Ed VanVoorhees
Management &
Investment
Management &
Investment
Near Misses
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"Battle plans do not survive contact with the enemy." -- Gen. Colin Powell
Business plans, like battle plans, must adapt and exploit opportunities. The following stories give examples of missed
opportunities. These firms may or may not have prospered if either had taken advantage of the opportunistic revenue
stream. EVV Management's job with these companies was to help position them in order to raise additional capital.
The stories illustrate that exploiting opportunities for cash flow give an early stage company a better shot at survival.
Business plans, like battle plans, must adapt and exploit opportunities. The following stories give examples of missed
opportunities. These firms may or may not have prospered if either had taken advantage of the opportunistic revenue
stream. EVV Management's job with these companies was to help position them in order to raise additional capital.
The stories illustrate that exploiting opportunities for cash flow give an early stage company a better shot at survival.
Telecommunications
CellCo was a startup with a license to send
packets of data on the universal cellular
carrier channel. The firm produced a device with
internal software consisting of four sensors and a
cell transmitter. The company maintained a
central monitoring facility, with which the devices
communicated their sensor status. CellCo's target
market was public utilities with applications for
meter reading and component breakdown
monitoring. This was a multi-billion dollar market
opportunity.
Several utilities tested the device, but none of the
field tests developed into orders. However, a local
poultry farmer who was a neighbor of the owner
complained that he had to keep someone at his
farm 24 hours a day to monitor the system status of
his barns (HVAC, water and feed supply, and power
systems). CellCo installed their device, freeing the
farmer from having to stay on the farm. The farmer
talked with his poultry processing company, and
this large firm requested test data and a meeting
with CellCo. The processing company contracted
with farmers for about 10,000 growing barns.
The poultry barn operators were not price sensitive
like the utilities were, so cost was not a large
issue. Rather than a utility market target price of
$400/unit, the farm market was willing to pay
about $1,200 per unit. Cellco’s monitoring
operation, provided for an additional fee, would call
the farmer's own cell phone in the event of a system
failure in one of his barns.
Selling the agricultural market would not have
guaranteed success for CellCo but would have
provided significant revenues. The firm decided
not to pursue this market because it was not the
target customer and was “too small” (total growing
barn market potential was 40,000 units). CellCo
eventually ran out of investor cash.
CellCo had four barriers to success:
1) the owner was a veteran of a multi-billion dollar
company and had bought the patents and
technology from his employer. He had a big
business mindset;
2) the startup firm had a supplier credibility
problem with electric utilities, which his former
employer lacked;
3) by not allowing utility customers to monitor their
own systems CellCo exacerbated this credibility
problem; and
4) the owner did not want to consider “secondary”
markets.
CellCo was a startup with a license to send
packets of data on the universal cellular
carrier channel. The firm produced a device with
internal software consisting of four sensors and a
cell transmitter. The company maintained a
central monitoring facility, with which the devices
communicated their sensor status. CellCo's target
market was public utilities with applications for
meter reading and component breakdown
monitoring. This was a multi-billion dollar market
opportunity.
Several utilities tested the device, but none of the
field tests developed into orders. However, a local
poultry farmer who was a neighbor of the owner
complained that he had to keep someone at his
farm 24 hours a day to monitor the system status of
his barns (HVAC, water and feed supply, and power
systems). CellCo installed their device, freeing the
farmer from having to stay on the farm. The farmer
talked with his poultry processing company, and
this large firm requested test data and a meeting
with CellCo. The processing company contracted
with farmers for about 10,000 growing barns.
The poultry barn operators were not price sensitive
like the utilities were, so cost was not a large
issue. Rather than a utility market target price of
$400/unit, the farm market was willing to pay
about $1,200 per unit. Cellco’s monitoring
operation, provided for an additional fee, would call
the farmer's own cell phone in the event of a system
failure in one of his barns.
Selling the agricultural market would not have
guaranteed success for CellCo but would have
provided significant revenues. The firm decided
not to pursue this market because it was not the
target customer and was “too small” (total growing
barn market potential was 40,000 units). CellCo
eventually ran out of investor cash.
CellCo had four barriers to success:
1) the owner was a veteran of a multi-billion dollar
company and had bought the patents and
technology from his employer. He had a big
business mindset;
2) the startup firm had a supplier credibility
problem with electric utilities, which his former
employer lacked;
3) by not allowing utility customers to monitor their
own systems CellCo exacerbated this credibility
problem; and
4) the owner did not want to consider “secondary”
markets.
Ocean Aquaculture
FishCo began genetically
engineering and breeding several popular
species of tropical fish. Competitors imported wild-
caught fish from the South Pacific that often carried
parasites and diseases. The tropical fish market had
two primary distributors in North America, and the
market itself was relatively small. FishCos' operating
costs exceeded revenues by about $60,000 monthly.
Searching for another application of its expertise and
technology, the firm settled on breeding salt water food
fish, which they could breed onshore and then grow in
ocean net pens. A large grocery chain and its fish
processor were encouraging. FishCo learned to grow a
species from an egg to a five pound fish in six to eight
months. Other firms had bred and grown similar fish in
18-24 months. An ocean net pen complex could grow
about 1 million pounds of fish per year, for projected
revenue of $2-2.5 million. Net pen capital costs were
about $1.5 million.
A large Commercial Aquarium asked if the company
could grow this species as food for its predators. The
aquarium was feeding its predators frozen wild-caught
fish that often carried infections or parasites. The
aquarium wanted to try lab-bred fish to see if the
predators still liked live food and if veterinary costs
were lower. A test showed that these lab grown fish
reduced vet costs and provided superior nutrition.
Estimated purchases by this one aquarium were about
$10,000 monthly.
The Aquarium also asked if FishCo could supply
“schools” (several thousand) of these fish for their tank
displays. To supply the aquarium predator food and
schools would require a small modification to one
growing tank because fingerling-sized fish for the
aquarium market were slightly larger than the “seed”
fish for the net pens.
FishCo decided that supplying the aquarium would be
a “distraction.” The owner was in conversation with
other “potential investors” who were interested in food
fish. This group failed to invest, and FishCo’s owner
pulled the plug on the company.
FishCo’s owner did not explore the potential of the
aquarium product, despite having a competitive
advantage over frozen fish. Revenues from fingerlings
produced an 80% contribution margin. These monies
would have reduced the burn rate and could have
allowed the firm to break even. With about 400
commercial aquaria in the US, FishCo’s live food fish
product could have supplied other operators with word-
of-mouth references and simple marketing.
The owner was a wealthy and successful developer who
did not recognize that without some cash flow, he was
in a very weak negotiating position for raising
additional capital.
FishCo began genetically
engineering and breeding several popular
species of tropical fish. Competitors imported wild-
caught fish from the South Pacific that often carried
parasites and diseases. The tropical fish market had
two primary distributors in North America, and the
market itself was relatively small. FishCos' operating
costs exceeded revenues by about $60,000 monthly.
Searching for another application of its expertise and
technology, the firm settled on breeding salt water food
fish, which they could breed onshore and then grow in
ocean net pens. A large grocery chain and its fish
processor were encouraging. FishCo learned to grow a
species from an egg to a five pound fish in six to eight
months. Other firms had bred and grown similar fish in
18-24 months. An ocean net pen complex could grow
about 1 million pounds of fish per year, for projected
revenue of $2-2.5 million. Net pen capital costs were
about $1.5 million.
A large Commercial Aquarium asked if the company
could grow this species as food for its predators. The
aquarium was feeding its predators frozen wild-caught
fish that often carried infections or parasites. The
aquarium wanted to try lab-bred fish to see if the
predators still liked live food and if veterinary costs
were lower. A test showed that these lab grown fish
reduced vet costs and provided superior nutrition.
Estimated purchases by this one aquarium were about
$10,000 monthly.
The Aquarium also asked if FishCo could supply
“schools” (several thousand) of these fish for their tank
displays. To supply the aquarium predator food and
schools would require a small modification to one
growing tank because fingerling-sized fish for the
aquarium market were slightly larger than the “seed”
fish for the net pens.
FishCo decided that supplying the aquarium would be
a “distraction.” The owner was in conversation with
other “potential investors” who were interested in food
fish. This group failed to invest, and FishCo’s owner
pulled the plug on the company.
FishCo’s owner did not explore the potential of the
aquarium product, despite having a competitive
advantage over frozen fish. Revenues from fingerlings
produced an 80% contribution margin. These monies
would have reduced the burn rate and could have
allowed the firm to break even. With about 400
commercial aquaria in the US, FishCo’s live food fish
product could have supplied other operators with word-
of-mouth references and simple marketing.
The owner was a wealthy and successful developer who
did not recognize that without some cash flow, he was
in a very weak negotiating position for raising
additional capital.