Welcome to the series on how to become an entrepreneur.
We put startups into three categories.
1. Platform startup
2. Pain startup
3. Technology startup
We’ll talk about technology startups in this blog.
Tech startups normally come out of research institutions and technology universities. One of their criteria is that they are often very strong on technology and have reams of peer-reviewed articles (if you know what this is, it’s very likely that you’re going to create a technology startup). These startups are also very strong on IP relating to the technology.
More often than not, technology startups have great technology but lack clarity of the customer focus. This is not because the technology cannot drive value in a particular customer segment; it’s because this can add value in multiple segments.
To respond to the question pertaining to customer focus, the tech startup needs to define whether it wants to play in cost-plus or value-added segments as well as whether the perceived benefit from its solution is incremental or revolutionary.
There is a difference between technology startups coming from the US (and, to an extent, UK) and those from Continental Europe.
The ones from the US or often have very early-stage technology since it is so easy to raise funding and because the network effect are strong. Thus, investors invest in startups that are little more than an idea. In case of platform startups, that is a reasonable approach. However, for technology driven companies, it is imperative that the technology should not only exist beyond theoretical first principles, but also have demonstrated impact via a prototype.
Nanosolar is a great example of a typical US tech company, that raised over $400 million, whilst changing technology, not once, but several times, towards commercialisation. The company was able to raise funding due to the network of serial entrepreneur and founder, Martin Roscheisen. Ultimately, the company could not fight gravity too long, and folded in 2013.
In Continental Europe, on the other hand, the conservative approach of scientists and researchers results in technologies that are often in the lab far longer than they should have been, before they decide to commercialise. The benefit of this approach is that the technology is robust. However, the great risk of this approach is that it may have reached commercial obsolescence due to an inferior technology having gone-to-market. The greater risk is that the inferior technology, but the one that’s first-to-market, becomes a standard.
Another risk of technologies emerging from Continental Europe is that the researchers often don’t have the mindset of commercialisation required for transitioning any technology towards the market. This results in them delaying the manufacture entirely too long, impacting timelines and scale-up. European researchers often have a will-do approach to their own detriment, implying insourcing manufacturing equipment required to manufacture. This prioritisation of cost over time is often the reason that European technology startups remain niche or become technology-licensing entities.
Factors that make the difference between success and bust include the level of customisation required to commercialise. If off-the-shelf equipment to manufacture the product is available, this dramatically reduces risk. However, customised equipment, and a custom-designed process, can multiply complexity.
A common theme of technology startups is the relevance of replicability. This is less important for software companies, but critical for hardware-based tech startups. Delay in replicability is the chief factor for delayed milestones and ultimately the funding well running dry.