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I. Introduction - Secure Technologies

Imagine the notion that a person would spend three years working on the development of a new and potentially revolutionary product, thanks to the carelessness of a friend. Ned Hill can still remember the moment when he conceptualized his wireless distance detection system. His fraternity brother's interactions with the house mascot led him to conceive a technologically advanced monitoring system that could be applied to a variety of consumer, professional and industrial uses.

Ned Hill is the founder of Secure Technologies, Inc.(ST). ST is a Boston-based company that was founded in 1993, with a mission to develop and market a new wireless technology for distance detection. With a variety of marketplace opportunities for its technology, ST has developed a family of products that will serve to monitor the positions of individuals: between parents and their children, adults and their elderly parents, and dementia patients and their guardians. At the core of these products is a proprietary technology, which when completed, will be patented to protect its novel and sophisticated capabilities.

ST's goal is to release a finished product for its target markets in 1997. Since the company's inception, ST has spent countless hours focusing on research development, analyzing and codifying its target markets, mustering funding, and structuring a well-developed and professional management team. In the past three years, the company has successfully completed three rounds of financing, generating $1 million dollars from private and venture capital investors. It has also completed a proof of concept alpha unit, and is in the midst of negotiating a partnership with a large corporation. This partnership will facilitate technology development, product manufacturing and distribution.

These achievements have not come quickly or easily. Ned Hill has worked tirelessly so his company could reach this stage, despite several setbacks and plan alterations. His determination demonstrates that no matter how strong a product concept or a marketplace opportunity may be, the success of an entrepreneurial venture relies on the entrepreneur's ability to execute.

II. An Entrepreneurial Background

Ned Hill is no stranger to the building of a company and the development of new products. At twenty-six years old, Ned has a history of profitable, thrifty ventures - proving that age is not an obstacle to success. Ned's entrepreneurship is not confined to new products or ventures. He often looked for ventures that he could improve upon or at least to do on his own. "My first venture was a residential house painting venture in college. It was real straight-forward. I was a college kid trying to make some money painting houses. I had worked for Student Painters during the previous Summers and learned the tricks of the trade through them. When I went out on my own I was a lousy painter but I hired some good people and most importantly people who could sell door to door. That was how you built your business." Ned's painting business became the fourth-largest of its kind in the United States. When Ned graduated from college, he dissolved the painting business to pursue other challenges. This venture reinforced his confidence in his entrepreneurial abilities. "The largest the business grew was grossing $110,000 in the last Summer I did it. I made a lot of money for a college kid, it went pretty well. There was no rocket science just a lot of sweat, a lot of sales, and a lot of hat-holding trying to get a job with 'Please give me a job...I'm a good guy and I go to college...'"

Ned's first foray into concept development- from the blackboard to actual production - began after college. The facets of concept development exposed Ned to a range of activities he enjoyed and wished to pursue further. The product was called "The College Board." It was a flat, notched piece of hard material covered with a Formica, that fit around the waist of a seated person and gave them a steady surface to write or read on. The product's target market was college students that were accustomed to non -traditional studying methods. "I took an old family design of a lap-resting desktop with a Formica surface to a portable desk for use where-ever. I used manufacturers in the New England area who could build it well and cheap." Within three months of his graduation from the University of Massachusetts at Amherst, patents were filed and the product was developed and ready for production.

"The College Board" was an excellent exercise in concept development but, this was not Ned's lifetime career. "I loved the product design aspect of this venture and I learned a lot from the people I got involved with from marketing to manufacturing. Upon reflection I would have gone to a bigger company such as Hasbro to try a joint venture or facilitate the product's marketing. I also would have re-evaluated my manufacturing resources because at that time I did not know that manufacturing capabilities were available so readily." Ned also realized that once the product was developed, the marketing and sale of it to a fickle, demanding college market would not justify the costs. Ned decided to license the product, so he could move on to the next venture. "This was my first valuable lesson that you don't move forward with a product concept without doing your research and blindly licensing it to someone."

This venture taught Ned about opportunity assessments. "There is a mode you can into to train your mind to look at product opportunities." This mental focus led Ned to the wireless distance monitoring concept. During this time, Ned acted as a business consultant, providing entrepreneurial advice to his friends and business associates. "I had many friends and acquaintances come up to me with ideas and requests for help to bring them to completion. It got frustrating so I had to control my involvement, but I did work with some people to help them grow their ideas." Ned's consulting activities included the establishment of a shoe-cleaning company in Massachusetts and a clothing importer in Thailand. How is it that a twenty-something, college graduate apparently possesses such expansive abilities? Ned does not think he has an "entrepreneurial gene." He attributes his success to his fundamental skills and strong work ethic. "I was always a hard worker while I was growing up. I even bought my first car before I had my license! I think I have the personality traits of good organization, driving through an idea, and leading."

III. Product Concept - Wireless Distance Detection

So where do people get their ideas for the next great consumer product that will sell a million units and make an entrepreneur and a group of investors very happy people? Ned's idea for a wireless distance monitoring system can from a desire to meet a particular need. "The idea came from a guy I still resent for this in college. This guy wanted to get a puppy in the fraternity of our college to show off to girls. He had it for a year, didn't take care of it and left it behind when departing school a year later. I took the dog home for a year after college. During the time I wanted to have something that would keep the dog in the yard, and that's what introduced me to the invisible fence concept." This concept was a finalist from over one hundred ideas that Ned was evaluating for his next venture. His friends and associates accounted for 25% of the product concepts, while Ned provided the balance.

An invisible dog fence is an electrically-wired system buried around a yard or dog pen. The wire interacts with a receiving unit attached to the dog's collar. If the dog approaches the wire perimeter, a beep sounds to warn the dog of its proximity. If the dog continues his approach, an electric shock is discharged through the collar to deter any further encroachment. Ned wanted to apply this technology in a more effective manner. "I did a lot of research on the invisible fence companies in the world. I sought answers to what technologies were behind the existing products and how the existing competitors were functioning in this marketplace." From his analysis, Ned concluded that his competitors' products were expensive, difficult to install and poorly marketed. This inefficient market allowed Ned to successfully exploit his innovations.

Ned adapted the fencing system so it would monitor the pet's distance between the central base and invisible boundary, and notify an owner if the pet had crossed the boundary. Market research indicated that consumers wanted a cheaper and more efficient system; consumers did not object to a fencing system maintained by radio waves. Ned began to realize this technology had applications beyond pet control. Using this technology, parents could monitor their children, or hospitals could monitor their dementia patients. "I was very excited at the concept of this core technology. I knew that in my research for a new product concept that the technology would be where the payoff would be. If you get a really good technology you're set."

IV. Product Development and Engineering Challenges

Up to this stage, Ned had done all the market research and product development. "My market research had a lot to do with banging the pavement and going out and talking to people to get their opinions on a product." Ned's savings, and consulting earnings provided the funding for his work. His plan was to validate his concept with market research and then to hire an engineering firm to develop the technology.

The step from technology development to commercial application proved to be challenging indeed. "When the product concept crystallized, the next step was going to be to put together a technical specification document. In hind sight that spec I put together was very amateurish. Basically I listed the functional capabilities but no technical details." With his specifications outlined, Ned's needed to find an engineering company. "Because I had no money, finding the engineering groups that would participate took a while. One group that I found pretty quickly took six months before they conceded they could not develop the technology. A later engineering development group took nine months to create a viable concept definition and iron out the technical requirements." Money is always the operative word when it comes to any venture, but Ned feels his strong selling skills also play a big role. "When you're cash poor it's really tough to convince someone to do this on your own. The focus was to create a technology that worked first, because I knew the technology could propel a company, and this would be the first product in a long line."

ST' s search for the right organization was arduous and painstaking. "That was hell. I met with tons of engineers. One group started laughing at me when I showed them my first tries at a technical spec sheet. I reacted defensively to that and I realize I should have instead been patient and listened to what they had to say. It showed me how naive I was and how tough a road this was going to be. My goal was to see if they could do it and could they do it without me paying them for it right away. That was the tough part."

Ned recruited the help of Design Automation, Inc. of Massachusetts to develop the technology of the two-way tracking through radio waves which was ultimately called Phase Shift Technology (PST). PST monitors the distance between the units and activates an alarm when a certain distance is exceeded. The distance is calculated by the time it takes the radio waves to travel between the units. Also, another Massachusetts' engineering firm was contracted by Ned to produce the "proof of concept alpha unit." After Ned had completed these initiatives, he incorporated ST in July, 1993. "When the engineers were ready to release their concept and had built the alpha unit, I incorporated us and started to go out and get real hard core market information."

It was at this time Ned took a telemarketing position to supplement his income, and quickly became the organization's top producer. "All the while I was working at US Telecenters during the day, I was not only managing and working with the engineers, but assembling market information and going out at night to meet investors at the Marriott and Guest Quarters." According to Ned, he could never be a corporate employee because of his disdain for bureaucracies. Although, the job's flexible hours allowed Ned to exceed his quotas. "I knew I could sell, but I didn't want to take on a career that would be a career. I needed to be free to move and shake with ST."

ST's distinct stages of growth - from concept development, to technology development, to prototype production and to incorporation -have allowed Ned to gauge his expectations for the product development process. "I look at this whole process as just steps. If you look too far down the road you'll just get boggled. I look back at what has happened and my mind is just blown. I can't believe the stuff I've gone through and what we have accomplished even though we're still not out of the gates yet or where I want to be. If I had looked at that at the time I'm sure I would never have done it. You've got to take it one step at a time and stay focused."

How does an entrepreneur stay focused? How do they summon the strength to carry on for so many months with slow progress and a shoe-string budget. "You've got to have this crazy unsubstantiated faith that this is going to happen. Because you get so focused if one step doesn't happen your mind is blown. If you're really doing this right I think you should focus because you're more effective. But each hurdle is one to be taken at a time and you'll rebound from the other failures...it's temporary. I don't have any doubts it will happen. This is more of an art form than science and I think I'm good at it. What really sits sour with me if I wasted other people money. You go through period that once a big no-no happens you feel like your whole world caves in. Bu t if you're resourceful, and you have to be in this line of work, you'll get over it the next day and you get back on your feet and say 'What happened? What can I do to rectify it?'"

V. Financing on a Shoe-String and Doughnuts

The first round of financing was budgeted to develop a functional alpha unit. "The first engineering firm was hired and payment was arranged totally on my own and I paid them off with doughnuts and a promise that this young kid could actually pull it off. Once I had the core concept I could then explain it to people. I raised the first round which was $300,000." The initial financing came through Ned's perseverance and resourcefulness, rather than from connections to the investment community. "I didn't know anybody so I put an ad in the newspaper. I found financing anyway I could because I did not come from money." Whatever his sales pitch was to potential investors, Ned succeeded in collecting the funds. He was now faced with an interesting challenge: "Once the money was is in the bank I would say to myself 'Oh my God! What did I do?!'" This influx of capital added pressure on Ned to provide his investors with an adequate return on their investment.

The development of the technology and the prototype was the first step in Ned's carefully crafted plan. "Once you have a technology you can demonstrate a little bit...things will start to happen for you." Unfortunately, plans do not always follow their design. "The first alpha unit did not work well, but I took this and packaged it to say we need another round of financing. I still don't know how I did that." This next round of financing was enough to hire the second firm to create the "proof-of-concept alpha unit." For the first two rounds of financing, Ned approached any potential investors. "I really had no network. The second round was the most scary...we didn't have enough to justify it as a good investment, but enough to continue on. It's a real juggling act."

Ned's strategy of creating a core technology has several benefits; it can be flexibly promoted while under steady development. His financing success can be attributed partially to the primary product's adaptability, thus suiting the interests of the investors. "People couldn't grasp the dog product as much as they could the child product. Hearing this so many times made me change to appeal to my investors mind set. You can't be so judgmental about this to think that you have the right answer. Put your own directives behind you and listen to what you audience wants." It meant more work to create a whole new business plan with the child market research, but was necessary to raise money with a concept that would appeal to investors. "It's a one technology company, with multiple products in multiple hundred-million dollar markets."

The third round of financing was completed earlier this year and has added a new dimension to ST. Ned wanted a more formal investment group to add some credibility to the operation, so he solicited venture capital firms. "After the first two rounds I didn't know where I would go for the third round. I was fortunate in searching for a VC firm that I found one that who gave me the valuation that I asked for, that let me operate how I wanted to, and one that didn't beat me up on rights."

To further establish his firm's financial credibility, Ned appointed a board of directors to advise him on operational matters. The board's formation and the VC funding were completed coincidentally, with a VC principal becoming a board member. The board usually has more business experience than the entrepreneur. Ned feels his board has provided him with valuable assistance. Though they may be his toughest critics, Ned realizes they only want the company to succeed.

VI. Partnerships and New Technology Opportunities

In the company's three year existence, Ned has publicized ST's unique concepts and technologies in various print periodicals, at conferences and at emerging business events. Ned is not shy about telling people of his company's plans and products. This is an intriguing approach considering that most companies are secretive about their new product ideas. ST can be candid about its products because of their uniqueness and complexity. "The technology is so niche and proprietary and we have the whole thing tied up in a patent application that nobody could come near this and try to do it."

ST's publicity has also led to new business opportunities. The most significant opportunity is the possible partnering of ST with a large corporation, who will assist with technology development and product assembly. This deal would not be an acquisition of ST, but a joint venture; Ned would retain ownership and share in the profits from the sale of the products. "Once the partnership comes together then we'll be in good position to earn funding to get it through to beta units with the chances for final development, being bought out, or the chance to earn a lot of cash. To have a real lot of sizzle. We will have a product with good technology working in three patent applications." Not one to leave to chance, Ned has hired technical experts to maintain the progress in the technology development. If the partnership does not materialize, he will still have the completed technology to attract additional funding.

Other development opportunities involve the different applications of the core technology. His InReach product could be modified for the elderly or dementia patients. To reach this market, Ned is considering an alliance with a paging company to expand his product's range and notification options. Envision a person with Alzheimer's disease wearing an InReach unit. If that person strays from their home, the base unit sounds an alarm and transmits over a phone line a message to a paging center to contact the person's guardian. The guardian's pager would instantly notify them of the situation. According to Ned, the paging technology can be added easily to the core technology and their is ample interest from the paging industry.

With the numerous potential market applications for his core technology, how does Ned stay focused on his targets? "I have to say to myself, 'Ned, just keep it in mind once you get to this step, the market opportunities are huge. You have to keep slugging it out to get to that next step. Once you get to that point then you can lift your head up and look around.'"

These potential opportunities are available because of ST's continued commitment to product development and its reputable pool of investors and advisors. "There was no way for the partnership to happen unless there was something substantial to show the potential partners. We have had extensive technical meetings with the potential partner, and all have not gone perfectly. We had an issue with technology development for future products that nearly broke the deal for us. The partner firm is a multi-million dollar company and we had a face-off with their president and chief legal officer, and I had a representative from my VC firm and my toughest director from the board of directors to work it out. If the venture was in its early phases we couldn't demonstrate a technology or show the potential for deep pockets and prove that they we are really savvy. The other company got to see I had stuff behind ST and not just me." For Ned, "It was easier to raise money and hire the engineers at that early stage than to partner with a big firm because of what I had in my corner to offer them."

VII. Challenges and Words of Wisdom

"The biggest hurdle was raising money." A common statement from entrepreneurs who have spent countless hours in meetings and on the phone, or have mailed dozens of business plans to individuals to solicit funds for their fledgling ventures. Depending on the maturity of the business, locating investors and then asking for money, can be physically and mentally challenging. Ned is no stranger to the "hat-in-the-hand" technique of gathering funds. After speaking with this entrepreneur, I believe the thoroughness of his venture's evaluation has helped to assuage the doubts of any prospective investor.

The other greatest challenge for Ned was locating and retaining the appropriate engineering firm. "My big mistake was being too casual about selecting the first engineering firm. When we got to the third engineering firm, and they failed at creating the alpha unit, that was almost company ending." This remark referred to the drain on resources and the lack of progress developing the core technology. As one entrepreneur stated, "it's like a mating dance...you are evaluating them and they are evaluating you." Yet another variable that is on the entrepreneur's plate when trying to bring together all the resources necessary to build a venture.

Ned's experiences in building a company have run the gamut : from contracting resources and hiring designers to seeking investment and to promoting his company and products at conferences. Suffice to say, these experiences have expanded his business horizons. "It's good to have and end in mind and a journey towards, but in the end it's the journey that matters. Stop and take a look at what you actually need and be very pragmatic and practical and logical, and don't try to bullshit yourself. One of the biggest problems that one of my board members pointed out to me that entrepreneurs face is that they are self delusional." An entrepreneur must maintain a steady-headed approach with their resources and expenditures to achieve their goals, but they must not be risk-averse. "You can't be afraid to take chances because you may never get anywhere."

VIII. Critical Success Factors

Ned's goals are to maintain good investor relations and to give the investors a good return on their investment. He does not aspire to be the next General Electric; only to develop ST to its full potential. "I consider myself more of a start-up guy and one who can pull all the starting resources and energies together and running with it. I also feel that my interests strongly lie in the start-up phase of a company and that I could definitely see myself attempting something like this again in the future." For now, Ned's feet are planted firmly in ST.

For the venture to succeed, four goals must be met:

  1. a large corporate partnership
  2. a fourth round of funding
  3. a paging partnership
  4. a distribution partnership
"The potential partner company wasn't used to partnering with someone who was not already set up with distribution. But my planning and decisiveness on what I wanted to accomplish helped me convince them that I was for real. This has caused some more late nights and fears that all this work may not pan out after four months of negotiating a deal." Ned stated his core technology should be ready for demonstration in six to nine months. The need for a corporate partner- to accelerate the technology development- has become an increasing key to the company's success.

Ned believes that if his company has partial success with its potential markets, the business will be profitable and will provide his investors with a handsome return on their investment; then the company would be a prime acquisition target for a larger company. These events will happen in due time and at the pace the founder deems appropriate. "I'm not looking too far down the road right now. I'm only looking nine to twelve months ahead."-###


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