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The components were right, but as Bouchard saw when doors to commercial-trucking customers refused to open without a sales force, they were in the wrong order. "I was nave enough to think we could get these products into the marketplace ourselves. I didn't want to be a cost-center R&D effort for somebody else; it's not my way. What entrepreneur doesn't think he can go all the way on his own?" But, Bouchard now realized, "I'd better put that strategic-partner thing on the other side of the sentence, because we aren't going to get there otherwise." The joint venture (Eaton VORAD), of which VORAD Safety Systems owns 50%, purchases goods from and pays a commission to the manufacturer (VORAD Safety Systems), 100% owned by IVHS Technologies, 35% of which is owned by VORAD's founders and management.
In addition to the raw capital Eaton provided, around 100 Eaton salespeople in North America alone were now selling VORAD's products. That immediately increased VORAD's sales effort by a factor of 100. One salesman was an automotive specialist who "talks to Chrysler every day." Says Bouchard, "It gave us confidence. We sat here in San Diego and played like we were a tier-one supplier in Detroit, like we were a big company and could walk right in there and get it done." As a result, VORAD was told it was one of four finalists under consideration by Chrysler for a rear-looking collision-avoidance product. "When it comes to bringing a product to a customer," Bouchard realized after Chrysler subsequently invited VORAD to outfit a prototype New Yorker for evaluation, "a venture capitalist can't deliver what a strategic partner can."
Through its new partner, VORAD also gained access to full-grown testing grounds, handier facilities than the five-mile strip of public highway that the state police would occasionally cordon off to let VORAD -- now also in possession of a test 18-wheel-trailer diesel cab -- drive on. Even farther off the balance sheet were the three dozen or so trade shows that partner Eaton participated in, which would have cost VORAD several million dollars to attend on its own.
Nor could VORAD have sunk $100 million into a dedicated radar-on-a-chip foundry. Only a handful of high-tech manufacturers in the world perform the intricate steps involved in making such chips. To Bouchard "the next best thing was to get one on our side." Thus the 10% share in IVHS Technologies for M/A-Com. "They have guys running around in bunny suits in clean rooms -- impressive stuff. We don't have them and never will. But as a result, today we can answer any argument a larger company can make, and we're far more fleet-footed," he says.
"We had to give ourselves credibility," Bouchard pronounces. "I've seen small companies go to the marketplace and drum up some interest, but in the end the market is afraid they won't be there in two years and reverts to known quantities. By structuring our deal this way, first we got investors who were less concerned with valuations and returns than with what they could be involved with. They were buying opportunity, which to a small business is the better motivation because you don't want them pulling your strings, you don't want them doing what big companies often do in this kind of relationship: fix something that isn't broken. They snap the wings off your product and shove it into a big-company mode and proclaim, 'Now you're part of our culture."
"Everyone understands that when you go public, you waste an inordinate amount of time dealing with stockholders. Entrepreneurs should likewise understand there's a toll associated with the strategic-partner route, too. Time is spent managing partnership relations, and it falls on you to spend it, because you asked to be able to cherry-pick from their resources. They don't volunteer anything or come forward with plans -- you have to."
-- P.J.B.
* * *
As a small company fending off big guys, VORAD needed other big guys on its side. Bouchard could only hope they wouldn't get in the way. Of course, they did. "One of the disadvantages of teaming up in strategic relationships with large companies is, sometimes you get sucked up into their pace, which is slower than in a company like ours."
Eaton insisted that VORAD's product be rugged and rigged with heavy wiring and connectors. The seemingly simple revamp ate into the better part of a year. "With RCS," the entrepreneur in Bouchard fidgeted, "if they needed a bracket, they drew it on the back of an envelope, went to the machine shop and bent the metal, and 10 minutes later installed it. Now if you wanted to redo a bracket, you'd have to go through three months of design review first." When all was said and done, however, he had to admit the "Eatonizing" was salutary. "We had a better product and we were better off for it," he acknowledges, "and we learned what it takes to become a player in the automotive industry. I only wish it had happened faster."
Hold on, what's the rush? The smart-vehicle industry is like the biotech industry: because of vast product-liability legal considerations and the molasses decision-making pace of truck and auto original equipment manufacturers, unusually long lead times transpire before products can be sold in quantity. During the interval, capital must be poured into the hopeful supplier if it is simply to stay in place. Since the big payoff, the passenger-car market, was expected to flower only after the turn of the century, how could Bouchard defend both his lead and his treasury? The answer: seemingly change the nature of the business. What better diversionary tactic to keep the competition guessing -- and the coffers full?
True, the automotive industry viewed VORAD as, essentially, simply having a smart sensor. But a sensor needn't only gaze down the highway 300 feet. Outfitted with the right accoutrements, that same sensor could anchor a broadly integrated system that gathered and processed data and routed the results to the driver, the mechanic, and, if it were on a commercial vehicle, the fleet owner. "We're not in the radar business, we're in the information business, like everyone else nowadays!" Bouchard declared. "It just so happens that our information saves your butt."
