Investors and Customers Aren't So Impressed By Shiny New Tech
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Technical entrepreneurs love their technology, and often are driven to launch a startup on the assumption that everyone will buy any solution that highlights this technology. Instead, they need to validate a customer problem and real market need first.
Don’t create solutions looking for a problem, since investors ignore these, and customers other than early adopters will be hard to find.
Outside of those few early adopters, technology by itself has negative value to the majority of potential customers. Most people are wary of change, and know that new technologies take time to learn and stabilize, so customers prefer solutions based on tried-and-tested proven technologies. Smart entrepreneurs build market-driven solutions, per the following principles:
1. Size the opportunity and customer interest first. Your passion isn’t enough to create a market. If there is a growing opportunity, an accredited market-research group such as Forrester or Gartner will already have data to quantify your excitement, and help make your case.
2. Look for customer willingness and ability to pay. Just because users support your free trial doesn’t mean they will pay for the solution. Nice to have does not motivate a revenue stream. Creators of technologies that cure world hunger may find that hungry people don’t have money, but government agencies as customers are a very long sales cycle.
3. Limit the features and complexity. Technologists tend to add more features, just because they can. More features usually means more complexity in operation and support. The best solutions, from a customer perspective, are able to mask the technology with a very simple and usable interface that focuses on their problem only.
4. Take a hard look at alternatives and competitors. New technology does not necessarily make better solutions. If you claim no competition, investors may perceive that you have no market, or you haven’t looked. Neither is positive. Customers may be perfectly happy with existing alternatives and competitors.
5. Work in a familiar domain, on a problem you have experienced. The most successful entrepreneurs tackle problems that have caused them personal pain, in an area they know well. Every business domain looks simpler to outsiders who have no insights into the complexities that increase your risk.
None of these principles is meant to imply that technology is not important in building new solutions. In fact, some technology leaps are so great that they enable a whole new class of products, or a whole new market. These are called disruptive technologies or the next big thing, in the sense that existing markets or economies of scale are disrupted by the scope of change.
Examples of solutions from disruptive technologies include personal computers, smartphones, the Internet and the first social-media platforms. Even for these, which can indeed change the world, the aforementioned principles still apply, in conjunction with a couple of additional considerations:
Time frames for acceptance are longer and the risk is higher. Based on history, the acceptance period for major technology changes is much longer than innovative evolutionary changes -- sometimes taking 20 years or more for pervasive acceptance. Investors thus tend to shy away from these startups, meaning you need deeper pockets.
Disruptive technologies require customer education to create a new market. Customers tend to think linearly, so existing customer feedback is unlikely to lead to, appreciate or pay quickly for the new solutions from world-changing technology. This means more time and money for viral marketing, product iterations and promotions.
The more you emphasize the technology of your offering, the more you need to be prepared for increased costs, reduced investor interest, slow customer acceptance and a longer wait for any return. On the other hand, the longer-term impact and return of disruptive technologies is likely to be huge, if they survive the early challenges.
My recommendation for first-time entrepreneurs, and the rest of us who don’t have deep pockets, is to focus on customer problems that are causing pain today, and customers who are willing and able to spend real money on a solution.