In the previous post I poured on the platitudes regarding working for a large company. Today I write about the other end of the spectrum- The startup company.

I encounter startup companies frequently in my work. Since I am not in the pharma business or fabulous biotech, my exposure to startups is limited to specialty and fine chemical feedstocks or reagents.

When you start a chemical company, it is assumed that you want to make lots of money. It turns out that you must have considerable cash flow just to pay the expenses of being in business, so you must be focused on cash flow. Chemical companies can have fairly high overhead costs, partly due to expensive staff (chemists and business managers) and partly due to the unique and expensive requirements of the physical plant.

Starting a chemical company is not a task for the timid.  You have lots of strikes against you from the very start. You see, a company is like a big angry animal. It has to be fed constantly with generous inputs of cash. Cash is King. Remember that. It’s all about the elusive spondulix. Investors can either give their money to Warren Buffett or to you.

I have seen many startups devolve into smoldering, groaning trainwrecks. Fortunes are lost, litigations burn like the fires of Mordor, and careers are lost or at least seriously stunted. Certainly no one starts a company with the intent of crashing it. So, how does it happen?

Usually, they run out of cash. There are many reasons that people use to justify the startup of a company. What they all have in common is the unwavering certainty that people will throw money at what they hope to offer. And if they have a patent- Lordy.  Nothing is meaner than an inventor in the thoes of patent sickness trying desperately to revive a dead one-act pony.

Many people start up a company with a one-act pony.  That is to say, a patented technology based on a highly specialized material or a process.  There are several ways to put a one-act pony or technology to work.  You can license out the technology. You can make certain compositions for sale. Or, you can make the pony do it’s one trick. 

If the pony’s one trick is good but not spectacular, selling licenses may be difficult. It is expensive and risky to upgrade technologies. There has to be a clear advantage and fairly rapid return on investment for the licensee.

If the materials made by the technology are “Me Too” products that are adequate but not exciting, you’re in for tough sledding. Especially if they’re commodities.  Companies in the polymer business know this. It is fantastically hard to get a new polymer to catch on in the market. Even giant companies have a hard go of it with exceptional products. The polymers market isn’t expanding very fast, so if you want market share, you have to take it based on price. Then it is a race to the bottom of the lake.

I was once roadkill along the trail of tears called PLA- Polylactic Acid.  It’s a great polymer for numerous applications. But low MW and the tendency to turn amber were problems that eventally caused us to flame out like a North Korean missile.

I’ve seen a lot of one-act pony startups fail because the pony died.  A startup may fail because show stoppers appeared that couldn’t be fixed, or the demand didn’t pan out. 

If you’re going to start a company, it is desirable to get cash flow going as soon as possible.  Use a plow horse to get some cash flow while you’re training the new pony.  Let existing products pay for the development of new technologies.  Learn how to make or formulate niche products that no one else is interested in. Plow the money back into product development and get into advanced technologies that way. Minimally, you’ll get to retain more of the ownership.

Another reason to build a business this way is to try to stay away from venture capitalists. But that is for another day.