Saturday, August 4, 2007

Startup Company and Operating Capital

Cash burn rate is an extremely important consideration for a startup and a micro-multinational company like Heaven Fresh.  I witnessed when Auvo Technologies, one of the startup companies that I worked for,  spent about 4.5 million dollars  in  just one year and a  half and then closed its door because of the lack of operating capital.  When I look back and analyze that how could Auvo spend so much cash in such a short time, one thing that stands out the most is that the company hired expensive full time people for the activities which were important but not vital for an early stage company.  Both the founders of Auvo Technologies were experienced, competent and intelligent Motorola veterans.  They must be in their "Motorola frame of mind"  for them to hire all these trusted and high profile peers from Motorola at such an early stage of Auvo Technologies.  They must have missed a very simple difference that Motorola is a multi-billion dollar company that earns its cash from sales of products and services while Auvo was dependent on Venture Capitalists for the supply of operating capital.  I have great respect for the founders of Auvo for making personal sacrifices to stretch the dollars in the company's account. They had an exceptional management track record  but,  in my opinion,  they did not have the guts to let their "friends" go.  For the success of a startup, an entrepreneur must be able to realize the limitations of the business and must be able to make difficult decisions and not let every body drown in an attempt to save them all. I do not know for sure but the rumor was that founders were forced by the investors to fire all the "non essential" staff. Unfortunately, year 2001 was not the best time to get the VC funding and the move to lay people off came a little too late to save the company.  Just two weeks later the entire engineering team (including me) was also packing its bags to look for jobs somewhere else.

It was the time right after dot com bust and was very difficult to find a technology job with an abundance of laid off technology workers in the US.  However, I was very lucky (or may be very good:) to start my next job at Kirusa Inc without sitting idle even one day.  Kirusa was another startup company and faced the similar challenges as Auvo did for managing the working capital.  Working for Kirusa was a Deja Vu for me in terms of company's financial struggles.  The only difference was that it was the 2nd startup of the co-founder and CEO of Kirusa, Dr. Inderpal Singh Mumick.  Few months into my job at Kirusa that I saw people leaving the company one after another. I cannot say for sure whether they were let go or the circumstances were created for them to leave but it was a very tense and demoralizing scene to see our co-workers/friends leave the company. In a technology startup company, engineering team is the last to leave. Given that I was the only one left working on my project that had brought some money to the company, I felt quite confident that my job was secure as long as there was money in the company's account. But having seen my previous employer close its door due to lack of funds made be believe that it was inevitable for Kirusa as well. Burned out from working 80+ hours a week for both the startup companies and coupled with the tense environment at the time, I decided to quit my job at Kirusa before it went down like Auvo.

I left Kirusa in April of 2003 and the company got several million dollars in funding in 2007, four years after I left.  Thinking back of my time at Kirusa, if it was difficult for me to see people go then it must be heart breaking for Inderpal as well to let people go or see them quit the company.  But I realize it now that he was preparing for the difficult times to come. Scaling downed the company to reduce the cash burn rate and going into hibernation mode was probably the only option to keep it going until the atmosphere was the suitable to get further funding from the VCs. Kirusa not only survived the downtime but is also thriving now. In my opinion, if the cash burn rate was not managed at Kirusa it would have met the same fate that Auvo did.  

By the way, I just checked the Kirusa web site (http://www.kirusa.com) and the first thing that caught my eye was the press release about the issued patent of "A Technique for Synchronizing Visual and Voice Browsers to Enable Multi-Modal Browsing".  I filed that patent in February of 2003 while working at Kirusa. For those of you who want to study the patent can do so at the Unit States Patent office web site (http://www.uspto.gov). The patent number is 7,210,098 and my name can be seen listed under the "Inventor Name" on the patent.

1 Comments:

Anonymous Jimmy Hendricks said...

Good insight. Even though this was a year old i appreciate the insight. I quoted you in my recent post. http://jimmyhendricks.collarfree.com/2008/10/27/the-law-of-burn-rate/

October 26, 2008 9:28:00 PM PDT  

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