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Process as important as product, high-tech founders say

When Dave Caputo set out to launch Sandvine from the ashes of Pixstream in 2001, he and 19 other colleagues had little idea what their technology would be.

Yet, they had just been handed $20 million in venture capital funding from a rich benefactor who didn’t want to see their talent go to waste. Pixstream, a video networking startup, had suddenly been shut down by parent company Cisco Systems during the dot-com meltdown.
Deciding they had to adopt a formal process, the Sandvine group broke themselves into four teams. Each was charged with investigating a different technology or potential idea.

The pressure was “intense,” said Caputo. Big money was riding on the outcome. The 20 employees had given themselves a 14-week deadline to come up with a potential product before they met with Sandvine’s new board of directors.

The first two teams were eliminated fairly quickly. The technologies they were studying, internet storage networks and voice over the internet, required too much hardware or were soon to be developed by larger companies.

That left two teams. One was looking at providing fibre optics to the home and the other value-added services for the internet. Both wanted to win. While the competition was a good sign, Caputo worried that it could be “divisive” rather than “unifying.”

In the end, fibre to the home was considered too far ahead of its time. The winner, value added services, allows internet service providers to manage their networks more efficiently. It has turned Sandvine into a thriving Waterloo company with 300 employees and $51 million in annual sales.

Caputo’s message to an Entrepreneur Week seminar today at the Accelerator Centre was twofold. It’s possible to start a company without a concrete idea or piece of technology as long as you have the right team in place and do your homework. Second, the product usually comes at the end of this process, not at the beginning.

Joining him on the panel were Mate Prgin, who also worked at Pixstream and has gone on to launch two other companies, and David Kruis, a former Research In Motion employee who helped RIM enter the consumer market before starting his own firm delivering video to mobile devices. The topic of the seminar was the innovation process.
Prgin and Kruis told similar stories of knowing roughly what market they wanted to pursue, but undergoing a learning, trial-and-error process before settling on the right technology.

Prgin and three colleagues knew they wanted to work in video compression. Calling their new company, VideoLocus, they began by identifying four potential markets distributing services such as high-definition TV and movies.

They ended up developing a semiconductor chip common to all four markets, but made some key modifications based on advice from their first customer, a cutting-edge cable company in the U.S. that wasn’t afraid to try new technology. “Listen to your early customers and don’t get too entrenched in your early ideas,” Prgin said.

It’s also important to learn the purchasing behaviour and economic model of your customers, he said. If they are not prepared to invest in your technology, you need to adapt.

VideoLocus was eventually sold to a California company and Prgin is now working on another startup involved in video technology called Avvasi.

After seven years at RIM, Kruis took the risky step of leaving in 2005 without a firm idea of what he wanted to do. All he had was a list of ideas on his computer and a burning desire to start his own company.
For the next year, “I drove a bus around the region,” he said. It wasn’t a real bus, but a metaphorical vehicle with Kruis at the wheel and friends and savvy colleagues who would climb aboard to listen to his thoughts and ideas and provide feedback.

“A lot of people are afraid of sharing their ideas, because they might get stolen,” he said. But feedback and advice are precisely what you need, he said.

At the end of that year, Kruis narrowed his focus to a few areas of the mobile market which he further refined by visiting trade shows in Canada and the U.S. He knew video would be important, but wasn’t sure how to deliver it in the new fragmented internet and carrier market.

The company he eventually formed, Metranome Inc., provides a platform, rather than a specific product, for streaming video to mobile devices. It didn’t come without a lot of work, research and testing ideas. “It takes two or three years to find that sweet spot,” he said.

Caputo, Prgin and Kruis all worked at other companies before launching their own. If you’re not sure how to get started, choose a technology you’re passionate about and go and work at a large company for five years, Caputo said. Learn as much as you can and then start your business, he added.

November 19, 2009

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