In part one of this interview, Kathryn Kranen talked about the startup landscape and what she believes a startup has to do to be successful today. In this segment we continue looking at business models and positioning a company for success. We also explore some of the issues related to globalization.
Brian: There always seem to be a lot of complaints from smaller or start-up companies that the all-you-can-eat business models of the big EDA companies were making it very difficult. Has that changed?
Kathryn: No. Startups still complain about it. But, the reality is that every company needs to use its assets to compete the best it can. If business model flexibility is the asset of the big company, then they absolutely should use it. The small company has to figure out a way to differentiate and be relevant, and those are two different things. Being differentiated, thatís hard enough. But once you differentiate, the question is: Is the solution youíre selling relevant enough that customers will make a separate buying decision and allow a separate vendor to supply it? Thatís where you have to be very careful. You need to ask yourself: am I building something that should ultimately be a feature of somebody elseís product, or is it a single standalone product, or am I truly building a company? So, feature, product, company - you have to figure out which one are you. Your technology vision and business plan should fit one of those three, and you need to be realistic about that. Because if youíre selling something that is really an optimization of a small subset of functionality inside some larger flow, then that ultimately should be a feature of another company's tool. Once the big companies see the need, they may add the capability to their tool as a feature. Even if their feature comes later, and even if it is just good enough, then the small company may lose its market opportunity. So, startups must make sure that what theyíre doing is relevant, differentiated, and that they have a credible plan for success. As one of my customers would say, ďMy company doesnít want to bet on a supplier that's not already healthy.Ē I think thatís the bigger issue, and that maybe start-ups are blaming their struggles on the big EDA vendors. They shouldnít. Itís about them, about how theyíre being perceived by the customer.
Brian: Iíve started to see a lot more foreign VC money coming into EDA. Do you think this is a sign of an industry that is getting a lot more global? Or do you think itís problematic?
Kathryn: Itís certainly not problematic. It might be the cynical view of some leading venture capitalists of Silicon Valley, that theyíve moved on to higher return investment opportunities and that the second and third tier players are now moving in to fund EDA. But I actually think that itís a sign of being more global, I think part of it is a sign of the global connections that the principals in a start-up have, wherever they live. So even if they sit right here in Mountain View, CA, the heart of EDA in my opinion, they probably know somebody who has connections in Japan or Taiwan or wherever. I think itís good for the EDA industry because it means there are more limited partners, the individuals who invest their money into those venture capital funds, and more VC funds, that become aware of the value propositions of the entire EDA industry. That's a good thing. Those investors may invest "passive money", without much support for the entrepreneur - like coaching, or leveraging connections to banks, customers, etc.; but still, the money is extremely important, and Iím glad that the industry is getting wider exposure.