09 januar 2018

Show me the money!

Looking across the more than hundred startups I have supported by now, I realize that nailing the customer, i.e. anyone who will actually pay for the product, is the main problem to solve – not the technology needed to get there. Too many startups end up developing irrelevant products with little or no real market potential.

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I am an engineer of profession and I have been engaged with product development for more than 20 years. For the last 3½ years, I have been coaching startups regarding their products and technologies at Scion DTU, running the technical part of the accelerator program Danish Tech Challenge (DTC) four times straight as well as managing Scion DTU’s technical prototype lab.

DTC is a four-month accelerator, where we work intensively with 20 carefully selected fulltime companies, i.e. no “hobby-startups”, all having physical products, typically rather high-tech too.

In DTC we focus on the business case, the team and potential and my job specifically is to make sure they do not make too many easily avoidable mistakes regarding the technology or its implementation. More elaborated, I try to find what has been left to the dark side – the unknown unknown area of their knowledge and bring it into the nasty bright light.

Coming from established companies, I have been used to solving technical problems regarding various aspects of a product, being conceptual, functional or production wise, always relying on others to define the customer pain – the need and hunger for the product.

This is the task of Product Management and Marketing, who normally take care of the Customer Validation, and there has always been a clear split of responsibilities between those people and the Product Development team. Most of the time, marketing did not just make up needs; there were real customer pains behind.

In the beginning of this role as coach- and helper for startups, I made the mistake to help fixing the technical problems they presented to me and systemized the requirement specification for their products – without testing if there was any real need for the product.

As a result, irrelevant problems were corrected and technical solutions specified, before I learned that especially for high-tech startups, the customer validation part of the product is often not part of the agile execution. Like in very rarely.

Instead of mainly looking at the product and technology, I shifted focus also in my tech discussions, to cover the customer questions like “who will pay – and how much”, in combination with questions regarding use case scenarios, more than asking about the technical details about the product.

By focusing on use case scenarios, the discussion gets much more customer-centric and the startup is gently forced to see the product from the paying customers point of view, where all the details gets revealed, as I repeatedly question the cases.

In the end, the result is of course the same as a requirement specification – IF that work is based on a technical breakdown of known and real customer pains, but as I learned, this is typically not the case. As a result, too many startups end up developing solutions with no commercial value.

In a batch of 20 companies entering the accelerator, roughly half of them have historically been able to locate a solid and profitable pain, which is a surprising low number, as we try to be very tough in the selection before companies are accepted. However, it takes time and testing to get behind the polish of the slides and down to the matter.

Even as this seems so obvious and logical – it is in reality both far more difficult and complex than one should assume. After all, the ideas the passionate companies bring to the accelerator are believed by the startups to be worth perusing both time- and moneywise.

One brave company selected for this DTC-season, reached the conclusion during the accelerator that their product didn’t have any commercial relevance, even though it solved an honorable, recognized and real problem for society – however they were not able to locate any paying customers. I can recommend reading their article about what they learned.

Talking with startups, being nice and understanding – and failing to ask them “show me the money”, is really the worst you can do – they need help to nail the customer, much more than anything else.

I am not saying technology isn’t difficult to develop, implement, certify and produce, but I am stating that technology cannot fix a missing market.

I’ve seen it tried several times. It doesn’t work.

Nailing the customer and knowing where the money comes from is particularly important for Hardware Startups because of their high capital needs and related risks. This will be a strong focus in Scion DTU’s new innovation workspace Futurebox: