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“Rather than getting too focused on equity funding early on, tech start-up teams should look at alternative business models, including revenue-funding, government grants, and crowd-funding.”

Bernd Schoner was a researcher at the MIT Media Lab before co-founding ThingMagic with four fellow PhD graduates. His research has led to devices and software applications as unique as the Marching Cello, a wearable instrument providing the functionality of a cello, and a giant polyphonic floorboard for the Flying Karamazov Brothers. Despite his work on digital stringed instruments, he still enjoys playing his acoustic cello, and is also a competitive gymnast. Bernd holds Master’s of Engineering degrees from RWTH Aachen, Germany, and from Ecole Centrale de Paris, France. He received his Ph.D. from the MIT Media Laboratory in 2000.

ThingMagic is a leading provider of UHF RFID readers and systems. The company was acquired by Trimble Navigation in 2010. It is now operating as a division of Trimble.

ThingMagic

BusinessInterviews.com: What are some common reasons that technology startups never make it to the funding stage?

Bernd: A lot happens and has to happen in the critical period between the first day that someone comes up with an idea for a business and the day the first VC dollar hits the start-up’s bank account. In a way, this is the period when the team has to be the most creative, work the hardest, but unfortunately, yield the least money. Many of the decisions are made in that period that impact the long-term prospects of the venture and the impact of these decisions can be felt many years later.
I have seen start-ups be successful, even though they never got to the VC stage. Some tech companies manage to sell before they take equity investments. This is a great choice when it works, because the founders and common shareholders get to keep all the proceeds from the exit. At ThingMagic, we bootstrapped for 5 years before we decided to accept funding. That long period of building the company without diluting it helped us get a great valuation when we finally did capitalize the venture.
Rather than getting too focused on equity funding early on, tech start-up teams should look at alternative business models, including revenue-funding, government grants, and crowd-funding. There is usually a creative solution and a path forward for a good idea or technology. It’s the team’s job to discover it.

BusinessInterviews.com: Congratulations on the recent publication of, “The Tech Entrepreneur’s Survival Guide.” What do you hope that the average reader walks away with?

Bernd: Thank you. Let me first clarify that the book addresses entrepreneurs and start-up employees at all stages of a start-up’s life cycle: initial set-up, funding, and exit. The book can be read cover to cover, but it can also serve as a reference manual for anyone who wants to read up on a particular issue.

To mention just three of many key lessons from the three parts of the book: #1 Carefully select your cofounders. No other action is as critical for the long-term success of the venture. Try to team up with co-founders who share in your values and long-term goals for the business. #2 Before you accept VC investments, realize that that action changes the character and dynamic of the start-up irreversibly. #3 Consider selling your company when things are looking good. Recognize the moments when you CAN sell. Don’t wait for the moment when you have to sell because there are no other options for financial survival.

BusinessInterviews.com: What opportunities are you noticing emerge as the RFID market continues to expand and grow in unexpected industry verticals?

Bernd: The biggest challenge and opportunity for RFID is its relationship with consumer technologies. Passive UHF RFID, as we developed it, continues to be a commercial B2B technology with very few consumer applications. We use UHF RFID to track boxes, cars, construction assets and workers. We don’t yet offer consumer smart phones and apps with UHF capability.
At the same time, technologies such as Bluetooth Low Energy and Low Power WIFI offer capabilities that overlap with the properties of UHF RFID. These active RFID protocols ARE featured on modern smart phones, which is a major advantage for broad adoption. There is room for all three of these technologies including UHF RFID in the consumer market, but any vendor or new start-up should evaluate carefully which technology makes most sense for a particular application.

BusinessInterviews.com: How does your experience as a cellist and gymnast help inspire other areas of your life?

Bernd: Both music and sports like gymnastics require an enormous amount of focus, time commitment, and patience. I was fortunate that I had these learning experiences as a child, and then continued on with these activities to this day. Learning a new trick in gymnastics now is even harder. It can take years and there are no short cuts. Founding a tech company requires similar persistence. A co-founding team may be lucky and get very successful in a short amount of time. More likely though, it will take a dozen years or more to build something of value. Usually, there is little reward for founders who quit before the startup exits. Often, the start-up does not survive if the founding team implodes.

BusinessInterviews.com: Can you talk about the process of selling ThingMagic and finding a stable home for your employees in a difficult market place where many of your competitors were going out of business?

Bernd: As a company we had missed a great opportunity to exit about 5 years into the life of the company. In 2005 the retail supply chain industry was creating a big hype around RFID, but then disappointed all of us by cancelling many of the programs as quickly as they had initiated them. In 2010, another 5 years later, there was another boom in retail and RFID around the concept of in-store inventory tracking. That time around, we were smarter and sold the company.

We learned two lessons from the first retail debacle: #1 When the metrics, in particular revenue, are trending up, it’s a good time to sell and another opportunity to exit may not come back any time soon. #2 It is dangerous to focus your efforts on a single market or product. Following the retail supply chain bust, we changed our strategy dramatically to develop horizontal OEM products with applicability in many markets. This, in turn, ultimately saved us.

BusinessInterviews.com: Can you share some of your insights for creating a successful exit strategy?

Bernd: Tech entrepreneurs are in the enviable position that there are opportunities to exit and monetize the company assets before reaching profitability. Tech startups get bought pre-product, pre-revenue, or pre-profitability. It’s important to consciously reflect and capitalize on those moments when they occur.

I like to think of a start-up business as a series of hypotheses regarding the next step and milestone for the venture. On day one, the team assumes that the technology will have commercial applicability. A little later, the team embarks on the development of a particular product assuming that it will be very successful in the market place. In another case, the team accepts venture capital with the assumption that the capital will help increase revenue and enterprise value by a factor of 10 or more.

Some of these hypotheses come true, but many turn out to be false. Not surprisingly, it is very hard to sell a start-up when a major assumption was just proven wrong. Try to get a good valuation when your product just flopped, or revenue is not increasing as predicted. On the other hand, acquirers are often willing to buy into an untested hypothesis. Technology entrepreneurs should always consider whether it’s a good time to sell when facing a major un-tested hypothesis.

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