Many entrepreneurs in high-technology industries believe that, if they develop a superior product, then their company will be sure to succeed. Unfortunately, the road to success is littered with the wreckage of companies that blindly followed this philosophy.
In my studies of high-tech startup companies, I have found that social factors, such as consumer habits and beliefs, often play a greater role in the success of a new venture than technological considerations. Even if you have developed a revolutionary new product, you won't succeed in the marketplace unless you pay careful attention to your customers' needs and expectations.
For example, one startup company tried unsuccessfully to commercialize a test strip that changes color when certain toxic substances are present in fluid samples. The company's entrepreneurs thought they had a sure winner, because the test strips were less expensive than competing testing methods. However, the entrepreneurs failed to realize that their potential customers would be reluctant to adopt the new technology, because their employees would have to manually read and replace the strips. Another company failed to commercialize a computer-operated manufacturing system that would reduce the amount of metallic waste generated, because its customers were unfamiliar with these high-tech systems and did not understand the advantages of computer technology.
In today's competitive market, entrepreneurs need to continually re-evaluate their products and business strategies by following trends, identifying when changes are needed, and then taking decisive action to respond to the shifting marketplace. I've coined the term "entrepreneurial learning" to describe this dynamic approach to business management.
In entrepreneurial learning, managers develop and integrate four types of knowledge into their company 1) "know-why"; 2) "know-what"; 3)"know-how"; and 4) "know-when." In the "know-why" phase of the learning cycle, managers critically examine their motives and goals, as well as the purposes for which their products and related technologies are being used. Through this intense scrutiny, entrepreneurs gain new perspectives about the market potential of their technology and the realities of the marketplace. Managers may then revise their company's mission statement or goals to reflect this new market perspective.
In the "know-what" phase, managers develop ideas for innovative products or product features that meet the needs of the marketplace. The know-what phase is both creative and pragmatic. Managers may formulate and refine ideas in brainstorming sessions, and then undertake market research to determine which of their ideas has the best chance of success, in light of the current social trends and the state of technology. Armed with this knowledge, managers can then prepare a business plan detailing how the company will introduce its products, add new features, and expand their product line into other market segments.
The emphasis of the third phase of the learning cycle-know-how-is on establishing new practices to meet the objectives of the company's business plan. Typically, these practices consist of the company's "standard operating procedures" for developing prototypes, modifying product features, and conducting test marketing and then full-scale marketing of new products.
Entrepreneurs often encounter "breakdowns"-unanticipated problems-during this know-how phase, because the company's operating procedures do not change quickly enough to keep pace with rapidly evolving technologies and markets. Many of these business problems can be avoided by establishing well-defined procedures, training both managers and workers to master new practices, and setting measurable goals that promote continuous improvement in the company's operations.
I have found that the way managers handle breakdowns is a critical ingredient in business success. If you lack the skill-or courage-to recognize and respond to breakdowns, the results can be disastrous. In contrast, if you are able to identify breakdowns quickly, you can usually take steps to keep minor problems from snowballing into major crises.
By applying the entrepreneurial learning approach, you can learn to use breakdowns as an opportunity to sharpen your business skills. As your experience deepens with each new learning cycle, you will become increasingly adept at monitoring market trends, developing and implementing new business strategies, and improving your company's operations. By learning to anticipate and overcome breakdowns, you can help keep your company moving ahead on the road to high-tech success.
Overcoming Barriers to Brownfields Redevelopment
In Massachusetts,
more than 7,700 former industrial and commercial properties are unused or
abandoned because they are known or thought to be contaminated with oil or
hazardous substances. Ironically, these so-called "brown-fields" sites are often
located in urban and industrial areas with most of the ingredients in place for
development. Many of these sites are fully linked to roads, rail lines, and
utilities, and are readily accessible to potential workers and customers.
Brownfields cleanup and redevelopment can create new jobs, increase property values in nearby communities, and expand tax revenues, while reducing the dangers that these sites pose to residents and the environment. According to Trudy Coxe, Secretary of the Massachusetts Executive Office of Environmental Affairs, brownfields redevelopment can also "help to save our pristine greenfields by keeping industrial activity in areas that already have the infrastructure in place to support it."
Yet despite the potential for profits, jobs, and other benefits, brownfields redevelopment has languished in Massachusetts and elsewhere in the United States. Many companies, private investors, and lenders have steered away from these projects because of the uncertain-and potentially prohibitive-costs of cleaning up brownfields sites, the risks of costly delays due to permitting and other regulatory requirements, and the potential liability for pollution damages. Some companies that own brownfields are also reluctant to sell them, because of fears that they might be held liable for failed cleanups or pollution by the new owners.
For example, last year, the city of Pittsfield tried unsuccessfully to attract a Canadian company to a 250-acre brownfields site near the center of town. The parcel, which is owned by General Electric, has its own railroad link and an on-site power supply. Husky Injection Molding Systems was considering the site for a $50-million factory that would have provided 1,000 much-needed jobs in Berkshire Country, where manufacturing employment has declined from 20,000 in 1970 to about 11,000 today. Despite the efforts of city and county officials and legislators, Husky ultimately chose for its factory a parcel of farmland in Vermont.
Husky Vice President Peter Hall said his company had concluded that unresolved cleanup issues at the GE site "would require a significant investment of people and resources," and would delay the company's plans. GE spokesman Stephen Moore noted that GE has been reluctant to sell the site for redevelopment because current laws fail to provide adequate liability protection.
The Massachusetts legislature is considering several bills that would amend the state Superfund statute (Chapter 21E) to promote brownfields development. One bill filed by Attorney General Scott Harshbarger would establish a pilot program under which prospective brownfields developers could apply for a covenant-not-to-sue that would limit their liability for contamination at the site. Under the Harshbarger bill, the Massachusetts Department of environmental Protection would appoint a "brownfields ombudsman" to encourage community development corporations and other groups to participate in brownfields projects, and help these groups secure adequate funding and obtain the necessary permits and approvals.
In addition, the Larkin bill would provide a tax credit of up to 25 percent of total remediation costs (subject to certain limitations) to brownfields owners in designated "economic target areas." Both the Larkin bill and a third brownfields bill filed by the Weld Administration would establish a $15-million Industrial Sites Recycling Fund for brownfields development in economic target areas.
The Weld bill would also offer a 25-percent tax credit for the cleanup of brownfields sites in economic target areas. This credit would be available only to "innocent parties"-developers or businesses that were not responsible for the contamination at the site. Like the Larkin bill, the Weld bill has provisions to protect lenders in brownfields transactions from pollution liability.
Members of the Weld Administration are confident that passage of the Weld bill would spur action at brownfields across the state. Economic Development Director David Tibbetts believes that the Weld bill would "eliminate obstacles to brownfields redevelopment, which is critical to the economic revitalization of many urban areas."
Locations of EPA New England Brownfields Grants
Also in May, the Clinton Administration unveiled its new "Brownfields National Partnership"-a two-year initiative to promote the cleanup and redevelopment of 5,000 brownfields sites. Under the partnership, 15 federal agencies have agreed to spend a total of $300 million on brownfields projects and provide an additional $165 million in loan guarantees. According to Vice President Albert Gore, Jr., the full implementation of this initiative would leverage between $5 billion and $28 billion in private investment for brownfields projects and support up to 196,000 new jobs. By promoting the redevelopment of existing industrial sites, the brownfields initiative would also help save an estimated 34,000 acres of "greenfields" from development, Gore claimed.
Both the U.S. House of Representatives and the Senate have introduced brownfields bills that would expand EPA's grant program and provide additional federal funds to help finance brownfields cleanups. House bill H.R. 1120 would authorize brownfields grants totaling $45 million a year and would provide states with another $15 million annually to establish voluntary cleanup programs or improve existing programs.
The Senate's Superfund reform bill would allocate $40 million for brownfields and an additional $25 million for voluntary cleanup programs. The Superfund reform bill also contains provisions that would exempt "prospective purchasers" of brownfields sites from liability for pollution caused by the previous owner, provided that they do not impede any necessary response actions at the site.
Not to worry, says Jack Robinson, president of Winslow Management, a Boston-based investment firm. Some of the conditions favoring large-cap stocks over small-cap issues in the recent bull market have already begun to show signs of weakening. The small-cap stocks, and the MEV 15 along with them, have rebounded during the second quarter and should continue to grow during the second half of 1997, Robinson projects.
During the first four months of 1997, the Russell 2000-a leading index of small-cap stocks-fell by 5 percent. By comparison, the Dow Jones Industrial Average, the most widely quoted market indicator, soared above the 6000 mark for the first time ever last November and had broken 7700 as of mid-June.
In addition, until about five months ago, the U.S. dollar was weak in foreign markets, according to Robinson. As a result, the products and services of the large-cap companies, which are more involved in international markets than the small-cap firms, were attractive overseas, leading to robust revenues and earnings. Now that the dollar is gaining strength, the larger companies will be less attractive because their earnings are expected to decrease, and investors will focus increasingly on small-cap companies, Robinson says.
Galileo, based in Sturbridge, Massachusetts, makes dicortron, a glass-coated wire with a recyclable casing for high-speed copying machines. When the wire breaks or wears out, Galileo purchases the casing from its customers and rebuilds the casing. Last February, Galileo lost its contract with Xerox Corp.-a contract that represented about 48 percent of Galileo's annual revenues.
Galileo has rebounded from its first-quarter troubles and is"selling its product to all of Xerox's competitors," according to Robinson. "Galileo is a very resilient and very well capitalized company, and it will again help drive the MEV 15 index upward."
Polaroid, one of the MEV 15's larger firms, "has had a tremendous rebound as well" after suffering a 3.7-percent decrease in its stock this year through the first quarter," Robinson says. Polaroid is enjoying higher earnings, reflecting the impact of anew management team, according to Robinson. Meanwhile, the most recent quarter for Whole Foods Market, which owns the Bread & Circus natural and organic food chain, was the best quarter in the company's history. "I think you're going to see the MEV 15 index perform better during the last three quarters of the year," Robinson predicts. In fact, leaving out Galileo and troubled Molten Metal Technology (MMT), the MEV 15 has grown 9.2 percent this year.
Waltham-based MMT has had a major negative impact on the MEV 15 overall. MMT's stock plummeted by 49 percent on October 21, from $28.125 to $14.25 per share, after the company announced that its revenues for the third and fourth quarters of 1996 would be about $12 million less than the $20 million it expected. Since last October, the price of MMT's stock has continued to drop, reaching a low of $4.25 per share in May.
Fluor Daniel GTI, the one-year-old product of a merger between Groundwater Technology and Fluor Daniel Environmental Services, has seen its stock fall from more than $12 per share in June 1996 to$7.125 per share at the close of trading on June 12. Fluor Daniel GTI's financial performance has been disappointing since the company was established in May 1996, according to David Myers, chairman of Fluor Daniel GTI and group president for Fluor Daniel's industrial services unit. "Strategically, we're achieving what we want to do," he noted."Our performance will be flat for the first half of the year, and profitable during the second half," he said. On 5 June, the company reported a loss of $756,000 on revenues of about $48 million during the quarter ending on April 30.
According to Myers, stock prices for environmental firms clearly remain depressed overall. "I'm not sure that it's a problem communicating with Wall Street so much as the industry is in an oversupply situation," Myers explains. For Wall Street to take notice again, an environmental firm "cannot just be seen as the best of a sorry lot, but will have to have truly remarkable performance."
The problem is that Thermo Electron has too many children and grandchildren," Robinson explains. "It has been difficult for the market to absorb them all; no analyst in the country can follow them all on a systematic basis," Robinson says. "However, their fundamentals-revenues, profits-are continuing to improve, and that should help them."
According to Robert Perry, executive vice-president for the engineering and consulting firm Dames & Moore Group in Los Angeles, California, "when you have some companies doing poorly, that spills over to the entire sector." As a result of the environmental industry's ongoing consolidation, "hopefully you'll see sector-wide improvement in the coming years," Perry notes.
In the meantime, what's a publicly traded environmental company to do about its anemic stock price? Keep its nose to the grindstone, say many executives. "That's part of it," Dames & Moore's Perry acknowledges. "Also, if you have confidence in your future, you establish a stock repurchase program." During the past year, Dames & Moore has repurchased about 4.5 million shares of its stock, which has languished in the $11 to $12 per share range after opening at $20 in a 1992 IPO.
MMT, still optimistic in spite of its troubles, has also been buying up its stock. Under a buyback program launched last October after the stock took its disastrous dive, MMT repurchased about 110,000 shares, according to company spokeswoman Michele Perry.
Company
$/Share
Market Value ($ Millions)
Price Change (% YTD)
P/E Ratio 1997
Flour Daniel GTI
7 1/8
49.6
-9.5%
35.6
Galileo
6 5/8
45.1
-73.6%
NM
Gillette
93 1/2
51,900
+20.3%
36.0
Ionics
49
769
+2.1%
25.4
Millipore
43
1,900
+3.9%
21.4
Molten Metal Technology
6 1/4
147
-46.8%
20.8
Opta Food Ingredients
7 3/8
80.3
+27.2%
NM
Polaroid
49 7/8
2,300
+14.7%
16.7
Stride Rite
14 3/4
732
+47.5%
50.9
Thermo Ecotek
15 1/4
372
0%
18.6
Thermo Electron
37
5,500
-10.3%
25.9
Thermo Fibertek
9 7/8
607
+6.7%
26.2
Thermo Power
6 3/8
79.5
-19.7%
37.5
Watts Industries
24 7/8
673
+4.2%
14.1
Whole Foods Market
29 7/8
576
+33.1%
26.5
MEV 15
25 1/2
4,111
-0.6%
27.9
S&P 500
869.61
47,400
+17.4%
19.6
RUSSELL 2000
387.62
------
+6.9%
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If passed into law, Weld's bill (House Docket No. 4650) would exempt alternative fuels from the state's $0.21-per-gallon gasoline tax. The bill would also eliminate the state sales tax on the added cost that a consumer typically pays to purchase an AFV, as opposed to a comparable gasoline-powered or diesel-powered car. In addition, the bill would allow any state resident who purchases an AFV to deduct 50 percent of the vehicle's added cost-up to $5,000 per vehicle-from the taxable income that he or she reports to the state. Similarly, under the bill, Massachusetts residents who convert their conventional cars to AFVs would be allowed to deduct 50 percent of the conversion cost from their taxable income.
The bill would also provide a business tax credit of up to $50,000 for any company that constructs a facility offering at least one type of alternative fuel, and a credit of up to$100,000 for any business that builds a facility offering two or more alternative fuels. Rob Garrity, legislative director for the state's Executive Office of Environmental Affairs(EOEA), predicted that the bill's business tax credits would "create the cradle for a new industry in Massachusetts." Garrity expressed optimism for the bill's passage, noting that the bill has "already generated a lot of interest" among legislators in the Massachusetts House and Senate. For further information, contact Rob Garrity, EOEA, Tel: 617-727-9800, ext. 231.
"Often, chemical companies want to take a reactant that is not that valuable and transform it into a more valuable chemical by performing a specific reaction," Auerbach explained. "However, in the absence of a catalyst, the reaction may produce a variety of chemicals, including just a small amount of the valuable ones and large quantities of waste," Auerbach added. "A zeolitecan shift the populations of chemicals produced in the reaction, increasing the production of the valuable chemicals, and decreasing the production of the less valuable ones," Auerbach said.
In his research, Auerbach uses computer models to determine how zeolites will influence particular reactions. "I am a theoretical chemist," Auerbach said. "My research does not involve laboratory experiments." According to Auerbach, his computer models can greatly reduce the trial-and-error involved in selecting and optimizing zeolites for various applications. Auerbach has used the NSF grant money to purchase new computer equipment and to establish assistantships for two Ph.D. students in UMass-Amherst's graduate chemistry program. For further information, contact Scott Auerbach, UMass-Amherst, Tel: 413-545-1240.
Under TURA, Massachusetts companies are required to submit annual reports to DEP listing the types and amounts of toxic chemicals that they use. Massachusetts companies are also required to develop plans for toxics use reduction, and to file summaries of those plans with DEP. "It is clear from the trends we see in this data that TURA is working," according to DEP Commissioner David Struhs. TURA is "encouraging industries to examine their processes more closely and find ways that they can save money by implementing more environmentally sound techniques," Struhs added.
According to Massachusetts Environmental Affairs Secretary Trudy Coxe, the toxics use reduction achieved in Massachusetts since the enactment of TURA in 1990 "demonstrates the power of chemical use reporting." Coxe noted that "TURA doesn't mandate any process changes; it simply requires companies to let the public know what chemicals they use and what chemical wastes they generate." For further information on the TURA data, contact DEP at Tel: 617-292-5845.
"Brownfield redevelopment is a defining environmental issue,"according to Massachusetts Environmental Affairs Secretary Trudy Coxe. "The federal grants announced today are an important boost to cleaning up these contaminated sites," Coxe added.
The largest of the Massachusetts grants-$200,000-was awarded to Lynn, where city officials plan to redevelop a former laundry and dry-cleaning site, an abandoned leather tannery, and a 25-acre waterfront landfill site. Westfield, which received $197,000, plans to redevelop a site formerly used for the manufacture of residential, commercial, and industrial boilers.
With its $175,000 grant, New Bedford plans to build aquaculture facilities at several abandoned industrial sites, including a mill, a machine shop, a chemical factory, and a textile-processing plant. In Greenfield, which received a $125,000 grant, town officials, private consultants, UMass-Amherst, and DEP plan to prepare an environmental assessment of a former industrial tap-and-die facility, with the ultimate aim of redeveloping the site. Chicopee will use its $30,000 grant to redevelop a former lumber site.
Commenting on the grants, EPA Region 1 Administrator John DeVillars noted that "what were once considered stumbling blocks to redevelopment are now building blocks." According to DeVillars, "here in Massachusetts, EPA and our community partners will prove yet again that environmental protection and sustainable economic development go hand in hand." U.S. Senator Edward Kennedy commended the cities involved in the brownfields cleanup and redevelopment projects."I am pleased that Massachusetts communities have once again proved their willingness to not only create a cleaner environment, but explore ways to create new jobs," Kennedy said.
The guide focuses on REP products for which the Commonwealth has awarded statewide procurement contracts. Eric Friedman, OSD's environmental purchasing coordinator, said that OSD generally chooses REP products for its statewide contracts when those products perform as well as competing "nongreen" products and are readily available at competitive prices. Massachusetts executive agencies are required to use OSD's statewide procurement contract, whenever possible, for their purchases.
Other state agencies and political subdivisions have the option of either purchasing products under the terms of these statewide contracts or negotiating their own procurement contracts. Friedman noted, however, that by purchasing products under the terms of OSD's statewide contracts, agencies and subdivisions can avoid the time and expense of issuing their own contracts, and can obtain high-quality products quickly, often at a substantial discount.
One of the main reasons for publishing the REP guide has been to spread the word that OSD has negotiated statewide contracts for many high-quality REP products, according to Friedman. Copies of the guide are available from OSD at no cost. For further information, contact: Eric Friedman, OSD, Tel: 617-727-7500 ext. 351.