Lab to Market Leadership with Chris Reichhelm

The Role of CFO in a Deep Tech Company | Michael Black

• Deep Tech Leaders/Michael Black • Season 1 • Episode 7

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In this episode of Lab to Market Leadership, we delve into the crucial role of a deep tech Chief Financial Officer with our expert guest, Michael Black, CFO of ieso Digital Health. 

With extensive experience across various deep tech sectors, Michael provides a comprehensive look at the CFO's responsibilities, the necessity of understanding advanced technology, and the pivotal role of financial management. Tune in to learn about the unique challenges and strategic approaches required for success when scaling a deep tech business.

Episode Highlights:

- Key components of a CFO's role in deep tech

- Financial management and company survival strategies

- The significance of understanding tech when undertaking the duties of a CFO

- Effective collaboration with CEOs and organisational leadership

- Finance strategies in the early stages of scaling a deep tech company

Listen now to gain valuable insights from a seasoned CFO in the deep tech industry!


Let us know what you think...

Learn more about Lab to Market Leadership: https://www.deeptechleaders.com

Follow us on LinkedIn: https://www.linkedin.com/company/deeptechleaders

Podcast Production: Beauxhaus


Michael Black:

One of the things that investors don't, um, admit is that they don't expect people to meet milestones. They expect people to do good work and make progress, um, towards them. So if you're, if you're really smart, your, your headline milestone is a bit of a stretch. And, but you've achieved something so that you can articulate, we have achieved something.

Chris Reichhelm:

Welcome to the Lab to Market Leadership podcast. Too many advanced science and engineering companies fail to deliver their innovations from the lab to the market. We're on a mission to change that. My name is Chris Reichhelm, and I'm the founder and CEO of Deep Tech Leaders. Each week we speak with some of the world's leading entrepreneurs, investors, corporates, and policy makers about what it takes to succeed on the lab to market. When I think about that early core team in a deep tech company, I typically think of commercial, technical, and scale up and engineering. But the reality is that no team will get very far without really smart and capable finance leadership. And today I am very fortunate to be joined by someone that I feel is one of the UK's best CFOs of an early stage lab to market company. His name is Michael Black. And what makes Michael special, uh, are two things actually. Number one, he's, he's worked across most of the deep tech domains that are around, uh, including AI, energy storage, advanced materials, digital health, mobility, and he's also raised money at a variety of different stages, from seed, obviously through series A and the growth stages, and he's even taken a company public on Nasdaq. So Michael has a lot that he can share with us about the role of CFO within a lab to market company. Um, let's hear what he has to say. I hope you enjoy. Right, Michael, thank you so much for joining me. I'm really excited to have this discussion with you today.

Michael Black:

You're welcome.

Chris Reichhelm:

Um, I want to get right into it. You, to my mind, you are one of the, you are one of the rare CFOs that has covered, that has covered almost the full spectrum of deep tech domains. So if we think about all the different, you know, Deep Tech is made up of a number of different sectors. You've had coverage across a number of them. And so today I'm really interested in speaking with you about the nature of the role of CFO within a Deep Tech company. And in particular, within a lab to market company, and to kind of get things started, I want to ask you up front, what are the, you know, every role has certain parts to it, certain areas, if you will, uh, or buckets. To your mind, what are the different buckets that make up the CFO role within a lab to market company?

Michael Black:

So, I mean, first I'll say it's the best job in the world. CFO of a, of a tech company and who would want to do, um, anything different. And, you know, at the centre is the fact that, that you are managing the finances. There's, there's kind of a, a very strong hygiene factor and in some ways it's a stronger hygiene factor than many other roles because if you screw it up, the company's dead.

Chris Reichhelm:

Yeah.

Michael Black:

Um, a lot of other roles, if you screw up, you can, can survive and recover, but you know, when there's no money. You, you're really screwed. So , the number one, it's very simple, really, is to know how much is in the bank.. Um, and to know how much is gonna be in the bank in next week, in a few months time, et cetera. And you just need to know that. And you don't need to overanalyze it, you just need to know it. And the kind of that that's, that's the, that's the key. And then you get onto the kind of managing the money and doing the accounts and the tax and all the, all, all that sort of stuff. Which just needs to be done, but the, uh, where I've, um, found it the most satisfying is when you're the, you know, sounding board and advisor to the CEO. The person who can challenge and advise, but also can then go and squirrel around into the organization and, you know, find out, you know, what's really going on. Um, what's, um, what needs to change. Um, so it's not just the, the, the finances, it's everything. Um, . And there are, you know, people have discussions that, you know, a CFO's really like a COO. Um, and I, that's what I like to do. Um, I've never been called the COO. In fact, they've been some examples of A CFO being pushed sideways and they get a new CFO who's more quote CFO, like. Um, and uh, and I've, I always tell c CEOs Don't do that to me. Um, because I want to be the CEO, because I want, CFO, because I want to, you know, have that overview of the finance of the company and also how the company works. And it's that breadth, that range, what makes the, makes it, um, makes it so interesting. In deep tech specifically, there's another bit that you add on, which is you've got to understand the tech.

Chris Reichhelm:

To what extent, to what level do you need to understand it?

Michael Black:

The, quite a, a fairly deep excel. I'll give you an example. A real example, I work for Cambridge Display Technology. It was a material science company doing materials for OLED displays. And we went public on NASDAQ. And I was sent round, um, you know, on my own after the IPO to go do, um, investor meetings. And, and I'd be You know, sitting there in front of an investor, and I realized that the guy had a PhD in chemistry. Um, he understood the chemistry, the polymer chemistry that I was trying to explain as a finance guy far better and more deeply, um, than I did. So, how well? You need to hold your own with the guy with the PhD. Um, and you need to, you know, I guess it's a trite thing to say about business. You need not to screw up.

Chris Reichhelm:

Yeah.

Michael Black:

You need to know when to say, I don't know, you need to talk to a techie guy. And, you know, and when not to make things up, you get caught out. Actually, for me personally, I've, Going back to my, my childhood is very scientific house. I love the science as well.

Speaker 3:

Yeah.

Michael Black:

Um, you also, you get a crossover, I think, between science and finance in, in kind of logical ways, um, ways of thinking. One, one company you'll be familiar with worked in battery technology and on battery, battery materials and we were, we were designing, um, nanoparticles of silicon. with complex structures in it. Now, I can't tell you anything of any depth about the chemical reactions needed to create structures of silicon. What I could do is I, is I, I learned what the features of the perfect product were. And I was, I was able to, you know, talking to, you know, chemists and chemical engineers, So I said, what, what measurements do you make that tell you that this is a good product? And then once I'd learned enough of that, I could tell what was a good product and also one of the things I really, really enjoyed doing is I worked out what the perfect product was. And I went back to it and said, this is a perfect product. And one of the things that actually caused a, ultimately, a major change in direction, I worked out that the perfect product was totally uneconomic.

Chris Reichhelm:

Okay. Oh, I remember. Yes. Yes.

Michael Black:

No one had thought of that. You've got this perfect product, which you can never make. And it's not economic.

Chris Reichhelm:

But it sounds like there, you know, you're taking, you're, you're not coming in to these roles as a technical expert. You've got to learn it. And so you need to have that base for learning, that propensity to ask the right questions, the ability to analyze and to dive deep and to, I guess, not be afraid to ask questions. Dumb questions, whatever dumb questions are. To keep asking until you get an answer that makes sense, even to you. If it can't make sense to you, you've gotta be able to simplify it a bit.

Michael Black:

You've gotta be able to It's the communication part. It's absolutely key. I've got to be able to communicate it to the PhD. And I've also got to be able to communicate it to the guy who's not got a PhD, who doesn't understand a thing about it. And it's that ability to work at those multiple levels and to read the audience.

Chris Reichhelm:

As a headhunter, Michael, my view on the world tends to be a little simple, as you might imagine. And I've, in lab to market companies I've tended to see that role of CFO as the CEO. You know, a few buckets, I guess, one of which is what you've talked about, what you started by talking about, that level of financial control, the level of precision around questions to do with our current cash balance, our future cash balance. Um, uh, the second bucket, if you will, I suppose, is around the overall financing strategy. And I know a lot of lab to market and deep tech companies worry a lot. How the hell are we going to finance this thing? We're doing something that is so innovative. We're trying to solve a really big problem. It's going to require potentially a lot of capital in deep tech. It's invariably going to involve a lot of capital. How the hell are we going to raise it? Where do we go? How do we get our story set? So I'll put that as the financing bucket. And then the third bucket, if there is one, is kind of around the commercial piece too. And that is around the, what is our value proposition? What is our business model? Um, what are, you know, we have to define unit economics and eventually we have to have something called pricing because we have to charge people for what we're doing and how we figure all that stuff out. Is that, am I? Is that the wrong definition to you or do all those things fit into a definition of CFO for a deep tech company in your mind?

Michael Black:

They absolutely do fit. I think the challenge is, is doing them in the right steps in the right order.

Chris Reichhelm:

Okay.

Michael Black:

Um, I think, so you're, you know, your early stage, you've just invented some technology. Um, you know, pricing probably is not going to be the thing you're, you're, you're going to be concerned about. You, you need a vision of how does this solve a problem which someone's going to pay money for? That vision to get you, get you started . But then you're, Now, your early stage, you've got to, you've got to prove something. That, that's the, and, and the way I see Um, a lot of these things, it's the way financing works, is it works in, in, in steps to the next financing. Um, and part of the role, a key role of the CFO is to say, again, before the financing, it's, you know, how much, which is, um, which should be based on what do I need to achieve? Um, and of course, goes without, should go without saying that if, if you're offered more, you say yes. Um, it does happen, and it happens and people say no, and you shake your head, no, you always say yes.

Chris Reichhelm:

Always? There are no conditions under which you might say, well, actually, no, we've got enough, we're good, it's going to push our valuation too high, or whatever.

Michael Black:

I think the, well, my view is your, you know, what is any, anyone's share worth, my share is a, is a, as a manager, a shareholder's share, and it's X being the value of the company times Y percent being your share and people over index on Y percent and the only thing you should index on is X. What will make this, um, successful? You know, I'll sort out my percentage later. Now, you, you can get edge cases. Um, um, you get, you saw it in the, um, the bubble, um, at the end of the last century when, Um, I mean, I spoke to a supposedly very successful, uh, entrepreneur, but all he'd done is he'd raised huge amounts of money on a huge valuation, the valuation had tanked, and then they sent the money back to the shareholders and he'd become a millionaire. That's a real edge case. Uh, a company could achieve nothing. But the, you know, generally companies don't get criticized for raising too much money. I have been criticized once by an investor who had, um, remorse about having put in too much money and wanted some of it back.

Chris Reichhelm:

Okay.

Michael Black:

To which the answer is no. No, sorry. You know, that company came on to be very successful, to make good use of that money. And the, and there is a question of, you know, what do you do if you're failing? Um, do you stop at some point? And there are, again, different people have different views. Um, you know, one of them being the never give up view, which I think I'm probably closer to.

Chris Reichhelm:

Yeah, is there a I'm really interested in the in some of the questions you're raising here I want to come on to them the for a at the very early stage when you're raising your seed round What needs to be in place? I,

Michael Black:

the first thing in my opinion is a, is a, is a vision.

Chris Reichhelm:

Yeah.

Michael Black:

Some vision that you can, can articulate. And then the first idea of what you are going to do is to bring that closer to reality so that when you and you, you don't need. infrastructure. You need the minimum facility to do something to prove something.

Chris Reichhelm:

So you can have a re you can have a lab scale experiment at that time, hypothesis, with some very early validation, a vision, some talent, very good communication, story, and you'll be able to, you know, your chances of raising a

Michael Black:

speed round are reasonable. And you should have the, Also the story for the next step as well, you know, if I can prove this...

Chris Reichhelm:

By the time of the seed round.

Michael Black:

Yes, I the story. You should be saying, you know, I want the money to prove this, and then I'm going to raise more money to prove the next thing. And for each step

Chris Reichhelm:

you should have that goal in mind. You should know roughly what that milestone is going to be.

Michael Black:

Yes, absolutely. You have to accept that you may have a plan for, you know, four steps into the future. Steps three and four are never gonna happen 'cause stuff will change. But you've, um, I think it's very weak if you are, if, if you are, the goal that you're intending to get to is, is unclear. Um,

Chris Reichhelm:

yeah, yeah, yeah, yeah. So, to proceed you need that seed stage story and you really need to have your milestone sorted out for series A.

Michael Black:

I think so. Yeah.

Chris Reichhelm:

That next round is not another seed, but it's a series A.

Michael Black:

Yeah.

Chris Reichhelm:

For series A.

Michael Black:

Yeah.

Chris Reichhelm:

And I, I acknowledge that the kind of software milestone series A, series B, series C don't always apply in deep tech because the capital requirements are different, the time to market's much different, the risk, the complexity, everything, but for the point of you've raised a C. You've now, you're now going to do an A. What, or you're going to do your second round. What needs to be in place for that second round? Do you absolutely need to have hit that milestone?

Michael Black:

You, you have to have a story. I think the, the, because I mean, one of the things that investors don't, Um, admit, is that they don't expect people to meet milestones. They, they expect people to do good work and make progress, um, towards them. So if you're, if you're really smart, your, your headline milestone is a bit of a stretch, and, but you've achieved something. So that you can articulate, we have achieved something. And it might not be what we, um, Uh, what we anticipated and we, we've gotten nearer to this goal when you articulate that we've gotten nearer. Um, for this goal. And I think, I think in, probably in, no, I think certainly in Series A, one thing you, I think you need to start adding in is, is relationships out in the market. The, um, you can get away with, um, and maybe you should because you've got to focus, and it's a huge thing in my focus, you've got to focus on proving something at that seed stage. When you're, you know, raising a little more, you've got to have a story or actually the, the practice. This is where a, you know, a founder becomes a really good founder who will become a, a CEO. And it's actually where I think academia is a good training ground. Because what people love doing in academia is going out and talking to people. Um,

Chris Reichhelm:

really?

Michael Black:

Yes.

Chris Reichhelm:

I think that's, that's, I mean, is that contrarian?

Michael Black:

No, no, no. My dad did this. He, my dad was an academic and he loved going to the academic conferences. And, and, and talk. That's what he did. That's how academia works. You, you go out, go out and talk and then you get, if, if you're, I mean, if it's anything that's with an industrial application, there'll be the industry partners there. Um, and that's the, and so the smart academic founder will be using those opportunities to build the link. I mean, they have to, um, I may have a chat with a colleague of mine at the moment who, who assures me that an academic training is actually a commercial training. Because, um, obtaining grants is just the same as revenue generating, quite seriously. He genuinely believes it, and uh, I find it quite weird. But, but there is, uh, there is an element of something.

Chris Reichhelm:

There may be a relationship there, yeah.

Michael Black:

There is, there is, there is something. So again, you're back to you, you seed versus series. If your, if your academic founder has built the beginnings of that industrial network, During that, they're in a much better position then. They should be beginning to have an inkling of here are the commercial relationships that are going to make this thing really fly, uh, past the next stage.

Chris Reichhelm:

I mean, you've been, and you've been involved in a lot of financing. So you've done very early stage, you've done the growth stage, you've done IPO on NASDAQ and so on. And so you've seen an awful lot of, you've, I'm guessing you've met a lot of investors along the way. And is it really all about the story to them?

Michael Black:

They, they, they tick lots of things. They've got a, uh, it's a lot about the CEO. I, I've, I think they always, or without exception, other than maybe if you're in, in, when you're in public market stage and there's public information, it's different. So much is about the, about the CEO, whether they're brought in to that CEO vision, that the, that they've got someone who can, um, make it happen. Or, if it's not going to happen, do something different that will, that will have, um, which will have value. One of my most extraordinary investor meetings I ever went to. was when the, um, you know, the company was needing to pivot and the CEO went to one of the investors, he just raised a load of money and said, you know, I raised a load of money to do this, it's not going to work. So, do you want it back? Um, and, yeah, quite extraordinary. And the, the investor said, tell me about your plan B. And we went through the plan B and we got to the end of the meeting and he got up and as he was leaving he just kind of turned and said, Of course I don't want the money back. I trust you. And then he left. Um, so he actually, he'd invested in the technology. But he trusted the CEO to do the right thing if things went, um, things went wrong.

Chris Reichhelm:

And to keep going. And to keep going. And to keep going.

Michael Black:

Yeah.

Chris Reichhelm:

Wow.

Michael Black:

And just so, Plan B didn't work either.

Chris Reichhelm:

Yeah.

Michael Black:

Plan C didn't work. Plan D worked. Yeah. But uh, but yeah, yeah.

Chris Reichhelm:

But that's, but you know, if we're being, if we're, if we're being really honest about the journey, especially with these lab to market companies. Your, you know, approaches may not work., your technology approach may get, you may stumble your scale up may not work, but economics may be all wrong. So we can't build a value proposition.. All we can do is keep trying. And so what they're backing is a group of people that keep trying, that they, they trust you at some point, get it right. And to still be honest.

Michael Black:

Yes, so one thing I can't get, um, a chair of one of the companies I was in said is don't underestimate the value of what you've learned in the things that haven't worked. Um, you know, you, you, I mean, I've, I was once involved in a project, we were looking at doing business combinations, and we went to see a number of companies, and we realized how quickly we could evaluate these companies. Um, you know, we'd sit down with one, and, you know, they'd go, they'd spend half an hour, they'd go through what they got, we'd ask a few questions, and we didn't, we just know they had nothing. And then you go to another one and you go, wow, you guys have got it, and you can try and keep a straight face. Um,

Chris Reichhelm:

you can just get that pattern recognition. You just had that pattern recognition.

Michael Black:

Yes, you can get, and they have, uh, and, you know, the ones who were still floundering around, you could see they were going to flounder for years working out what the right questions are and what the right answers are, and we, we, we already knew.

Chris Reichhelm:

And so, is there a, it comes down to the team then, a lot of it comes down to that, to, you know, to the team. Who's on that team that, because you said the investor's really judging the CEO, but it's not just the CEO controlling the destiny here.

Michael Black:

Yeah.

Chris Reichhelm:

So, to your mind, what else has to be in that package?

Michael Black:

So there's a, um, there's, well, the CFO obviously, although, you know, some, some country companies do without for a while. Yeah. Or have a very administrative kind of fractional CEO. A technical person, and sometimes that's the CEO founder thing, but I think you need a real technical person who is just focused on, on the tech, um, the CTO. And then a business development person. That, that's you, that, that's, that's your core. And you're, and the right sort of business development person, because you've, you've You, you, you can spend a lot of money on someone who can just sell. I mean, they can be utterly brilliant, um, but only make sense if they've got something to sell. You need that biz dev crossover person who is comfortable with nothing to sell, but working out what we might sell, um, in the future.

Chris Reichhelm:

Absolutely.

Michael Black:

And then you, you, if you get into production at some point and scale up, you, you'd need a production.

Chris Reichhelm:

You need to think, you need to consider your scale up approach. And it's helpful to do that early too, so you don't, you know, burn a lot of effort.

Michael Black:

Yeah. And you, um, one thing, one thing was a production manager who, who taught me was, um, the danger of what he called premature optimization. Um, and it was, it was a lovely, lovely turn of phrase. Um, and he was saying, you know, I can, and we were building a pilot plant at The time.. And he said, you know, I can optimize for cost, or I can optimize for flexibility, and I need to optimize for flexibility, because you try and move, you try and move fast, so you, you build before you know exactly what you need to be building. So you've got to build in flexibility. You've got to accept that it will not, it won't be an economic success stand alone, but it will be a huge source of economic intelligence. It'll tell you, tell you what works.

Chris Reichhelm:

And you can refine later on.

Michael Black:

You can refine later on when you go up to the next, when you go to the next size up and you. Well,

Chris Reichhelm:

and that's a really nice segue onto the, so you mentioned the business development piece. You mentioned the nature of business development and, and, and I couldn't agree with you more. Talk a little in your experience, you know, where does the, when we start to build out commercial models. We have, you know, we go from having novel tech, it can do something, uh, we can, we have repeatability, we have confidence that it can continue to do something, we need to figure out how to scale it. Yeah. But now we're starting to think, but let's say we have confidence on that too, and now we're starting to think, okay, we need to build a value proposition and a commercial model around this. Where does that start?

Michael Black:

It, I think it starts very early. People should have a, an idea in mind and you, I think you, And it depends on the tech. Sometimes it's, it can be very straightforward. You know, I've got a, um, you know, there is a component in a system and I'm going to make a better one. And I can measure how much better, I can measure the value, it kind of becomes easier. Where it becomes, um, more complicated is the, is when you're really breaking new ground. I'm thinking, you know, nuclear fusion, quantum computing, that sort of thing, where you're

Chris Reichhelm:

It's a whole new paradigm.

Michael Black:

A whole new era. And my, I guess the experience, I found fascinating in this regard was in oled displays, which when I got involved, was at that very early stage. And there were two aspects to this. There were, you, you, you You needed to build a whole ecosystem to build the OLED TVs. Um, and then you needed to find your space, your place in that ecosystem where you could create something of value. And so you're trying to say, it's great. Telling these investors, you know, we're going to sell a load of, we're gonna have a massive market share in this market. with a total addressable market size of zero right now. Um, because we, we first need to create the market and create the ecosystem and then we can sell into it. And, and then at that

Chris Reichhelm:

time where OLEDs, what there was no supply chain to support the development and the commercialization of it. Yeah. You've got a long journey.

Michael Black:

And, and the, um, uh, and, and we, we have to simultaneously help build ecosystems and also work out where we were going to. Um, play in that, in the end. And we, we, and we, we played on the whole ecosystem for a time, and then we deliberately withdrew, and focused on where, where we felt the value was, which, and we changed our mind about where we thought. Yeah, the, uh, the value was, and there was a, and one of the debates, which I think may be less of a debate nowadays, is do you go for manufacturing or licensing? Um, and the answer's manufacturing, um, but you, yeah, you can go for, and this was learned from, you know, from, from bitter experience, because people saw licensing as a tax. Unless you, unless for every product you're delivering something of value, they're saying it's just a tax, you know, and we're doing all the work now, you just happen to file a patent five years ago. That, and the, and the, one of the best, if I say one of the best, the best strategy session, um, I ever went to was, um, it was actually, it was a, you know, a board really being a board. Um, and we said, we're going to have a blank sheet of paper, we're going to talk about how we're going to make money in this company. Yeah, this is, you know, the company was 15 years old, we're going to talk about how we're going to make money. Um, and I remember, uh, one of the directors, very well known venture capitalist, and he, um, he said, we need to work, we need to understand this value chain. He drew it on the board. He drew the value chain and all the, how you got from, you know, buying, Raw material chemicals right up to producing an OLED TV. And he made us go through every point in the value chain and say, can we participate in that? Can we make money there? And we ended up saying that's where we need to make money. And the reason it was so extraordinary as a strategy session is When we got back to the office the next day, the strategy changed, and we did things differently. We actually had a strategy session where we decided on a strategy, and then we did it. Um, and it was a re evaluation of what's the business model, where do you, where do you make, um, and you have to be prepared to, um, you need to change.

Chris Reichhelm:

How much did you get involved in that as a CFO?

Michael Black:

The, it was, um, I think it might, it might even, I was CFO, very early days CFO. Actually, I didn't get very much involved in. And the reason is, I was too inexperienced. I, I, I Yeah, okay. I, I It was a classic case of, you know, look and learn.

Chris Reichhelm:

Yeah, yeah, yeah, yeah.

Michael Black:

And, you know, the Um, which is, it's interesting, you all know this in recruitment, do you, when you're hiring, how much do you hire the, the full, uh, you know, rounded, um, experienced person, and what extent do you go for someone, um, with, with, with potential? I guess, you know, part of that, I think, is, do they, is there, is there a core of, um, what they can do?

Chris Reichhelm:

Yeah.

Michael Black:

Everyone will accept who's valuable.

Chris Reichhelm:

Yeah.

Michael Black:

And they'll happily wait for the rest. So in that, in that strategy session.

Chris Reichhelm:

Absolutely.

Michael Black:

I, I didn't have much to say about where we should participate in the value chain. I had lots of other things.

Chris Reichhelm:

But I know that, I know for a fact that you've been very involved in other companies.

Michael Black:

Yes, oh yes, yes. I've learned a bit since then, yeah.

Speaker 2:

Yeah, and so how far does, how far typically would you expect a CFO to get involved in figuring out or even in hosting that kind of discussion.

Michael Black:

The, you get very involved, um, obviously, um, you can host, I, I prefer not to be the one Um, hosting the discussion. I, I think the, I think this is where a CEO can really lead

Chris Reichhelm:

Mm-Hmm,, Michael Black: um, in this, now make, um, the business successful. And the CEO should, um, should lead that. Um, and the, you know, the role of the CEO op CFOs to participate and bring an analytical viewpoint to do things. The other key role, I think is the. Um, is being the person who can, um, call out the elephant in the room. The, you know, call, calling out when something just isn't working. When everyone, you know, everyone's doing something because that's what they do. Um, I had a remember a discussion with a, with a CTO about a project that we were putting a lot of resources into. And I was questioning him about this, and where we ended was him admitting that this project had no chance whatsoever of being successful. Why are you continuing to do this? And the answer was he didn't have any other ideas. And you're kidding.

Michael Black:

No, I'm not kidding. It was, we are doing this 'cause I haven't got any other ideas. And, and, and, and, and the, the answer was, well, we've got to stop and we've got to come up with new ideas. And if you are, I mean, I've, I'm fortunate. I've never been, never had a, an alcohol problem. But my understanding is the, and I use this, I'm sure it's politically inocrrect I say to him, the first thing to do is to sit down and say, I'm an alcoholic. Then you can start working out what to do

Speaker 2:

with the problem. Yeah, exactly. Don't

Michael Black:

admit it. You got to acknowledge people, people revert to, to comfort zones and we'll, we'll just carry on. We'll carry on doing this little bit experiment and make this thing work a little better. But we know it's useful, um, and, and, and people, people do that. And I know people do it, I think, cause in something as a CEO, CFO can help with, I think is clarity of goals. within a business. Um, and, and, and it's, it's like maybe people think, you know, what a CFO will want to bring is a, is a nice complicated page with lots of numbers. Um, you know, I'm after a goal that you can write down in less than 10 words. Um, you know, and the fewer objectives, the better. It leads back to our discussion on financing. Can you very clearly articulate by this date, we're going to achieve this goal. And then when you talk to everyone in the business. Is what you're doing making that goal, uh, closer, um, to reality? If the answer's no, we need to stop, um, and work out what to do. And

Chris Reichhelm:

find, and work out another way of, of achieving.

Michael Black:

Work out another way. And they, again, they, often the CFO can't work out what the other way is. Um, but the, again, another, another experience is mine, is when the, You know, following these sorts of discussions, um, the CEO says we just need to think through another way. And he called the, um, the, uh, the CTO in, went into his office, shut the door and said don't disturb me. And two days later, they came out and said, this is what we're going to do. Uh, well, in between time, I'd say, how are you doing? He'd say, we're in the middle of it, ask me when we're done. And, and comes out with, they say, yeah, I couldn't really have helped. with the discussion, but I feel that I helped make sure this discussion happened.

Chris Reichhelm:

Yeah. Yeah. Yeah. That's a great point. That's a great point. It's a great way of looking at it. The, um, financing for those lab to market companies where you've got to scale up, you've got to build a plant, you've got to, uh, you know, and scaling up a plant can cost 25. 55, 60, even more, uh, you know, millions of pounds. How, what thoughts do you have on, on how to do that? Lots of people are talking about how to finance first of a kinds. Do you have any views on that, you know, based on what you've seen?

Michael Black:

The, um, so I guess at that scale, it can't really be a first of a kind. It can be a first of a kind of that size.

Chris Reichhelm:

Yes. Um, yes, you, you, you, well, the first of a kind, it's a proper commercial scale

Michael Black:

is probably the first kind proper commercial scale. Yeah. And I think the, the issue you get into is the economics and the returns that you are no longer at vc. I'm going to get 10 x my money. Um, and the, you have to convince, um, uh, more traditional investors that this is a thing.

Chris Reichhelm:

Like who this, this is, this is, um, what kind of more traditional investors.

Michael Black:

I'm not going to name, because you all were, and I'll be, I'll be very honest. This is, this specific area is not my, uh, personal experience. So some of this is, is, is secondhand, but I've seen others do it. Um, do it. And, and they've, they've, you know, they've gone to banks even and, and, and said, and where it's difficult is growth stage investors who want to see evidence of. Um, you're actually looking at who wants the evidence of commercial traction, um, or no, they want to see evidence of revenue growth, off stage investors, and obviously if you're building your first scale plan, you don't have, you actually want to get infrastructure. Investors who see this as low risk, when of course it, of course it isn't. And you, you, so you want to get the edge of the, the risky edge of an infrastructure investor. Yeah. And, you know, for me, there is one thing you can do to enable that, and that's to have a customer. You, you know, a, a customer who has, Um, you know, signed a contract, now all of these contracts will be, um, I won't say not worth the paper they're written, there'll be a kind of, um, uh, beautiful letters of intent called contracts.

Chris Reichhelm:

Yeah,

Michael Black:

if you like. No, if this happens, we might do this sort of thing. But, but something that looks like a contract that says when you build it, um,

Chris Reichhelm:

we will come,

Michael Black:

we will come, we will, yeah, we will, we will, we will buy the stuff. Um, and the reason we'll buy the stuff is what came out of your pilot plan. We've proved it works. And they will, um, I've, I've, I've, I've had discussions being, this is in many different businesses, and they, they ask about, um, what evidence of commercial traction do investors want to see? And I always say, well, I, my opinion, what the most valuable thing is that you have a senior executive in a customer who will take a call from an investor and will say, this is great, and I want to buy it, and I want to buy it as soon as possible. Um, and that's as valuable as the contracts.

Chris Reichhelm:

As a customer, yeah, yeah, contract, as a real contract, yeah. And

Michael Black:

it's a, um, a customer that people have heard of.

Chris Reichhelm:

Yes.

Michael Black:

Um, the, uh, I once went to a, uh, a launch event for a rocket company. And, um, And, uh, at the event, I sat next to this guy, and he said, I'm the lead customer, he said. He's very proud of himself. And it was another startup. So it was a rocket company with no money, and their lead customer was a startup with no money. And, you know, that doesn't quite, uh

Chris Reichhelm:

Not the same.

Michael Black:

That doesn't quite do it. But, you know, a household name But he's gonna, you know, put this in a, in a, in a, in a mainstream product at that scale.

Chris Reichhelm:

And in your, in your experience, Michael, how long, from your experience, how long has it taken to attract a mainstream customer?

Michael Black:

Years. Um, I think the, in, in deep tech years, the, um, and, and you have to start, I mean, if you go to, you know, Japan or, or Korea. Especially years, um, because, uh, and this is actually, I think this is a You know, a very positive part of that business culture, that they really want to get to know you and your technology and how well you do things. Um, and then every year it gets a little bit deeper. Um, you know, and there are milestones, they're not written down, but, you know, when they send over the team of quality engineers, you know, you're making progress. Um, you know, and it's, that's not something that's written down, you know, but that's, those are the sort of, uh, uh,

Chris Reichhelm:

Those are the rules.

Michael Black:

Those are the rules. Yes, those are the rules. You have to, and again, this is, I think this is something that's maybe difficult for founders is the extent to which those customers will dictate. what you, what you do. Um, you know, the, the, it was certainly something that I had to, you know, learn in business. If I want to, you know, make someone for a large company, they're kind of going to want to tell me how to make it. Um, they're going to be all over my plan. I'm not building my plan and, you know, the output comes out and I say, there you go. Do you like it?

Chris Reichhelm:

Unless they've had input into that.

Michael Black:

They want to know, you know, how do you manage your supply chain? How do you maintain your equipment? How do you train your staff? All this, and at the end of the day, they'll, because they don't just want, they don't want a product, they don't have, don't have to test the product knowing that they might have to reject it, because a rejected product is a disaster for them. They have to be absolute, um, certain that that what comes out will be, will meet their specifications that they have set, that they have developed with you. This actually really helps with product development as well because if you develop a relationship with a customer who you basically get them on the hook because they're, they're interested, they then help you make the product better. Especially if it's a component in a larger system because you're, I mean one of the hardest areas I've spent some time in is, is, is batteries and the reason it's so difficult is to make a good battery is really hard. And if you're making a material for a battery, you're not an expert in making batteries. You need to get that into the hands of an expert at making battery who can tell you if it's really good. And they'll give you some hints, you know, if you measure these things, then you're likely to have a good product. But, I mean, it's quite an interesting position, because you're in a position that you can't prove that your product is good enough, because you don't have the expertise. You rely on someone else to say, yes, this will, um

Chris Reichhelm:

And where do you I was speaking with Peter Collins, another entrepreneur, and he was talking about how he did this with BP. And the line you need to draw between making it to their spec, to their design, something they're going to want, but also making sure you can have other customers too. And that you don't just become a shop, a delivery shop for products that big company needs.

Michael Black:

And yeah, that's clearly the case. Um, but that's true. How do you avoid it? Um, I think I don't have an easy answer. Part of the answer is that you, and this is hard for a small company, but I think important, is that you, you have a network of trusted advisors who can help you through that. Um, because it's, it's difficult to do, because especially if you're, you know, Um, I mean, I'm a great proponent of focus, you need to focus on that customer, and you need trusted advisors to question you on those, those types of things, and you need, you know, wise counsel on what time do you open up a second front.

Chris Reichhelm:

Mm.

Michael Black:

Um, with another customer knowing that that will cause distraction.

Speaker 2:

Where do those advisors sit?

Michael Black:

They are I, well, personally, I, I think they should sit on your board. Um, and I think your, your board should be, uh, should have a, a nice set of non-executives who really know your industry, your technology needs, and, and one investor,

Chris Reichhelm:

only one?

Michael Black:

Only one. And, um, I was, and I'll tell you why only one, because for a board to be successful it needs a diversity of expertise.

Chris Reichhelm:

It does.

Michael Black:

And if you have, and each investor has expertise, and they all have relevant expertise, and they all have a contribution. So you should have one of them, but the, and there is high value for that first investor, less value for the second one, even less than the third one. And if you end up having a fourth, then you haven't got 4x the value, you've got kind of 1. 5x the value.

Chris Reichhelm:

Yeah. Yeah. So, and the,

Michael Black:

the,

Chris Reichhelm:

the But that's not popular. That's really not popular over here, Michael. No. I mean, every investor who invests in a company demands a seat on the board, typically.

Michael Black:

Yes. And they think it helps them. And it doesn't. It, it, it, it, it, I mean, and it, it kind of leads me to say, well, you, you, you want to, and I've seen companies do this. They, they sideline their board. And they set up an advisory board where they get the actual advice. Um, but yes, the, you know, having, you know, three, four in, in, and, and the funny thing is you can't say, oh, that one isn't adding value because they're all adding value. It's just not sufficiently diverse. That's what you, that's what you're missing.

Chris Reichhelm:

What are, what are the biggest, if you looked, to look back at your career in startups, you've had one heck of a career in startups. What are the big, big, juicy lessons for, for you that you'd want to communicate to that next generation of executive coming in to do battle?

Michael Black:

So one of them is that it is never too soon to fix something. I have never been in a situation where you fix something or change something and said, I'm glad I waited to do that. Every time you say, I wish I'd done it sooner, um, you know, people are concerned about making Decisions. But people rarely do. So, you know, when you know it's wrong, you know, go change it. And there's a, um, there's a good test that I have for this. I, I learned this from my children, actually. Um, and one of, one of my kids was having trouble at school, and every night we'd, um, we'd have a good moan, me and my wife, about the problems at school. And this went on for months and months and months and months and months, and eventually we said we're moving the kid to a different school. And we moved him to a different school. And overnight, the problem was gone. And we looked, and we thought, why have we spent months, every night, having a good moan about this? And i, and I, and I, and I, um, and I use this now at work. If there's something you keep coming back to. You keep discussing it. It can be an individual, it can be a project, it can be a way of working. And it just keeps coming back. You've got to say, stop, there's something wrong, and we need to fix it now. And we need to do something radical, because we keep talking about it. It's great. You know,

Chris Reichhelm:

it's a great lesson for life. That's a great lesson for life. It is, uh,

Michael Black:

I guess, uh, Another one is that, and it links to what I think I said earlier, that continuing to do something is a decision. People think that continuing to a necessity. No, it is a decision if you continue to do something. And if it's the, um, the, and I've never got as far as this, but you often, when you have a decision making meeting, you're discussing whether to make a change. And, um, it's quite true. I've only just had this thought. Uh, which, which surprises me, you know, I'm too old for this. Um, that actually you should approach meetings where continuing along the The path has the same status as making a change. I'm going to start using that.

Chris Reichhelm:

That's, that's really good.

Michael Black:

That's, uh.

Chris Reichhelm:

That's really good. And I can see, you know, especially, especially in those early days when you're trying to figure it all out.

Michael Black:

Yeah.

Chris Reichhelm:

What approach, what value proposition, what is our offering? Is it all going to work? Where you, I guess you have to evaluate that constantly.

Michael Black:

And this is where.

Chris Reichhelm:

And staying the course then is, uh, Then we have confidence in our, in our approach, we're saying the course. That's a decision.

Michael Black:

And you know, the simpler you can make your goals and focus the better, even if they're the wrong ones, bizarrely. So, yeah, the, one of the things I think destroys progress is when you, you, you have disagreement, you come to a decision and you all pretend that you are all going down one path, except there's a whole load of passive resistance. And then you end up achieving nothing. But in fact, even if you disagree with something, you should embrace going down the wrong path. Absolutely. And do everything you can to make the wrong path successful. And part of the reason you do that, even if you don't believe in it is, you'll get to the wrong place faster, and then you can stop and go back.

Chris Reichhelm:

So that's a big emotional exercise that you and your team have to go through then. You just have to embrace, yeah, embrace that discomfort. Shit, I don't want to do this. This isn't what I wanted to do, but okay, we're doing it. So it's,

Michael Black:

yeah, you're sitting at the crossroads. The worst thing to do is continue sitting at the crossroads, you know, go the wrong way and be prepared to come back and take the right route. But if you sit there, you'll make no progress.

Chris Reichhelm:

That's great.

Michael Black:

And you, well, and, and then learn from, learn from it. You have to be open to yourselves then if things go wrong. And the other thing you have to be very careful about is if you've been, if you're a dissenter, not to then be the I told you so. Yeah. Because then you, then you start, you know, destroying trust.

Chris Reichhelm:

There's a whole load of emotion, you know, there's a whole load of emotional development that needs to go on in the, in, in members of the executive teams in order to be able to handle these kinds of pressures and to be able to move at the pace that's required. And it's like, no one ever talks about that. I don't know, maybe they do, but I'm not listening. You know, maybe it's somewhere else. I don't know. But it's just, you know, these kinds of challenges that you're bringing up are all, all have to do with the emotional maturity of an individual, their ability to control themselves, to get themselves into that new position and to, you know, and, and then to do that as a whole unit, as a whole team.

Michael Black:

Yeah. And I've, you know, I have an unfair advantage that I'm, I'm older than most of my colleagues, which is, that's a real benefit. Um, these things are much easier if you're in the latter stages of your career. So you can forget, you know, personal advancement or, you know, Um, you know, or the next role or promotion or anything, that kind of doesn't matter so much anymore. The, the, what I say to people is I just want to be part of something that's successful. I want to be part of something I can look back and say, wow, that was, that was great. And I, and then that's, and I try and share that with people because it's a way that gets people emotionally there to say that, Achieving that goal is, is just on a higher level than the, the, uh, lower level issues that people get upset about on a day-to-day, um, basis. It's very difficult to disconnect. Yeah. From the, one of the techniques I use, um, um, and I suggest to people is try and think forward six months and look back to this discussion. And how will you regard it in six months? Will you regard it so important and so, so critical, or will it be just something that happened? Try and put things in perspective, um, in that way. But, you know, people need to get emotional. It's, you then get, uh, creative. It shows you, it also shows to, um, you know, people that you're, you're, you're, you're seeking to lead.

Chris Reichhelm:

Yeah.

Michael Black:

Um, I mean, I've,

Chris Reichhelm:

yeah,

Michael Black:

I, in, In the unfortunate situation more times than I'd have liked to be involved in downsizing, um, and redundancy. And part of what you have to do is stand up in front of people and, um, recognize the pain, this causes, um, and the, and, and, you know, getting, getting a bit deep for an accountant, the, the fact that, um, your, your job in our culture is part of your identity. It's, um, and, you know, on the extreme, you lose your job, but also, it's so much part of you, your job, if it gets disrupted and changed, um, or you don't get your way, or your, you know, responsibilities are going to be, going to be doing, this is hard, because it's part of you. Part of who you are and your, and your self respect, um, and I guess people just got to, you know, recognize that. I think there's also, um, and we should have spent a long time on this, is, um, the area of, you know, big company culture versus small company culture. And the, uh, one of the great things about a smaller company is that you have flexibility. You can change them. You can go down different paths. You know, you're not a slave to a whole load of process, uh, procedure. On the other hand, a lot of people find this Very discomforting.'cause they, they talk about all the change that keeps happening. Yes. And to actually get people in a culture where all the change that keeps happening is actually fine. It's just how we do. It's,

Chris Reichhelm:

it's how, it's how things have to be done, how things have to, to be done. It's how things have to be done. Yeah.

Michael Black:

But you have to explain it.

Chris Reichhelm:

Yeah.

Michael Black:

You have to, you have to and, and bring pe bringing, bring people along. Otherwise it gets, you can have people on the, on the coalface doing the real work who feel like they're getting pushed from side to side all the time. And, and the, and it's one of the, you know, one of the things I've, I guess I've, you asked about things, things I've learned is that when you get a little bit larger as a company, it is very easy to have a disconnect between, you know, the management and the people, um, doing, doing a lot of the work. And you, you start putting in place this middle layer and you, as managers, you think that the middle layer is helping you manage the company. Um, But if you, if you don't do that right, the, you know, the middle layer is just sitting there, insulating you from all the problems down below because they don't know what their role is and they're not being, you know, brought in, in properly. And, you know, if I look at things that have gone wrong and things that have gone right, there's a strong correlation with getting that middle management layer. Working really effectively.

Chris Reichhelm:

In the way that it needs to. Yeah. In the way that And not just being padding so that you can have some peace.

Michael Black:

No.

Chris Reichhelm:

So you don't hear the voices below, but actually the opposite. So, so, you know, things that come up are the right things and that they can be organized faster.

Michael Black:

Yes. And they, and if, when, when you go wrong, what happens is that the, um, you know, when the middle managers, you know, hear things going wrong from their teams, they then shrug their shoulders and say, yeah, it's awful. What can we do? Yeah.

Chris Reichhelm:

Yeah, yeah, it's bad news.

Michael Black:

And, and, and when you've got needs, they need to, they need to do their, their piece of leadership.

Chris Reichhelm:

Yeah.

Michael Black:

Um, within that, and then you've got to listen to them. And it's very easy not to, because you're all too busy. Um,

Chris Reichhelm:

yeah.

Michael Black:

And I, I try to spend a lot, a lot, I mean, I have, you know, one on ones with members of, of my team, and I spend a lot of them, um, talking about things that are happening that are not relevant to them. Um, because one of the, or don't appear to be relevant to them.

Chris Reichhelm:

Yeah.

Michael Black:

Um, people, when it comes to communication, senior managers often, I think, fall into the trap of communicating what they think people need to know and will be interested in. And in fact, what people need to know and are interested in is much broader than that. So I tell them everything. Um, so they feel passing and every now and then one of them says, I'm glad I knew that.

Chris Reichhelm:

Yeah. Yeah.

Michael Black:

Because that's, or now I've got the context. Now I understand. So now I'm, if I'm now in a discussion with someone else, another part of the organization, I could explain to them.

Chris Reichhelm:

I get that. I get that.

Michael Black:

The context of, and again, it comes down to having a singular focus and the, the organization knows what it's doing and why.

Chris Reichhelm:

Michael, amazing. Really great insight and wisdom. Thank you so much.

Michael Black:

Thank you. No, you're very welcome.

Chris Reichhelm:

You've been listening to the Lab to Market Leadership podcast, brought to you by Deep Tech Leaders. This podcast has been produced by Beauxhaus you can find out more about us on LinkedIn, Spotify, Apple, or wherever you get your podcasts.

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