Albert Chen had a big decision to make. He had built Telamon Corp. into a successful enterprise that provides technology deployment products and services for customers in a wide range of fields. But Chen wasn’t satisfied with what he had already done. He wanted more something new, something that at first glance didn’t seem like a fit with his business model.
Chen wanted to take his company into the biofuel industry.
“Let’s promote Indiana-produced corn and Indiana-produced ethanol, kind of from our backyard first,” says Chen, the company’s founder, chairman, president and CEO. “With our reputation at Telamon in Central Indiana, maybe that makes it a little easier for us. People don’t question, ‘Who is this company?’ Chen clearly had a lot of personal enthusiasm for the venture and that was giving him a lot of hope that it could work.
The challenge for Chen was to see if it could indeed be a fit with Telamon’s business model, which generated $468 million in 2008 revenue. His passion and energy alone wouldn’t be enough to make the idea a success.
Could he make it work for his 500-employee company and drive the revenue that would be needed to support the new venture?
Chen needed to take a hard look at what he had and assess how biofuel would fit into the mix. He had to figure out whether he could afford it, and if he could, he had to determine if he could develop a team around him to help make the idea a reality.
Ultimately, he decided the best way to make his plan work was to create a new organization that would still be linked to Telamon. National Biofuels Distribution LLC launched in 2008 as a subsidiary of Telamon.
If you are going to launch a subsidiary, you need to crunch the numbers, ask tough questions and find the right leader to make it work.Crunch the numbers
Chen did have a lot of enthusiasm for his project, but he didn’t get to nearly a half-billion dollars in revenue by making foolish decisions or decisions based only on his heart. One of the first questions he always asks himself when considering a new venture is how much he can afford to spend, or lose, on the new idea.
“Don’t assume right away that you’ll be profitable,” Chen says. “What kind of expense will you have? How much money will you need and how long will it last? How long can you continue operations? My rule of thumb is I want to have money to sustain it for at least two years. I want to be in a position where without any new money, I can last for two years. So it’s crunching the numbers. How much do I need so I can last for two years? You know your burn rate. How much money do you have?”
Whatever money you think you’ll need to start this new venture, Chen says you’ll want to have even more in your reserve in order to feel comfortable. This is also a good strategy in the instance of a venture that has a small window that leaves you with only a short time to capture the market.
“If you said, ‘Yeah, I have a financial backup, I want to speed up,’ you can dump more money in and speed up the process,” Chen says. “If you don’t have enough money, then you just have to figure out, ‘OK, how much time will allow me to (capture the market)?’”
In addition to crunching the numbers in terms of cash on hand, you’re also looking at infrastructure in terms of what you already have and what you would need to go out and buy.
“What can you leverage from your current business?” Chen says. “If you cannot leverage anything, what will it cost? What will it require you to invest? What kind of investment level can you handle? Pick how long. If you say, ‘Yeah, the investment I can cover for the next year or two years, you don’t have to worry about the financials. Then I will jump into it even though there is some learning curve.”
You should also look at potential outside investors and assess the support you can gain from this area to help your idea take flight. Just because you had the original idea, that doesn’t mean you can’t bring other people in to help you with it.
“If your potential is big, you can probably convince some other outside investors to give you more money to burn fast,” Chen says. “It’s very important that you not just trust your own gut feeling. Usually I share the idea or the rough plan with someone, a board member or someone more knowledgeable. You can have a screen with some internal and external people. You get the feelings of those people as they give you some feedback and you can make a judgment by their feedback.”Gather input
Chen was obviously hoping to capture new customers with his plan to get into biofuel. But it never hurts to see what your existing customers think about your idea.
“What kind of customer or client do we have right now?” Chen says. “Do I have to go to a totally new client or can I just go to current existing clients and say, ‘OK, I have a new product. Are you interested?’”
Chen found that his current clients were interested and since there was already a familiarity as to how deals worked between the two entities, it would make them easy to get signed up.
When you’re explaining a potential opportunity to other people, you want to do your best to keep it simple.
“The more detail you do, then the entrepreneur is more scared to get into it,” Chen says. “After your detailed analysis, you’d probably shy away, so don’t do it.”
One of the best ways to hone your message and to make sure you have all the facts you need to support your plan is to seek out the assistance of a college or a university.
“People in the academic field, they are very interested in helping you out,” Chen says. “There are so many students, MBA students, graduate students that are anxious to collect information. It’s that link to the professor who is also looking for future funding from you, so they are more willing to share their opinion with you.”
So how does one initiate a dialogue with a professor in higher education? Just pick up the phone.
“It would be just like a salesman,” Chen says. “Sometimes, you just have to cold call and say, ‘I’m doing this project, can I have 10 or 15 minutes of your time to share with you what I’m doing?’”
Chen says there are almost no instances where he’s been turned down for help.
“You say, ‘OK, I’m doing this kind of business, and I know you are an expert in this area. Can I get some feedback from you?’” Chen says. “I haven’t really had people say, ‘No, I don’t want to share with you.’”
You’re trying to build momentum for your idea and the more backing you can collect, the better off you’ll be in trying to make your plan work.
Once you’ve collected all of the information, the ultimate decision on whether to go forward has to be made by you. You shouldn’t feel the need to poll every last person to get their opinion.
“A CEO has to be willing to take a risk and be responsible for this,” Chen says. “It’s my personal responsibility to find the other intelligence. You may go to specific employees and find feedback and you are collecting that to gather information to m ake a decision. I don’t want to go to every employee and say, ‘OK, I want to start this business. What do you think?’”Find a leader
You need to find a person that can help you carry the torch for your new idea. If nothing else, it serves as a visual reminder to others that you’re not the only one who believes in it.
“You just have to find a person who you can depend on,” Chen says. “You want the emphasis initially on marketing. It is more critical. You want a marketing-type personality because on the financial side, we can have a back-end office to support that. You need to see how to target the market first and how to negotiate with the suppliers.”
Chen doesn’t put a lot of stock in the resume when he’s considering someone to lead a new project for him.
“A resume may help a little bit with some background,” Chen says. “But I use the interview process to see what kind of behavior and emotion will match. I’m looking for a long-term relationship in the sense of, ‘Can I trust this person? Can this person trust me?’ I don’t know how to describe in words, ‘Yeah, you can trust this person or this person.’ I usually ask them what’s necessary for the compensation package they want. That will give me some indication.”
Chen does make it a point to ask leader candidates to present him with a brief plan of how they would lead the group he wants to create.
“I ask them to give us a very brief plan of what they plan to do so I will know what kind of capability and potential they have,” Chen says. “It’s very good to ask a potential candidate, ‘OK, give me a couple pages or a page on how to run this business and then give me your compensation package,’ and see how they do. I don’t want to be dictating and totally telling them my ideas. I would rather utilize their talent more.”
As Chen’s thoughts began to coalesce and he had seen and heard everything he felt he needed to with regard to his biofuel idea, it became clear that it would work better as a stand-alone organization, albeit connected to Telamon as a subsidiary.
That person selected to run National Biofuels is Reggie Henderson, who had been president of Telamon’s industrial manufacturing group. Henderson leads the nation’s alternative fuel solution management company.
“It’s kind of a small company within the company that he can run himself,” Chen says.
NBD got up to speed quickly and announced in February its plans to supply biofuel to ARCA West, a NASCAR feeder series. The company has been working with racers from all motor sports to develop a racing biofuel and came up with Ignite Racing Fuels.
Chen says success in trying something new is all about identifying opportunity and pursuing it.
“What kind of strengths and core competencies can you leverage?” Chen says. “What are your strong suits? What is your competitive advantage? If you can cover those three, it will minimize your risk.”
How to reach: Telamon Corp., (317) 818-6888 or www.telamon.com