Enterprise Ireland Case Study. April 2014

Transcription

1 Enterprise Ireland Case Study April 2014

2 Enterprise Ireland Case Study 2 ABC Systems Background and key people: ABC Systems was established in 2007, by Kenny Sansom, who is now a 70% shareholder and CEO. Pat Jennings was appointed CTO in 2008 with a 15% shareholding. He was promoted to COO in 2011 and currently owns 17.5% of the shares. Kenny has spent over 30 years in IT working in the multi-national sector. After completing his studies to PhD level, he moved to Silicon Valley in 1992 where he was involved in ground-breaking R&D, product development and sales. He departed XYZ Systems, whom he had worked with for a number of years, in 2005, returning to Ireland where he secured some funding to set up an IT business ABC Systems. Kenny became the CEO. Meanwhile, he also led a research project with an Institute of Technology (IoT) where he developed some patents for processors and semiconductors. The story to date: The products developed as part of Kenny s research project showed some promise and Kenny sold one product to JKL Systems for 200k. Kenny receives annual royalties, from this deal, on a personal level, resulting in his financially security. With agreement from the IoT, Kenny retained other patents on the basis he would provide PhD supervision. The IoT agreed to receive 5% of relevant sales revenue once the latter surpassed 1m per annum. Kenny was also appointed a Professor for his ground-breaking work and PhD supervision. Kenny immediately invested the proceeds from the JKL systems deal into ABC Systems and, with grant support, employed three more staff in product development. Pat joined and took an active role in developing the products for the market and invested 100k for his shareholding. The funds being accessed via personal borrowing on the equity of his family home. The products were continually refined by Pat, and the team, and, in 2009, there was a significant breakthrough with one of the processors were sold into a leading telecoms company which generated approximately 400k in sales during The telecom company also required on-going refinements to the product as it progressed handset testing in its own right. Whilst demand for the processor continued to grow, it was absorbing more and more product development time due to the constant changes required by the customer. Pat decided to grow the team so that they could shorten the development time window. Increasing the staff to 20 improved development time and quality and organic sales increased to circa 1m per annum. Unfortunately, salary costs reached 1.1m per annum and the business found itself with cash flow pressures. During late 2010, Kenny was invited to return to the US as a consultant with XYZ Systems, as he was gaining a positive reputation in the mobile technology space, and divided his time between his PhD work in Dublin and his role in the US. This impacted the time he had available to ABC Systems. Nevertheless, he was confident that performance would rebound under Pat s supervision as the product in testing with the telecom business, albeit on a pilot basis, was expected to progress beyond beta testing and prove highly marketable which would result in millions of euros in sales for ABC Systems each year. In 2011, the business remained stable but generated little profit. Pat developed one of Kenny s patents further and designed some promising options for the mobile phone market. But the capability to respond to industry demands, in a timely manner, remained a challenge. Pat encouraged Kenny to work on a business plan to attract funding from Enterprise Ireland and, in late 2011, in view of promising sales orders and the reputation of their work, EI categorised ABC as a high potential business and provided funding of 250k. Pat decided to appoint four more developers and the related salaries absorbed the majority of this funding. Pat was appointed as COO to grow the business. He did not appoint a CTO to replace him and retained this secondary responsibility. As an engineer, Pat felt comfortable holding the joint roles.

3 Enterprise Ireland Case Study 3 Early 2012 saw some real success, when post some six months of development one of the mobile products gained approval and generated sales of 1.5m during the calendar year. ABC Systems progressed to deliver an operating profit of circa 150k. This scenario encouraged Pat to grow the business further and Kenny sourced an additional 250k investment to enable this goal. Pat employed a further three developers, an office manager and a finance director. In late 2012, the mobile company indicated they required increased orders, but, in view of an increasingly competitive market, they sought a lower cost per unit. Pat felt he could not reduce the unit cost and delayed in confirming a new price structure. Simultaneously, the market was changing dramatically due to a global downturn and a consolidation of the mobile phone market. It had become much more competitive but ABC Systems did not review its operating or production costs. In 2013, mobile sales plateaued unexpectedly in Kenny s eyes. Pat continued with further new product development in preference to refining current product costs. The above events resulted in ABC Systems trading at a loss of 175k. Cash was no longer readily available. Kenny decided to offer 5% of the shares to the staff and he raised 100k for the business. Pat invested further, at this time, and bought another 2.5% from the 5% offered to staff, increasing his shareholding from 15% to 17.5%. Kenny loaned Pat the money to acquire the shares. All of the 100k raised by Kenny was invested in ABC Systems. In early 2014, based on Kenny s patents, Pat identified some bespoke opportunities in the wireless space and developed specialised products for wireless printers with some potential products emerging for wider Wi-Fi applications. Not all the developers in ABC Systems are competent in this space. Whilst Pat believes he could generate good interest from clients in this niche market, the development costs are high and the time to deliver will be substantial. In effect, each product being developed could generate sales of circa 300k per annum. This income could be entirely absorbed by the related development time. Pat hopes that the development time will create another breakthrough product for market and create volume sales. Kenny has observed that in the US many similar development companies entered joint ventures with the main technology company and this could secure an on-going and profitable relationship when products became successful. Kenny has reached a view that Pat is not thinking strategically and seems more focussed on specific product development whilst client relationships are not really maturing. Kenny wishes to consider licensing production in China. Pat disagrees saying Chinese suppliers would not provide the same quality and he has a genuine concern that the product would be copied in China despite the patent protection. Kenny and Pat have started to have fractious meetings and a deterioration in their relationship has occurred in recent months over the future direction of the company.

4 Enterprise Ireland Case Study 4 The current situation: Kenny and Pat have decided they need to develop a strategic plan for the business. Following a series of meetings they have agreed the following vision and mission for the business: Vision: For ABC Systems to be the leading global developer of innovative and creative micro technology that changes business communications. Mission: to develop and produce high end micro technology for mobile and wireless enabled business communications. We will achieve this by employing the best, building profitable industry partnerships in micro technology research and producing quality solutions available across the globe through profitable partner distribution networks. Kenny and Pat also agreed to the following future organisational chart: In recent months the changing economic situation has seen ABC Systems lose three of its senior developers, two who have moved into industry (potential clients) and one who has moved to a multinational competitor. The latter departure required legal action and was damaging to the senior managers, relatively costly, and achieved a six months gardening leave clause being enacted. Staff are unsettled. They are conscious of the recent financial difficulties and have observed relationship difficulties between Kenny and Pat which are now resolved. Pat has agreed to return to a full-time CTO post. A decision to fill the COO post remains sensitive as Pat still believes he can do both jobs. He also feels that, in any event, the COO should report directly to him. Kenny has other views which probably include promoting David Seaman, a very competent developer, who has demonstrated strong skills in managing the internal process effectively whilst also building strong client relationships across recent projects. Their recently appointed Financial Director, Liam Brady, has strong business acumen allied to keen awareness of the technology environment. He has also brought to the business, for the first time, the ability to create realistic financial models. However, until now, he has been involved in getting the accounts and financial procedures in order. In general, the current market is relatively positive with a growing demand in the mobile space for faster and smaller processors and improved power-efficient, high-definition display technology. Leading mobile producers have been in

5 Enterprise Ireland Case Study 5 talks with ABC Systems to discuss exclusive deals. Innovation across its processors may enable ABC Systems to sell variants of its products, to competitors either directly or via a production licencing arrangement with other manufacturers. Additionally, there is a growth in the demand for wireless technology for business printers with marked efficiencies noted in hardware builds if the wireless technology can be developed to deliver speed and bandwidth. ABC Systems are becoming leaders in this research area but the development phase remains slow and expensive. They have decided to create their strategy, over the next three years, under the following areas: Finance Activities and processes that enhance the profitable operation of the business. To improve profitability To reduce research costs To increase sales margin to 35% To improve debt collection times To enhance payments systems Source investor funding Strategic Pillars Operations and Growth Process Successfully Activities that create integrating significant market infrastructure, share, develop the logistics and brand, identify technology to increased revenue develop, and supply, targets and sees ABC high quality, Systems position as a innovative and market leader. relevant products and research. To improve product development time To enhance product quality To improve client engagement and feedback on products To source and manufacture successful products Key focus on the following products: - Mobile processor chips - Mobile screen plasma processors - Wireless processers for print industry Realign process to be more focused on development for product enhancement rather than to aid speculative research. Product definition Develop effective route to market Build partnerships in the mobile and wireless space Build global research partners Develop effective networks Focus on niche, high potential research activities People Develop and maintain a skilled, creative, effective, flexible and committed staff that are fully engaged in the business journey. Alignment of roles and responsibilities Implementation of effective engagement systems Attraction and retention of the best talent Career development for all staff Effective performance management systems Be seen as the place to work

6 Enterprise Ireland Case Study 6 You will now be asked to develop a strategy for one/two of the above areas. In your strategic planning group you will need to consider: 1. What are the key strategic goals are to achieve the mission? 2. Under each goal identify the actions which must be taken, and by whom, in years 1, 2, and 3; 3. For each action what are the Key Performance Indicators (KPIs)? 4. How will you measure success with regard to the goal? and 5. What are the critical success factors required to achieve your plan (this may require reference to the other pillars)?

7 Enterprise Ireland Case Study 7 1. Baker Tilly Ryan Glennon Trinity House Charleston Road Ranelagh Dublin 6 Ireland T: +353 (0) F: +353 (0) info@bakertillyrg.ie The firm or firm(s) mentioned within this document are independent members of Baker Tilly International (unless other expressly stated). Baker Tilly International Limited is an English Company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity and each describes itself as such. Member firms are not Baker Tilly International s agent and do not have authority to bind Baker Tilly International or act on Baker Tilly International s behalf. None of Baker Tilly International nor any of the independent member firms of Baker Tilly International has any liability for each other s acts or omissions. In addition, neither Baker Tilly International nor any other member firm has a right to exercise management control over any other member firm. 2013