They've got to utilize good market research, and if they don't have it they should get it or hire expert consultants. A well-conceived product marketing plan would save them a lot of time and capital. It appears that they've been fooling around for a couple years looking for a market -- a classic problem.
If I were investing, I would have the company concentrate on selling through the integrators and the value-added resellers; it's a good approach for this company. The product seems like it would be difficult to sell on a direct basis. The integrators and resellers would enable Neurogen to provide a focused product to the market, as opposed to technology looking for a market.
The banks, the credit card guys, the check processors, and the post office don't want to deal with a mom-and-pop company. They want to have somebody install a system, keep it running, and ultimately bring in a new generation of product. A small company can't provide this security blanket.
Going from zero to $6 million to $20 million to $75 million is wildly optimistic. Also, basing projections on Microsoft's success is not realistic. Microsoft had significant revenue and profits because it attacked a very fast-growing, broad-based market -- it had IBM in its camp. These guys don't.
I think the company will succeed, but it's going to take it longer and require more capital than Kuperstein thinks.
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COMPETITOR
MICHAEL THIEMANN
Vice-president for new-business development, HNC Inc., San Diego, a $10-million manufacturer of application products that use neural networks
Most of the applications they've targeted are operations oriented, and those people tend to be hard-nosed and conservative when it comes down to buying anything. That's bad, because I think this is a young company selling a lot of sizzle while other people are selling steak -- solving customer problems in very difficult operations areas. Making broad claims without being able to back them up with something that can be used immediately at the operations level might cause Neurogen a lot of trouble.
I think they've underestimated the character segmentation problem. It's not an area you can plug an engineer into for a couple weeks and get a solution. IBM has been working on it for about 25 years, using a lot of resources, and hasn't solved it.
If they can solve the segmentation problem as well as the character-recognition problem, then they can package that into a product that is very high value added. But as things stand Neurogen is offering only a piece of the puzzle. In making his growth forecasts, Kuperstein likens his company to Microsoft and Sun Microsystems. Well, they were offering the lion's share of the total solution. Neurogen right now isn't.
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FINANCIER
FRED HANEY
Senior vice-president, 3i Ventures, a venture capital firm in Newport Beach, Calif.
Kuperstein's attitude toward venture capital, and how appealing the company will be to VCs, seems slightly cavalier. I suppose it depends on how proprietary the technology really is, but technology is moving very rapidly in this world, and they could get leapfrogged by a competitor. And there's a market acceptance risk: they're attacking large, high-volume markets with cost-sensitive applications, and that's a sell that will take some time. So I don't think it's as close to a slam dunk as the founders seem to think.
Bottom line, I think the company's managers have a dilemma. I got the sense they would like to bootstrap the operation -- not raise too much capital, not bring on too many people, not build up the infrastructure, not give up a very large percentage of their stock. If that's the case, then they really need to focus their attention on one market, one application, and carve out a very strong competitive position in that small niche area, at least initially.
I think each of the six specific markets is probably perfectly legitimate. If anything, I would worry that they will not be easy to track. People may be quick to buy one system to test it and see how it works, but the real test for the company will be whether it can sustain itself until customers start to make multiple purchases.
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OBSERVER
JOSEPH S. TIBBETTS, JR.
Managing partner, Price Waterhouse's Entrepreneurial Services Center, Cambridge, Mass., a provider of business advisory services to start-up and early-stage companies
The good news for this company is in the recent events, the hiring of a CEO so Kuperstein can stay on the technical side of the business. The CEO needs to be a real business planner and a good tactician. These guys need to recognize that they can't just go out and develop this technology and see who wants to buy it.
After all, they are not only trying to go out and compete. They are on a crusade as well. They have to convince huge customers, who are ingrained in their ways, that what they're doing makes sense. The best way to do it would be to convince an intermediary, a systems integrator, to work with them. They'd have to give up margin, but it's worth giving up some margin to get the business an intermediary can bring.
But they're still doing market R&D. They've let two years slip by, and they still don't know what their market is. Making the discovery about banks and the problem with characters touching when they did is such a fundamental mistake. And the niches they've identified are so huge. It's a misnomer to call these markets niches. They need to focus. Instead of trying to do six different things, they need to stop and say, "This is the one place where we think we can make a dent in the market" and go for it. If they don't, the lack of funds, given what they're trying to do, will kill this company.
