Sometimes there is no true north strategy available: period. When a company faces changing competitive technology and that change process is fraught with uncertainty there are three options: 1. do nothing; sounds almost ridiculous but sooo many companies have died as they stuck their head in the sand ignoring emerging competitive products or technologies “hoping they would go away”, 2. place a big bet with a major acquisition or large investments on one of the outcomes, or 3. be smart. Being smart means thinking two steps ahead, planning on multiple possible outcomes, avoiding picking a winner before you have to, in effect hedging your bets. Here's an example that demonstrates the wisdom of the third option. Applying it usually takes some outside-the-box thinking and creativity; that’s what you’re paid for!
A research department (subsequently named Globespan) was a throw-in to a larger acquisition from AT&T in 1996. We decided that it's cost basis was $5M. This research department had created an operational version of DSL technology (high speed internet over copper telephone lines). Let’s call Globespan’s offering version A to avoid the cryptograms; it was a combination of hardware and software. On the surface this seemed highly promising; the DSL market was real hot at that time. However, there were many serious, no daunting, problems. A competing technology, version B was already in existence;and several companies had gone public with in aggregate almost $2Billion of market valuation based on its potential (even though B wasn’t yet operational). With the mega-funds they had accumulated via their public offerings, these companies had lobbied, cajoled, entertained, and mystified the entire user industry (telephone companies) into declaring that version B was the one and only standard--the only acceptable product. Version B’s standard position was locked in, totally unassailable. This happens: in the early days of video cassette technology VHS prevailed over a much more robust and better performing Beta technology in roughly the same way. So Globespan faced: (a) being locked out by firmly established standards, (b) a current $0.5M negative cash flow per month which would need to become much, much larger very quickly, (c) no major customer willing to place even a small order knowing they would have to replace all the hardware when the standard, version B, became operational. In addition, as Globespan was simply a group of researchers, there were other major investments necessary just to be operational. Globespan needed a management team, in-field capabilities, testing facilities, a headquarters building and labs (the research people had been housed in Bell Labs and were essentially homeless after the acquisition). I was a part time turnaround CEO so we also needed an industry expert long-term CEO. Hiring anyone of caliber would be difficult given the standards problem. This was a lot to do for a company apparently facing a stone wall. Some of the investors felt we should shut the doors (actually at start there weren’t any doors); and virtually all cringed at the combination of the ongoing negative cash flow and required investments.
But there were believers, me being one. We created a NorthWest strategy, in this case a financial holding pattern while making the necessary investments. By cliff’s-edge negotiations with our major supplier, our potential landlord, our employees and our existing customers, the cash flow out was reduced to about $0.2M per month even with the additional hires and expenses without sacrificing significant equity. This was a palatable level. Although the standards could not be changed, we pummeled the market place with proof that our version A was robust and operational, helping significantly in the hiring process. About 12 months later, the new CEO created a brilliant, now true North strategy, offering our A technology (which worked) and hardware but with software upgradeability to the B technology (when—and if—it ever worked). The customers therefore took no risk when purchasing the non-standard but working technology, as they didn't have to replace the hardware. The flood gates opened. Globespan’s version A never got re-programmed to version B as it then became the standard. Globespan later went public and peaked at a $8Billion market value.