There’s an old saying that goes, “I would rather be lucky than good.” However, if you decided to start a technology company in 2002, you needed to be both lucky AND good.

It’s hard to imagine a more hostile environment than the year 2002 for start-up technology companies. The public markets had just been hammered by one of the worst stock market declines in history. When the dreams of a digitized economy clashed with the realities of cash flow and profits, many technology shares gave up as much as 90% of their value.

Start-up companies, however, are not particularly interested in the fate of the big publicly traded companies. They’re looking for early-stage funding, which comes primarily through families, friends and private placements. Unfortunately, in 2002 the only things harder to own than public technology shares were private placements – which were dropping in value, and impossible to sell.

That’s the economic environment in which Arvind Chhatbar decided to create Enablence Technologies (TSXV:ENA). He was no stranger to getting an enterprise off the ground then. His experience included a long stint at the National Research Council, where he was responsible for technology spin-offs such as SiGe Microsystems, Iridian Spectral Technologies, Crosslight, Toth Information Systems and others.

While most people saw only the chaos and uncertainty that follows a market meltdown, Mr. Chhatbar saw lots of exciting opportunity. Specialized equipment was available at 10 cents on the dollar, and accomplished scientists could actually be found and hired. Funding would be difficult, but not impossible – although many of the people willing to fund start-ups a year earlier now reacted with disbelief and even hostility to Mr. Chhatbar’s idea. In fact, many technology investors did their best to dissuade him from trying to operate in such a bleak landscape.

But eventually, through an unreasonable amount of persistence, Enablence was able to secure enough funding (mostly from people outside of the technology space) to bring the company to life. The industry kept an eye on the fledgling company; and as it began to develop its designs, several take-over offers came in from investors. They began to recognize both the company’s potential, and also its need for capital to move forward. But Mr. Chhatbar – with no foreseeable way to meet his payrolls, or gain the needed financing – turned down all offers that did not meet his vision for the company.

Still, in 2003, he did find help, from a European fabrication facility named “the Fab.” A large and well-established company, the Fab assigned 45 people to work with Enablence, for free, to help develop their designs and products. The two companies had an agreement that any results of their joint efforts would become the property of the survivor, if either company should fail.

This wasn’t just philanthropy on the part of the Fab, of course. They naturally assumed that a small five-person start-up was almost certain to fail; and they wanted to be in a legal position to scoop up the value of its fine work. Instead, the Fab folded; and Enablence walked away with a significant portfolio of patents and work. Its main product now is a fibre-to-home installation that will likely replace traditional bulk optic assemblies.

Today, all those early struggles are history. Funding is assured; production will roll; and luminaries like Jozef Strauss are involved. Enablence is now another Ottawa success story.

Almost every start-up success today has had a remarkably difficult path. But successful entrepreneurs like Arvind Chhatbar, and his fellow Enablence founders, will reap tremendous – and well-deserved – rewards.

Alan MacDonald is an investment advisor who helps high tech entrepreneurs make smart decisions about money. Contact Alan at Alan.Macdonald@RichardsonGMP.com or visit him online at www.alanmacdonald.ca.

For many years now, I’ve worked as an advisor to technology entrepreneurs, helping them to make smart decisions with their money. It’s a privilege for me to associate with these creative, hard-driving people who are building the next generation of hardware and software.

These entrepreneurs share a number of signature traits: they’re confident, fiercely independent, and they pursue their objectives single-mindedly and aggressively. They keep our economy growing.

All those strengths help them build viable businesses, with the goal of either being bought out profitably by a larger company, or else selling stock shares through an Initial Public Offering (IPO). Either option gives the entrepreneurs a significant amount of wealth and liquidity.

But if that does happen, the entrepreneur goes from the stress of managing the day-to-day affairs of the business to the relative luxury of merely being a good steward to a lot of money. It’s at this point that the traits that brought success can turn into disadvantages.

For instance, you’d think that a taste for hard work is a fairly innocuous trait, one that would seem the least possible threat to a keeping a pool of wealth intact. But while there’s no actual harm in an inclination for 12-hour days, in the absence of that familiar grinding routine entrepreneurs may get the restless urge “to do something” – and that something may well be to tinker with their portfolio.

Sadly, in turbulent times such as these, “doing something” may not help your results. In fact, it can be quite counterproductive. A recent study by a pair of University of California financial academics (Brad Barber, Professor of Finance with the Graduate School of Management at U.C. Davis; and Terrance Odean, Associate Professor of Finance at U.C. Berkeley) found a direct inverse correlation between amounts traded, and investment returns.

In other words, the more an investor traded, the less successful he was. In fact, the most active traders (the top 20%) gave up about 5.5% of the market’s return. In this situation, hard work not only doesn’t yield profits, it actually wastes them.

The same study found a fascinating link between investor confidence and returns: the more confident you are as an investor, the worse your results are. The argument goes something along the lines of: “I know I’m right, so why ruin my returns by diversifying? I’ll just put the whole portfolio in this one sector.”

Knowing this, I offer entrepreneurs this advice: don’t try to change your stripes. Keep playing to your strengths. You are what you are; your habits have served you well in the past, and will again in the future. You just need a few tips to help make your investment experience as successful as your business experience.

First, the key to both is good planning. Andrew Foti, partner at the well-respected Ottawa law firm Gowlings, and a long-time advisor to technology entrepreneurs, observes: “The key to a successful business exit is to plan in advance. Not too much, but just enough.” Having helped many entrepreneurs to sell their businesses over the years, Mr. Foti notes that a bit of up-front planning helps prepare them to be more methodical about preserving their hard-won capital.

Second, if you’re married, involve your spouse (and not just to help research price-earnings ratios and stock tips). Create a list of mutual goals, and then select investments that serve those goals. It’s harder for two people to make a bad decision than for one, especially when both are clear on what they want.

Finally, no matter how independent a spirit you are, don’t be tempted to go it alone. There’s a lot of good advice out there, and you can use it as a tool to help your business. You probably trust your accountant and your lawyer; and they may have been down this road many times before, with other entrepreneurs. So find out what they know.

Other “subject experts” are other people who’ve made the transition from owner to investor. Perhaps you know a few? Take them to lunch, and pick their brains for their best and worst financial moves. It could be the best $100 you’ll ever spend.

In business, the entrepreneur is opportunistic and decisive: he can’t afford to hesitate, for fear of losing that competitive edge. The entrepreneur turned investor has the opposite problem: he must learn to hesitate just long enough.

Alan MacDonald is an investment advisor who helps high tech entrepreneurs make smart decisions about money. Contact Alan at Alan.Macdonald@RichardsonGMP.com or visit him online at www.alanmacdonald.ca.

Tech entrepreneurs are getting back to basics when it comes to personal finance.

We all recall the brief period of irrational exuberance that permeated the technology sector. Those lucky enough to be consulting their Rolexes right now will recall the dates to be 1998 to early 2000.

In those heady days, a technology company could be assigned a valuation based solely on the number of engineers in its employ. One assumed that if you had engineers, a product and revenue would show up soon enough. If you were a senior or even not-so-senior employee of a company like Microsoft, you may have become rich thanks to the explosion in the value of your stock options.

The problem with bubbles of any sort is that the market eventually sorts these things out. The market’s ministrations are seldom gentle.

The crash in technology stock valuations seems obvious in retrospect, but at the time, it was difficult not to get involved. The promise of a technology revolution was so enticing that money was literally sucked out of every other part of the market – feeding the avalanche to technology shares at the expense of other sectors.

Commodity stocks are the current market darlings, but if you were involved in commodity stocks back in 1998 to 2000, you watched your portfolio go down in value by about 25% while the market as a whole rose by 30% or more each year. No surprise that in the face of several years of poor returns elsewhere, investors became lured by the siren song of the technology boom.

The lasting effects today go far beyond the loss of wealth many experienced in the bear market of 2001 and 2002. One of these effects is the myth that technology share options will some day make you rich.

In the words of John Kelly, the chairman of NexInnovations Inc. and a 30-year veteran of the Ottawa technology scene: “There are too many people counting on their stock options or other forms of technology share ownership to take care of their retirement. As a consequence, they are not attending to the basics of financial planning. While a company may get taken over or go IPO and make the shareholders wealthy, you can no longer count on the heady valuations that we saw in 1999. It’s time for people to get back to the basics of savings and planning for the future.”

Jim McIntyre, the founding partner of McIntyre and Associates and senior tax partner, has similar views to share with his clients. “You don’t see the same sort of valuations at all. Businesses are being bought on the basis of cash flow, profitability, and market penetration. It’s a much longer haul from start-up to acquisition. It’s crucial that people in the technology space have a plan that goes beyond making it rich through an acquisition that may or may not happen.”

The first step in creating a plan for financial independence is not to find the right stock or investment, but rather to live within your means and save something every month. You can get started by downloading a simple spreadsheet you can find at copperjarsystem.com. The monthly cash-flow worksheet under Downloads is a straightforward spreadsheet to track expenses. You can fill it in and see if you are spending more than you make. The first expense line on the spreadsheet is “Savings.”

A common question is “Why is savings considered an expense?” Savings is a personal expense. “Pay yourself first” is as true today as it was before the tech boom. The first step in creating a plan that you control is to pay yourself before everyone else.

Alan MacDonald is an investment advisor who helps high tech entrepreneurs make smart decisions about money. Contact Alan at Alan.Macdonald@RichardsonGMP.com or visit him online at www.alanmacdonald.ca.