Dr. Doug Barber on why tech firms fail

June 10, 2009

Doug Barber knows a thing or two about building a successful technology firm. He was one of the founders and the long time CEO of Gennum Corporation which he built into one of the most successful and best managed tech firms in Canada. Though some might disagree, the firm was never quite the same after he retired in 2000 and frankly is a shadow of its former splendid self today. Dr. Barber has also had a long illustrious teaching career at McMaster University and so is familiar with how and what young people are taught at the post-secondary level. Finally, experience aside, Dr. Barber has always impressed me as a very wise man who rarely offers opinions that are ill-considered.

Several years ago Dr. Barber took it upon himself to study why so many R&D intensive startups fail, or perhaps better stated why so few thrive long-term. He looked at some 18 tech firms which were founded in Canada and gave it the old college try before being subsequently sold or folded. He presented his findings at a breakfast talk I attended this morning in Hamilton.

Dr. Barber had many interesting findings. Of the 18 firms he studied, 17 disappeared in between 3 and 14 years of existence (the average lifespan was 7.2 years). Also, of the 18 firms studied, 8 never secured a single sale, while 7 never even engaged with a customer during their entire existence.

Among Dr. Barber’s many observations:

1. No customers, No sales, No business – Many, many of the firms examined were naïve about the critical importance of customers. They failed to understand that they were in business not to innovate technologies but to create value for customers. Enterprises start and end with customers, not technology. External financing breaks the value exchange between customers and suppliers as it negates or delays the need for customers. It also distorts the viewpoint of startup businesses who come to rely on external funding and the artificial metrics on which it is dispensed. But no customers, no sales, no business.

Dr. Barber goes so far as to suggest that there are elements of a customer averse culture cutting across this country. For example, governments in their various initiatives value technological innovation but undervalue the necessary business acumen, training and skills to do anything with them.

2. Enterprise Incompetence (governance, finance, management, culture, planning) – Dr. Barber observes that many of these firms had management that lacked enterprise competence, funded by investors who lacked enterprise competence, and advised by lawyers and accountants with little enterprise competence. He also noted that planning has sadly devolved into a pure financial tool rather than enterprise focused discipline for success.

Dr Barber argues that more balanced learning needs to be introduced into schools, that experiential learning needs to be emphasized and valued, and that faulty beliefs about how commerce works in the tech sector needs to be corrected. Better mechanisms need to be developed so that knowledge can flow and better businesses and leaders can be built

These are a few of the many cogent points he made this morning. I look forward to reading his report when it is eventually released.