Young science-driven companies are different from consumer product startups
Startups developing and commercializing products based on deeply technical principles and scientific research have special challenges that startups in non-technical business services and direct-to-consumer products just don’t confront. While it’s true that you can buy just about anything you can imagine, having the money to play boss to an ever-expanding set of functions may still leave you with a lot more heavy-lifting — even after the bills are paid.
Entrenched industry forces aren’t evil, but they are real
Your business plan probably calls for you to sell your new product to other businesses rather than to consumers. You may have developed an advanced material for a sensor, an electronic component for a smartphone, a life science research tool, or even software protecting a machine or a network.
The point is, if you’re planning on B2B sales of a new technology-based product, chances are you’ll be facing a complex ecosystem. Paradoxically, the more disruptive an offering looks, the more resistance you’re likely to find, including from some big players and groups who can slow you down, or even keep you shut out long enough for you to run through your cash pile.
On top of money itself, and the time and effort needed to raise it, here are several fundamental types of hurdles young technology companies (and startups-to-be) face:
- 2nd and 3rd gen prototypes
- Customer testing/validation
- Scale-up design
- Regulatory matters
- OEM integration
- Distribution complexity
- Manufacturing flexibility
But they’ll rip off my idea, steal my business and leave me with nothing…
Emerging technology teams often experience a nagging tension between remaining in stealth mode and letting the market see what they have in order to generate some buzz and interest. While seeking an industry partner does mean having to show something, having discussions does not equal giving the farm away. The distinction lies in the ability to clearly articulate what you want.
So, if you are affected by one or more of the above challenges to the point where you are required to explain this to investors, you should think about the trade-off involved in an industry collaboration partnership. “Trade-off”? Of course there’s a trade-off, but it’s not about morals and dreams. It’s about practicality and the overriding rule of collaborating with industry partners: know your purpose and goals for working with them.
Here’s an example: you need scale up insights, and your prospective partner wants to use your technology in an application that doesn’t really interest you. Sound like a good fit? It could be great – you receive the benefits of their expertise, have access to development insights, and let them spend money on an application that’s not strategic for you anyway.
Looking in the right places: smart gap-filling
Look for a venture group that is well-matched for you and your business. Look for an organization that likes your technology and business plan, has a reputation for patience and support, and is eager to use its network. Finding the right partner will make a quantifiable difference.
Unlike industrial companies, VCs don’t own the assets that you covet. Even being referred by a financial investor to a top OEM for product testing is still no match for the backing of an industry partner who says, “We’d like to work with you on this young company’s technology. It can lower final cost of the component by more than 10%. Please try it and tell us what you think?” That industry is likely to have other assets that can accelerate your scale-up and product development.
Define what you need, identify the players are, and figure out what it’s worth
Some may comment “They’ll steal your idea” or “You want to sell out and work for a big company already?” But those comments miss the point: you know what your gaps are, and you seek efficiency and acceleration on your commercial path.
First, do your gap analysis and determine the milestones to achieve commercialization. Then, lay out your basic alternatives by economic cost, along with the risk of failing to achieve them on time or at all. Finally, determine who the players are that have those resources to smartly fill your gaps. Here’s a sample gap analysis to get the juices flowing.
Next week, we’ll talk more about trade-offs and negotiating with industry partners. (Hint: They’re completely different from financial investors!)