Context

Investors love to gravitate towards technology companies at the “apex of hype,” when a new product or service is celebrated as the next best thing to hit the market. Most investors only aim to cash in on this frenzy quickly and exponentially.

But, as I wrote in my book HyperTurnaround, many are also quick to dismiss opportunities in companies once the excitement dies down.

Fledgling companies that fail to live up to the hype and lose the favour of investors can soon backslide into the “trough of disillusionment”.

Real Life Story

In 2004, RuleBurst had slid into this exact trough, but not because its proprietary technology had fallen behind. There was a much bigger challenge: the company’s financials were splashed with red ink.

My initial thought was whether there might be an opportunity to revive RuleBurst just as it was struggling to get out of this trough. I looked at the numbers and was encouraged by what I saw, but I continued to dig deeper and arranged to speak to the right people.

The revival plan was simple: take over and privatise the company, fix the problem, turn around the business then sell it. Together with my friend Alan Dixon, I was ready to go all in with a hands-on approach to execute the turnaround plan.

While we understood what needed to be done, we also had to move fast – RuleBurst was burning cash and nearing the point of no return.

Key Lessons

• Thinking contrarian can be rewarding. Most people prefer to invest in companies when things are easy or when there is hype around new tech. But having the courage to invest in businesses that are struggling has its own rewards.

• Consider the hype cycle when investing in tech. Understand the five lifecycle phases of tech companies. Don’t be pressured to invest in one simply because of the hyper-optimism brought about by people’s inflated expectations.

• Uncover diamonds in the rough. Turnaround opportunities abound among companies that may have fallen behind or fallen into the trough of disillusionment. It’s a matter of digging deep.

• Never rely on assumptions. Examine the hard data but validate your assumptions by doing the extra legwork and talking to people who know more than you do.

Find Out More

Do you want to learn more about the practical tools noted above? Are you aiming to find the right support for scaling up your business?

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Until next week, may the force be with you.

Kevin

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