Ed Lascelles, Partner, Albion Ventures I'm intrigued by the $4m deal with the US Department of Defense. A tiny UK-based technology company doesn't manage that unless it's really got something and the wide range of customer relationships indicate real potential. However there seem also to be warning signals. While the chief executive acknowledges the need for a focused approach to growth opportunities, this is a small company that is selling into global security markets while also developing a medical imaging product, operating different business models. Global ambition is excellent, and all too rare in the UK, but doesn't obviate the need to take one step at a time. Once a company has proven a product or service in its first market, it then makes sense to ramp up costs to achieve aggressive growth. In terms of market opportunity, the stringent liquid restrictions have cost airlines £100m since 2006; this suggests only a relatively small annual market of less than £25m. Plus, selling into the airline or travel industry is not straightforward at the moment. Anything to do with security on the other hand is a justifiably hyped topic. What other security applications are there for the technology? A company that raises more money than its annual turnover always raises an eyebrow; keeping costs down, particularly in the early years, is so important. I'd avoid employing a direct salesforce to cover multiple customer types in multiple sectors in multiple territories. Kromek's attempts to partner with OEMs appear the way forward. Simon Murdoch, Senior investment partner, Octopus Ventures Kromek is already doing a lot of things right. Selling capital equipment to very large organisations is a slow and painful process but if and when it works can be very rewarding. It is essential to be well funded to be able to survive the very long sales lead times, and the company seems to have raised funding successfully. Another key is to punch above your weight – appear as large and permanent as you can. A centre of gravity in the USA is crucial. By securing investment from US VC firms and then buying a Californian company, Kromek is also doing both of these things well. Even though Kromek is in a global market, I'm sure this space will be dominated by a few key clients and suppliers so finding and reaching the clients is not as hard as it might seem. However, it appears the company's strategy is to sell directly and this may work, but the existing x-ray machine suppliers may find ways to scupper sales. The company should consider carefully whether partnering with one or more of the existing suppliers is a safer route to market. That would mean sacrificing some of its margin, but the chances of success are likely to be higher. Depending on the existing supply chain in this market, a neat way to do this may be to seek partnerships in some geographies, such as the Far East, and go it alone in home territories like the US and UK. John Holmes Carrington, International trade adviser, UKTI There are some basic rules for anyone looking to develop the exporting side of their business. The first of course is to have a good plan. Rather than going for it on an ad hoc basis, make sure any strategy you've got is thought through and structured. Companies must also analyse what resources they have (and haven't got) internally, and where they've got gaps, work out how they're going to fill them. Where a company has relatively limited resources, as in Kromek's case, it needs to think very carefully about how it can best deploy them. It might mean some slight restructuring but the idea is to make the best of the capabilities you've got. Research and getting to know the markets you're looking at, understanding how the market – by country or market sector – operates, and what legislation is coming up and using it to your advantage are all key. Kromek seems to already be doing a lot of this right; developing and selling the bottle scanner at a time when airports are looking at ways of handling the ban on liquids being lifted is a good example of the latter point. The company has already been wise in its choice of market and its approach to trial, but in terms of market development one or two markets at a time is a safe approach and it should be careful not to overextend itself. The business should also consider developing a 'plan B' for its expansion strategy of focusing on the bottle scanner first so it doesn't have all of its eggs in one basket. What other opportunities for the technology are there? Frances Anderson, Technology partner, Cobbetts LLP If financial and employee resources are limited, my instinct is that Kromek should focus first on the markets it knows best; the United States, following its recent acquisition, and European Union countries. Initially, it would only have to address the requirements of two regulatory regimes – those of the US and the EU. Kromek also needs to have in place all the intellectual property protection it can get in relation to its technology. The priority will be securing rights in the territories where it plans to operate first, but the business will need a global strategy to protect its valuable know how – and sufficient resources to fund this. Kromek will want to extend patent protection as far as it possibly can in relation to new products – but it should not forget about the need to build and protect its brand at the same time. As a leader in this field, Kromek has a great opportunity to become the 'go to' provider. If the business does a good job in two of the biggest markets for aviation related security – and maintains its brand integrity – potential customers from other parts of the world will be beating a path to its door. That means Kromek must also have trade mark protection and make sure that they police the use of their brand. Nick Williams-Howes, Director at SCi Sales Group Selling into highly regulated markets can be difficult, given entrenched competitors and an unknown sales cycle. The challenges facing Kromek are around not knowing whether they are talking the right language to the right people, and whether there are true opportunities there to be fulfilled. If Kromek does not tread carefully, its cost of sales will escalate uncontrollably – especially as the business is looking to work in a global market where it will not necessarily have a clear set of rules by which to define what a true opportunity looks like. There is also the risk that the proposition will be attacked by competitors – established or otherwise – in which case the company must have a bulletproof set of objection responses that clearly define its product as being head and shoulders above the rest. Above all, qualification of the quality of opportunity is the key to successfully maximising closed sales on the back of a widely dispersed set of potential clients. Specialist, external agents are often the way to go here, bringing the ability to act on a company's behalf with the appropriate resources and languages. This ensures that the message is communicated effectively and that opportunities are deeply qualified before the company invests its scarce resources in costly trips to see the potential new client. By going down this route, Kromek would then be freed to employ its own resources to focus on what they are good at – actually doing the deals. When sending people into someone else's offices to negotiate a deal, you must be certain that there is a real revenue opportunity. Graham Grover, Director, JAOtech In terms of coping strategies for selling into a highly regulated market with unpredictable timescales: •Ensure that the products are all certified to the necessary standards applicable to the medical, security and military industries. •Get on any "approved vendor" lists that may be applicable or consider partnering with "approved" companies such as sales agents/distributors. •Ensure adequate marketing exposure to all of the relevant organisations in the different markets, attending industry shows, promotion in industry literature, and membership of industry associations. •A 'spiky' business can be a killer, you either need high gross profit margins to ensure profits from good months can cover costs during the poor months or you need lower cost goods (consumables) or services that can be sold every month providing a base level business. •Ensure you have the right sales people, specialists in technical, niche market business When it comes to selling a niche technology globally with the obvious attendant challenges of a dispersed customer base and a number of different regulatory environments, I recommend the following: •Choose good distribution partners: each country will have specialist companies addressing the target markets, some of these could be competitors at the moment. It is impossible (on a limited budget) to gain fast access to international markets without help. You need partner companies that can handle sales/marketing and technical support/service. •Investors will get more excited and supportive if you sell your current innovation into airports now and generate profits rather than get distracted with new developments/markets, focus on generating a return while working on future products in the background. •Consider licensing any non-core technology to others; better to get some revenue now than wait until the time and resource appears to do it yourself. •Get any innovative technology patented if applicable, covering at least the territories with the largest markets. •Keep and build the brand, there's future value in it. http://www.telegraph.co.uk/finance/businessclub/...ews-on-Kromek.html |
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