson and Ken had equal reflexes, it stands to reason that Ken would have buzzed in first in half those cases.  Adjusting for reflexes (including the possibility that Ken would have rung in first and gotten it wrong, hurting him instead of helping him) would add $9,088 to Ken's score and taken off $9,344 from Watson, giving revised scores for those two players of:

-                Watson: $15,856

-              Ken Jennings: $23,688

Since both Watson and Ken Jennings got the Final Jeopardy question right, instead of losing, Ken would have had a sizable victory over Watson.  In conclusion, we’ll end this post with our own game of Jeopardy.

Category: Man vs. Machine  

$1,000 Clue: As of February 16, 2011, although not the fastest to the buzzer, these biological beings were still the best at answering Jeopardy questions.

Question: What are Humans?

Look for our next blog and the final on this series where our partner and colleague Jon Klein of The Topline Strategy Group explores what he feels are the three top objections.

This article was contributed by Jon Klein. Jon is the founder and general partner of The Topline Strategy Group, a strategy consulting and market research firm specializing in emerging technologies. Jon brings a unique blend of strategy consulting and hands on operating experience to The Topline Strategy Group and works closely with Semaphore on a variety of engagements.

Our partner and colleague Jon Klein of The Topline Strategy Group explores one very public example.

Earlier last month, Watson, a computer built by IBM, faced off against Ken Jennings and Brad Rutter, the two greatest Jeopardy players of all time and trounced them.  Or was it rigged?

First we'll look at the Watson backstory.  When the project was approved, management explicitly required that the technology could be commercialized.  Back in the 1990's IBM invested heavily in a project that resulted in Deep Blue, a chess playing phenomenon that went on to beat the best human player, Gary Kasparov.  While the company won bragging rights, it turned out that there were no commercial applications for the technology.  IBM didn't want to make that mistake again. When Watson was approved, it was done so with the belief that its question answering technology could be applied to many fields including healthcare, as an expert diagnostic assistant to help doctors, and retail, as a next-generation recommendation engine.

 Over the years, I have seen many mind blowing demonstrations of gee-whiz technologies that never achieved commercial success.  Each time investors got frustrated with the progress of the business, the management team would cook up another demo which promised that a breakthrough was just around the corner...and in the process, relieved the investors of several million more dollars. The most egregious cases are the ones that have created some of the most high profile public flops (think the Apple Newton). My analysis is that IBM execs just witnessed one of the best gee-whiz demos of all time and before they sink in any more money, they should have independent market and technology due diligence performed on Watson’s commercial prospects. The critical question they need to answer is:  Can this generalized question-answering technology actually provide enough value over the purpose-build expert systems that already exist in fields like medicine to justify its cost? It’s a question that the Watson team cannot answer. They have too much personally invested in the program to come up with any answer other than ‘Yes’.

Look for our next blog coming soon where we'll get to know how the game was rigged in Watson's favor.

                        __________________________________________

This article was contributed by Jon Klein. Jon is the founder and general partner of The Topline Strategy Group, a strategy consulting and market research firm specializing in emerging technologies. Jon brings a unique blend of strategy consulting and hands on operating experience to The Topline Strategy Group and works closely with Semaphore on a variety of engagements.

Posted by Mark DiSalvo on Tuesday, January 25, 2011 @ 12:30PM

Is 2011 a Wasteland or Playground?

By Mark S. DiSalvo

It seems my industry colleagues have continued to be wrongly optimistic about their personal income against a backdrop of continued and decided lack of confidence in the economy and their national governments.  That appears to be the clear read comparing the raw data from the 3^rd annual Semaphore Confidence Survey with last year’s results. 

Let’s start with pay.  At the start of last year 78% of the over 500 respondents to the 2010 Confidence Survey believed they would earn more money than the prior year.  The truth was that only 36% of this year’s respondents reported they did in fact earn more than the prior year.  Importantly though is that only 11% of respondents earned more money two years ago against that prior year baseline, clearly signaling at least a change in how some shops are valuing their talent. This must be counterweighted by the realization that 45% earned less than last year – carry not being what it used to be.  Nonetheless, not unlike last year, my colleagues firmly believe that the next year will provide the big score as nearly 75% of this year’s respondents believe they will earn more money than last year.  If they are right, then next year the national deficit will be on the decline despite no increase in upper tier taxes or capital gains and the real estate market will be certain to see significant rebound.

Our peers demonstrated their personal income optimism with their LPs pocketbooks too. In the beginning of 2010, fully 98% thought they would make up to six investments.  The year did not go as strong as hoped with only 11% doing six deals or more, but 76% closed 1-3 deals. Further, those deals were as large as expected with 73% self reporting their deals were in excess of $25 Million in each discrete investment when they anticipated 76% of their deals would be above $25 Million in size at the time of last year’s survey. 

And in what are we investing?  Unlike the year before when our respondents chose three new investment areas in the top three, the industry stayed rather consistent. Enterprise Technology and Health Care were 1 and 3 and Social/Community Technology took the second spot in that list, breaking the top 5 for the first time.  Sustainable Energy/Cleantech and Gaming (not even top ten last year) were 4^th and 5^th.  Last year the survey indicated investors were apparently smelling money and opportunity in Obama-care. As one person noted, “…when you mess with 16% of the economy something’s got to break our way.” We’ve yet to see if that comment is correct or merely hopeful but investors intend to remain active, according to our survey, in that space.

The just over 500 who did reply this year were similar to last year’s mix of VC and Buy-out pros, with a slightly higher representation of operating executives responding.  One thing for sure is that this year’s mix of survey takers were very high on themselves believing that 78% (63% last year) were confident in their business and  84% (77% last year) confident in the person who sits down in front of their computer each morning. They even had increasing confidence in their bosses with 75% expressing that view - a full 25 points higher than last year and triple the year before.

This personal and professional confidence does not extend itself to America’s political leaders.  While respondents were hard on President Obama and his economic team with only 36% expressing confidence in the President; it was more that triple the 11% expressed last year.  His economic team did not fare as well with 49% (55% a year ago) dissing Larry Summers et al.  

A 7X return is spectacular in a year but when it comes to Congress it is de minimis as its favorability improved over last year’s 0% reply of confidence in Congress to 7% with 77% (65%) stating no confidence in the folks under the Capitol Dome.  Apparently it does not matter which party is in control of the Congress. State governments and state legislatures earned a doubling of confidence to 27% (you should know that the top states replying were MA, CA, NY, NJ, NC and IL).  While confidence has skyrocketed for the President and crept upward, however marginally, for other pols in America, international respondents had crushingly poor opinions of their governments with fully 71% having no or little confidence in their countries leaders, more than double the 31% of a year ago.  The preponderance of our international respondents were from the UK with most  replies coming, in order, from Germany, Switzerland, Japan, France and China. 

To see the highlights of the results of the 2011 Semaphore Confidence Survey please click here.  If you want to do your own comparison, the 2010 Semaphore Confidence Survey results are here.

As usual there was a bit of entertainment offered by our none-too-shy contributors. One offered that “This was a terribly written survey,”…alas.  There was the usual partisanship with strong comments about “not believing the positions the Republicans are taking” counterbalanced by charging that Obama “is a socialist with desire to make US a 3^rd world country”.  While there is little danger of we becoming Sweden in a hurry there were many serious comments reflecting state budget shortfalls, pension liabilities, and a belief in significant New Year investment opportunity with many industry recommendations.  One notable recommendation offered was “I have never felt as strongly about the investment opportunity presented by vertical farming,” who knew? 

A cottage industry has grown about the infamous response in our inaugural survey “PE is dead and I wish my boss were too.”   Many wondered where “he” was and hoped he would surface. He didn’t.  One survey taker suggested that “he must be serving time without access to internet.”  Many have tried their hand at PE Killer’s NY Post style headline writing skills (maybe he got laid off from Wall Street in ‘08 and is now working for Murdoch?).  One offered that “VC is a wasteland. PE is a playground (unless your name is Guy Hands.)”  Ouch! We’ll check back next year to see what side of the seesaw we will actually experience in 2011.  

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, is a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Hello,

We have all had a new boss in our life.  This is an announcement concerning a different sort of BOSS.  We here at Semaphore are excited to let you know more about our Business Operations/Strategy Service and the addition of David Friend, M.D., MBA as part of our advisory team.  Let us know how we can help – and say “hello Friend”.

Every now and then it’s healthy to get a new boss - someone who can lead a previously moribund operation. A person not weighted down with institutional memory and tired culture.  A person who can not only articulate a vision but is not freighted with excuses as to why a goal has not and cannot be reached.  Rather a person who understands and has the skills to get you across the success line.  Such success can only be achieved with the insights of senior, knowledgeable and committed leadership.  Success is determined by process and the unique skills of the person leading the effort.

 That is why Semaphore’s Business Operation/Strategy Service (BOSS) is expanding.  “We are thrilled to announce that David Friend, MD, MBA is joining our advisory team,” announced Semaphore CEO Mark S. DiSalvo. “David brings years of sterling hands-on and real-world practitioner skills to our already robust practice assisting companies and funds in our strategic/operational business advisory practice,” he noted.

 “Joining Semaphore’s Team allows me to bring diagnostic, operational and mentoring skills earned by decades of turning around troubled entities and accelerating success in working but stagnant companies,” noted Dr. Friend.  “As a trained physician and experienced turn-around CEO I can assure, along with my Semaphore colleagues, true and real change management in tying strategic clarity to sustained operational success, “ promised the long time work-out executive.

The Semaphore BOSS practice provides senior resources to assess recommend and mentor technology companies in the “Zone of Irrelevance “(ZOI). 

Dr. Friend has most recently served as CEO of The Palladium Group providing global strategy education and consultancy to world-class entities from the Middle East, Asia, Europe and North America.  He previously worked as a turnaround executive with Alverez and Marsal as Managing Director of Healthcare Restructuring and Watson Wyatt Worldwide as Division Chief Executive where he helped guide the business through its successful IPO. He was also COO at High Voltage Engineering and serves on a variety of boards and advisory committees as a qualified Audit Committee Chair.

The BOSS program augments the well known Semaphore Technology Diligence and Market Diligence Practices that offer investors and companies independent verification and validation of products, systems and markets.  Crispin Miller, Technology and Market Practice Leader said “we are excited to have David join our advisory practice team offering vital resources to PE portfolios, owner-run companies and other private, public or non-profit institutions.”

The BOSS practice will focus on companies that have entered the “Zone of Irrelevance” (ZOI).  These are typically companies who have launched, have customers and revenue but have plateaued.  

For many companies hitting this plateau after initial revenue means death.  The ZOI is an all too frequent malady and a difficult thing to avoid.  Very few venture backed companies reach their potential when they fall into the ZOI.   These are the companies who generally have revenue of under $5 million and have not figured out how to get to $20m+ (or companies in the $10m range trying to get to $50m).  Companies challenged by ZOI may have a variety of problems that are directly addressed by a combination of strategic thinking and tactical action.  “At this point employing BOSS affords the prospect of fulfilling the founder’s dreams and an investor’s expectation,” said Dr. Friend.

The BOSS practice provides senior resources to assess, recommend, mentor and/or pitch in with hands-on expertise with companies in the ZOI.  The key points addressed are the ability to link strategy, operations, finance, people and revenue attainment.

David B. Friend, MD, MBA, Business Operations/Strategy Service Practice, can be reached at 781- 296 -6300,  Dfriendmd@sema4usa.com.

Crispin Miller is the head of the Diligence Practice (cmiller@sema4usa.com) at Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Technology and Marketing diligence, and Private Equity funds-under-management services.  The Semaphore Business Operations/Strategy Service (BOSS) complements both of its other advisory practices.  Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world.  Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Posted by Cris Miller on Wednesday, October 13, 2010 @ 9:30AM 

Marketing Due Diligence

Last Thursday there was a Happening…Monsters of Pork… at Petit Robert as part of a spectacular program of market oriented seminars and symposia under the brand Future M.  The pork party was a real experience.  I had been to the location before for quite an elegant lunch.  The restaurant has changed hands, not quite as fancy, more bistro than formal dining.  There were 100s of people and to this grizzled veteran they all appeared under 15…well maybe under 30.  Most of the folks I talked to did not know why they were there, other than to be part of a happening.  And it was that. Every half an hour, in a separate room, they packed patrons in and dissected a pig.  Knives and cleavers flew while hog-heads fell, ribs retrieved and internal organs separated.  A bit of food was passed and quickly disappeared, although generous vodka drinks were served, so no one seemed to mind.  I missed the pulled pork as it did not show up in the hour and a half I was there.  A great time was had by all.   The Miller rating for a Boston “happening scene” - 90.  The Miller rating for leads/new business – 0 (but you never know).  Who knows, maybe I’ll kill a wild bore someday and will have learned plenty.  For sure, there was nothing boring about this event.  Thanks BzzAgent.

Posted by Cris Miller on Thursday, September 23, 2010 @ 10:45PM 

I field calls from GPs and CEOs all the time.  Invariably they are doing a deal, whether investment or acquisition, and need either verification that the technology and/or markets targeted are real or a product exists and someone wishes to buy it in the future.  Less often we get calls from Board of Directors.  Those calls are less exact as to what the caller requires.  A lot of it is because the Board member making the call carefully ensures that they have not lost confidence in the CEO (even if that is not the case) and are fulfilling independent diligence on the company itself, the markets or an acquisition opportunity.  

A while ago we had a call for help from the Board of Directors of a growth stage technology company.   After discussion, it was evident there was agreement that the firm needed to conduct both technology and market due diligence for their company.  Initially the request was for a technology review to determine the viability of commercializing the core platform technology upon which two successful products had been built. 

The CEO was a technology wizard while the Board was comprised of non-technologists and retired business people.  After Semaphore’s chief technologist had reviewed the platform product’s architecture, patent and documentation, we had a review session with the CEO.  The discussion immediately dropped into techno-jargon only the brightest geeks could comprehend and appreciate.  The conclusion was that the product was adequate for internal use but was deficient in form and substance for outside consumption.

The CEO reviewed the findings with the Board who had market/business questions about the size of the market for such a product, the competition for such a product and the value of the product.  Our market research/strategy group took the baton and came back with some interesting results that were presented directly to the Board.  It was intuitively obvious to the casual observer that:

1. The product in its current condition was a non-starter
2. The market for the product if it were “cleaned up” would have 5 world class competitors and 10 mid-market competitors
3. The product in its new state would be woefully deficient in features, so much so  that its value would be difficult to sell at any price
4. The effort should be scuttled

The lesson learned here was in order to get the correct answers, the Board needed to be educated to the best of its understanding.  To accomplish that education, independent technical and market due diligence was necessary.  The readily available technical answer alone was not sufficient since the product could have been improved.  It took the market diligence, in concert with an agreed technology product plan, to make the business case not to proceed with the questioned direction. 

Crispin Miller is the head of the Diligence Practice at Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Technology and Marketing diligence, and Private Equity funds-under-management services.  Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.