The technology start-up sector continues to grow and make massive contributions to the wider tech industry – and economies around the world.
But the harsh reality is that, according to CB Insights, 70% of tech start-ups continue to fail and, as you’d expect, the vast majority fail because of a lack of cash. Early-stage tech start-ups depend on funding and finance rather than on self-reliance. Therefore, even when the business is sound, the technology is great and there is tremendous market potential, when financing is withheld – which can be for reasons completely unrelated to the business – the company fails. How can you solve the growth puzzle?
What is it that separates the winners and losers in the tech sector? Is there a winning formula? And how can you increase the odds in your favour? Is there an answer to the growth puzzle?
Sell products not equity
Companies, and particularly tech start-ups, should be focused more on selling their technology and products – and less on selling their equity. Greater reliance should be placed on the ability of a company to become self-sufficient.
One crucial aspect that is often neglected when growing a high-tech business is gaining customers and generating sales. How do you find the customers who are going to buy your products and when will they buy at what price in which volumes for which applications?
Answering these questions of is like solving a jigsaw puzzle. The fragmented pieces of markets, customers, products, promotion and sales all need to interact and work together but can at first appear disjointed, disconnected and impossible to fit together.
Framing the market
As with a jigsaw, the best place to start is by finding the edge pieces – particularly the corner pieces – to give the size and shape of your puzzle. Like a general surveying the arena of war, the entrepreneur must gain a clear and accurate picture of the lay of the land. Before heading out to engage in the market, you need to have a plan for how best to deploy resources most effectively. You can waste a lot of time and effort exploring options that will lead to limited sales or – worse – into dead ends.
Defining the frame of your growth puzzle will help to identify your opportunities early in the product definition phase. As part of that analysis, you can think of the product versus the market as a two-by-two matrix with ‘existing to new’ along both axes. Selling existing products into existing markets and customers is the lowest risk and, in the opposite corner, selling new products into new markets is highest risk.
Ensure you can answer the question ‘why’ when it comes to your business. Why would anyone buy your product, why are you doing what you’re doing, why would anyone care if you went out of business? There is also always a timing element to this puzzle that is good to keep in mind. You may believe this isn’t fair but, in markets and products, timing is everything. Market and product life cycles may appear to be the same but they are not. Having good alignment between the two, if only by chance, is fundamental to success.
Finally, in selecting market verticals and segments, stay in touch with what is relevant and how those markets may be changing. It is often better to aim, shoot and then re-aim rather than get too stuck in one area struggling to make sense of what is going on around you. Also, certain markets – once you get into them – are not what they seem from the outside. For example, the electric vehicle revolution – is this a mode of transportation or an energy storage system? Understanding these kinds of positions ensures you can optimise adjacencies when they do occur.
In summary, when looking at markets and framing out your growth puzzle:
- Avoid developing new products that need to go into new markets – this is ‘no man’s land’. Better to sell existing products to new markets or new products into existing relationships.
- What problems are you solving in your chosen market? No problems means no requirements for new products.
- Markets in different cycles will adopt products in different ways. Defining opportunities is not simply aligning products to applications but aligning the maturity of your offering to a particular market stage.
- Bear in mind that market segments are not always what they appear to be. Aim new products at existing target market segments/customers and then get ready to adjust your aim.
Filling in the puzzle
Once the corner pieces are in place and the frame of the growth puzzle has been laid out, the next step is to sort the remaining pieces of the jigsaw by colours and themes. Sky pieces go with other sky pieces, similar colours and shapes get grouped together – in the same way, you start to build an understanding of why winning a piece of business with one customer could lead to a number of similar wins. Once the grouping of similar target customers is complete, you can start to put the pieces together one section at a time.
Typically, in a similar grouping there will be a similar sense of ‘pain’ concerning the end application your customer group is developing, producing or selling. You will hear that the end cost is too high for mass adoption or energy consumption is too high or the components available are too large to be suitable for a sensible application – and even that availability of a particular component is insufficient to meet demand. It is critical to listen carefully and to continue to probe, ask questions, find the pain — remember, without pain there are no sales. If you can find the pain and within your technology and/or product you have the solution to that pain, you are on to a winner.
Often with a new technology solution there is general interest in how your particular solution came about and how it works. Every tech company with novel technology and an interesting potential product has a meeting with the fruit guys in Cupertino. That is a poor indication of how well your solution will be adopted into the market. When grouping your customers into similar parts of the jigsaw puzzle, try to identify the leaders who are keen to implement your solution and who everyone else will want and/or need to follow with implementation. It is too easy to get sucked into numerous tech meetings with lukewarm cups of coffee where you are imparting information but not solving any problems that will lead to real sales. Remember, you are selling products not equity.
The other meetings you need to be careful of misinterpreting as good progress are meetings with procurement teams. As much as we may be over-exuberant when describing our products, customers are often just lying to you – most things you hear in customer meetings from the other side are not the truth. Often, potential customers are prevented from telling you the truth due to non-disclosure and confidentiality issues – or, if you knew the truth, you wouldn’t take the meeting. For example, if on the first meeting the procurement team wants to know how much, they are simply shopping your price against their existing supplier. So simply say your technology is competitive and will be at or below market price. You can always agree pricing once you’ve identified the pain and the value that your technology and product are creating for this group of customers.
You will also always be able to sell engineering prototypes and samples to engineering departments. That is what they do for a living – test stuff. This is not selling into a potential market and is classic early-adopter pre-chasm crossing behaviour. It may be necessary to do this but keep moving to align your solution with a real problem as opposed to filling the need for a make-work project for some students who have joined the business for the summer months.
Once you are engaged in trying to identify the real problems in an organisation you believe fits with a particular grouping and identifies with a particular market vertical, get yourself in a position where you can help them get your solution approved internally. That is, put yourself on their side of the table and help them pull together the documents they need to get your products signed off and approved for use in production. I find it useful to think about the times when I have had to make difficult procurement decisions and what I needed to have in place to get board approval to spend funds on something I believed in. It’s not easy do to this internally but much easier if you have a supplier who provides all the data and information that makes the decision-making process easier. So be the supplier that supports a proposal that gets through the internal hoops – not simply a quotation with a data sheet that will simply be piled up against all the other quotes and data sheets.
Finally, put a system in place. As a start-up, you cannot afford to do this by the seat of your pants with scraps of paper or a notebook filled with various disjointed actions. Not only will you drop things but, more importantly, you will miss the patterns that emerge from the efforts you are putting in to move an opportunity from one stage to the next. You will be able to track when projects are stalling and it could be that all the projects within a specific vertical stall at the same point. You cannot do the kind of analysis that you need to do to ensure you are focused on the right opportunities at the right time.
In summary, once the frame is built and you start to fill in the puzzle pieces, here are some growth tips to ensure you increase your chances of success within your chosen market verticals:
- Once you’ve identified the source of pain, sell a solution to that pain – customers will buy pain relief well ahead of vitamins. If there is no pain, it’s unlikely there is a problem or any urgency or budget – and a sale is therefore also unlikely.
- Avoid chasing squirrels. Look for the bears – the market leaders. If you get the leaders to adopt your product, the rest are likely to follow.
- Don’t confuse early adopters with general market adoption of your solution. If a potential client doesn’t have dates for the release of their product, they are unlikely to be ready for a general launch.
- In every meeting you attend, you are either pitching or being pitched to. Get to the bottom of what you are being told and why.
- Develop a collaborative approach. Avoid getting into an arm wrestle negotiating price and terms – at that point you’re not closing but likely only providing ammunition for the buyer to use against the competition.
- Use a systematic approach to sales – in complex markets you need to guide sales to a successful close, rather than just tracking progress.
Now that you have all the pieces in place, you will start to have a clear view of the big picture and be able to repeat and re-use your learnings for the next growth puzzle. You create for yourself the opportunities for growth, rather than relying on the next funding round – and you have a fighting chance of avoiding the curse of the missing piece of the jigsaw.
By Michael LeGoff, managing director of business consultancy X-Coaching Ltd