Milestone Group Quarterly: October 2003
Articles
The Doctor Is In:
Martin Pichinson, Co-Founder, Sherwood Partners
Martin Pichinson is Principal and Co-Founder of Sherwood Partners (www.shrwood.com), a business continuity, turnaround and advisory firm serving technology companies. In this interview, Martin shares his views on the tech turnaround business.
Milestone: What are the three most common reasons Sherwood gets a call to help a company?
Pichinson: One, to validate certain processes, operational or financial, within a company. Two, to extend runways, specifically because technology is not the norm of business and has very few validation points. Our job is to extend runways and bring efficiencies to the business building process. We have clients that have 32 months of runway; why do they need Sherwood? That’s the first question people always ask the CEO. Sherwood increases your runway by a minimum of 20% and many times much more. We believe that we are management’s best friend. What happens if your product finally gets traction at the 34th month? Better we be there now to protect your future, and your ability to have a future, than to call me at the 28th month to assist in the wind-down process. Which is, sadly, the third reason you call Sherwood: to create some kind way of closure.
Milestone: You've been called a Professional Liquidator, someone who shuts down companies...tell us about this part of your business?
Pichinson: That is what we’re called, but it’s not what we are. We’ve never been liquidators; we have been trusted advisors to VC’s and the technology community. Our clients know we have a very professional team, do complicated matters (which even the "so called simple matters become"), do not share information with the press about all the in and outs, what we think happened and why it happened and point fingers at the board, or point fingers at the CEO or the management team. When we are involved in a closure, it is a hospice situation that requires a quiet and gentle close down of a company. We are the only firm in the country that does a managed Assignment for the Benefit of Creditors. Most of our competitors just take the books and files, and they extend letters out and close it down. This is fine for an industrial type company. They do not understand how to license technology, how to sell technology, how to maximize the return. We have situations where we’ve closed companies and sometimes creditors were paid 100%, and some of the investors even got some money back. A lot? No. We have companies that are still in business today that we went in specifically to clean up their balance sheet. Why are we better at it than a VC, or a CEO or a management team? Third parties are always better negotiators because we can take the blame and say, "The board retained us, we need to get certain results out of the CEO and CFO." We are what we call adult supervision. Why would any of us go to a gym and hire a trainer for a lot of money to get results? Well, the answer is simple: because those who don’t use a trainer don’t get results.
Milestone: A lot of your clients are VCs, what can Sherwood do that the VCs can't do themselves?
Pichinson: It’s not about what a VC or even management can do; it’s more about what you like and have the time to do. It’s about what we call "ROT", return on time. Everyone is so focused on ROI, return on investment, but you can get another round. I don’t know anyone in the world that’s ever re-gained time, so return on time is the key. Think about it, what does a VC really enjoy? One, they love understanding more and learning about opportunities in tech spaces. Two, they need to look at business plans. Three, they need to invest money; make returns. How do you make returns? While investing money, you mentor your management teams, you help develop relationships, strategic sales, strategic alliances, strategic whatever, to build your portfolio companies. If the VC community has been spending 80% of their time on the bottom 80% of their portfolio companies - forget the 80/20 rule - just think how the return would increase if they spent, let’s say 80% of their time on the top 40%. WOW...that would really bring home more successes. What you didn’t ask me is, "Why can’t management do what we do?" Management should be creating and bettering the concept, getting through the beta and getting sales. There is nothing more important in technology than getting sales and after that, the next most important thing is getting sales.
Milestone: So in theory we have learned our lesson in the tech bubble. What are the biggest mistakes tech CEOs continue to make?
Pichinson: Tech CEOs are the brightest of the bright. They do what most people in society can’t do: they see through time. The mistake that they make is thinking they are the normal CEO. They try to be an operating CEO when they start a company. You should be a CCO, a Chief Concept Officer, and bring in a firm like Sherwood to help with the operations and financial side of their business. You could bring in a CFO, but there is no income when you start the company. The CEO of a technology company has to be like Dr. Salk - you have a team of professionals that’s creating a cure for polio or in this case, a better technology solution.
Milestone: What do you see VCs continuing to do that surprises you most?
Pichinson: Not bringing advisors in sooner because you think that everyone can do everything. The tech community is a young world, and with that, there is an inherent problem. I do not see a lot of VCs coming up with a new Microsoft or a new PDA; they are investing in incremental solutions and variances. I think that the community has to find comfortable ways to work together to amplify their specific environment.
Milestone: Not all your work is on the dark side, tell us about a notable success.
Pichinson: We have a lot of successes I can’t tell you about because we don’t release names out of our clients or of our referral base. We had one company we went in specifically with instructions from the board to close. Two days later I had to call up the board to share our findings and inform them that, "You are making a mistake. There’s a way to save the company." To make a long story short, they just had another $15 million round of financing. Another company that we went into with only three weeks of cash left, seventeen months later we did have to close them. But, with three weeks of cash left, Sherwood got paid, the employees got paid, we had seventeen months for that business to continue operations and the board was able to evaluate the future potential of this business. Sadly, the space this particular company was in had no future. We are good at what we do for one reason, we enjoy untangling knots, fixing problems, and bringing success to new ideas. We are the VC’s gardener, keeping the weeds out. Our job is to do the boring stuff.
Milestone: You spent two decades in the music industry, any parallels to the tech industry?
Pichinson: A lot. It’s all about people, ideas and most important IP. The difference between the music industry and the technology industry is - both are protected by Congress - one is protected by what’s known as a copyright, and the other is protected by what’s known as a patent. Everyone lost by the failure of Napster, because they built Kleenex, they built a brand. The music industry was foolish by not embracing it, because they had the vehicle, and the tech community ruined it by thinking that the Napster IP protected by the patent was more valuable than the content IP protected by the copyright. IP is a major part of our future...Content will continue to play an important part to the growth of the technology industry.
|
