Duane asks,

Just curious. Have you ever come across something that looks like a great opportunity, but was way beyond your capabilities?

Duane,

This is a great question. The short answer is yes. That’s the only way to grow. But the further you are from your proven capabilities, the lower your chances of success are going to be. So if you know going into the venture that your chances of failure are real, you want to make sure that:

1) You’re bringing the best people with the most relevant expertise onto your team to improve your chances of success

2) You want to limit the risk on the downside. So if you fail, the cost to you personally will be acceptable, and more importantly

It takes courage to do something that is unknown. After all, you might fail. Failure has all kinds of negative connotations in our culture. When you fail, you’re a failure. Even worse, you’re a loser.

On the other hand, if you’re a scientist running an experiment, then somehow experimentation is elevated to a higher stature. An experiment, by definition will have an unknown outcome. It may not be your desired outcome, but it will have an outcome and the main purpose of an experiment is to learn. Therefore, an experiment can never really fail.

So the question is how do you undertake projects that can be a little bit of an experiment?

I’ve done this several times in my career. For example, in the world of technology, the year was 2003. IBM had a division that designed and manufactured microprocessors. I had been at Tundra Semiconductor developing system controller chips that worked with the IBM microprocessors.

So I had the crazy idea of going out to raise the money and build the management team to buy that division of IBM. I had never raised $250,000,000 in one shot before. I had not run a business of that size before. I didn’t have the brand name to go down to Wall Street and raise the money.

I started with an idea. The first person I called was someone who had been general manager of a similar business. He had sold processors into Apple. He ran an automotive microprocessor business and counted Mercedes, General Motors, BMW, VW, and Toyota among his customers. His name is Brian Wilkie. The venture was my idea. But I hired Brian to be my boss.

I contacted the CEO of another chip manufacturing company. She had previously run that division inside IBM and reported directly to the executive who had responsibility for that business. She became one of my advisors. I brought another 5 people on board with similar pedigree.

Brian and I went down to NYC and met with Credit Suisse First Boston’s private equity group. We met with Citicorp Ventures who in that year had been very aggressive about investing in technology buyouts.

As a result of these relationships, our pitch to IBM matched almost exactly what IBM was looking for in a partner. IBM entered into exclusive negotiation with us. We spent 3 weeks at IBM headquarters, negotiating 19 agreements around the clock. IBM wanted to close the transaction before March 31, 2004. A week before closing, the IBM management team delivered some bad news from one of the customers. That spooked our banker who asked for additional time to complete their due diligence.

At that point, the senior executive in IBM said that he needed the asset sale in the quarter to compensate for a loss elsewhere in the division. He was a on notice from the CFO that he should not deliver a negative surprise to Wall Street. The asset sale was required to prevent that embarrassment.

At that point, IBM invited a California company called AMCC to bid on the business. Literally at the stroke of midnight, AMCC offered $100,000,000 more than us and scooped the business out from underneath us.

We were devastated.

Death, Sex & Money - Preview: Opportunity Costs