A common activity when we work with start-up companies is to help them discover what business they are in. It may sound surprising to people who are not entrepreneurs themselves or who have not worked closely with management of young companies that this should be needed. Surely why you are in business should be pretty obvious?
It is not. A typical startup is busy with a number of activities. We focus on technology companies and they usually have a number of products or product components under development Perhaps it is a new piece of hardware with a client software and some server components for administration and reporting. Perhaps it is a piece of software that is being ported and tested to run on every networked computing device, including the PC, mobile telephone, PDA, and my new coffee machine (seriously!).
Additionally, the startup are establishing partnerships for supplies, distribution, or services. At CYBAEA we often work with innovations that are disruptive in the sense that they are creating new markets. In this situation, those partnerships are often as difficult to create as they are crucial to the success of the new organization. They are difficult because being a new market per definition means that nobody has done this type of deal before and there therefore are no established structures or tariffs to fall back upon.
Then there are the operational concerns: how do we actually deliver and support what we sell? What is involved in a typical implementation project and how do we propose to deliver it? Add the usual concerns about sales, recruitment, PR and analyst relations; factor in the limited resources of the typical startup and you end up with a very busy situation. Which is as it should be.
However, not all activities add value in the same manner. There are a number of important considerations, including:
Unique value: What is hard in your business? Especially with disruptive innovation the way you break into new market often is by forming partnerships with multiple constituents and being able to create a deal structure under these circumstances.
On a number of occasions, we have worked with companies that started out as pure technology play only to find that bringing together the suppliers of components or content, the distributors, and additional services like e-commerce or advertising is in fact the unique capability of the organization.
We do a lot of competitor analysis for the companies with which we work, and even where the technology of the startup is genuinely unique we are most often able to highlight a number of companies that are similar enough that they could develop a competing technology very quickly. Frequently we are able to point to companies that have been in a similar technology space but have failed or are at best “living dead” simply because that could not sustain the flow of deals through their partnerships.
In these situations the startup may find that the technology, while often an important enabler, is not as crucial as originally considered, and can perhaps be created in partnership with other organizations or leveraging existing solution components.
Regularly consider what is your unique value.
Exit strategy: This is typically not so important for the just-formed startup, but for companies looking for investment and for turnarounds it is important to look at the exit strategy of each offering in the portfolio.
One company we worked with had essentially three products in the wireless market space. Two were important innovations on existing technology, while the third was a genuinely new product with no established market and no direct competitors.
In general, the exit strategies for the two different types of innovation are different. For the first, what Christensen calls sustaining innovation, you are typically looking to establish a lead in the market and then execute a trade sale. For the second, the disruptive innovation, you are normally looking at an IPO to create a new, long-lived company.
Looking for funding in this situation is difficult. Investors like a clean exit. Everybody like a clean story. In this case the company decided to split the IP into two organizations, funding each one separately.
It was a painful exercise for the original founders. They had created these products, these services, this one business. They were their children. But just like in family life, doing what is right for your children is sometimes painful.
Consider the exit strategy of the components of your offerings, especially when you are looking for investment or if you are in a turnaround situation. It is a coherent story?