A few weeks ago, I was introduced to two startup founders in their early 30ies who let me in on their plan to develop a new medical device. Both of them were seriously smart, they had just earned PhDs from top universities, and were extremely driven and enthusiastic about their invention. Their business plan looked beautifully. Their scientific rationale, health technology assessment, and market size evaluation all checked out just perfectly. And yet, my gut feeling told me that they were on the fast track to make a number of costly, avoidable mistakes. Mistakes that - from my own, often painful experiences - I was sure would come back to haunt them sooner rather than later, potentially wrecking their idea altogether.
On the way home, I asked myself why I assessed their startup so negatively. So the next day, I tried to put that gut feeling into plain writing and scribble down a number of personal takeaways for startups that build on a science or technology breakthrough innovation, eventually leading me to write this article.
Thanks for reading and adding and sharing your own personal experiences, ideas and comments below!
1. Have a tiny little crush on your idea. But then, fall passionately in love with the journey of making it work.
Let´s face it: The day you decide that something is going to be your next big thing, it is already too late. Your eyes light up when you talk about it, you wake up at night thinking about it, work crazy hours, and start to neglect other important aspects of your life in order to spend more time working on that one world-changing idea. In other words: Congratulations - You have successfully become a teenager who has fallen in love head over heels with his high-school sweetheart.
But really, that´s OK. Being passionate about your business is a great ting. It will make you a far more effective spokesperson and brand ambassador for your idea, it will enable you to recruit a better team, build better partnerships, and raise more money. However: That same passion also clouds your judgement, makes you cling on to defective ideas longer than necessary, leads you to over-invest in the wrong projects and nurture doomed relationships, and ultimately it may even endanger the future of your venture altogether.
Nobody understands your technology like you do. This will fool people into believing that you´re also an expert in turning it into a business. Don´t make the same mistake.
Your main goal should be to build a business model around your core technology that can create, deliver, and capture value-added to customers. In most cases, this is a multi-year, multi-person effort that requires incredible stamina, tremendous openness, a huge tolerance for frustration and an infinite ability to overcome setbacks you currently cannot even imagine.
Now here comes the thing that I believe is often overlooked: This process has very limited synergies with developing a technology or product to technical feasibility.
In fact, we know from many examples that the skills and personality traits that help people build a great company may exactly be the ones that got them kicked out of school in the first place. But here's the good news: I'm 100% convinced that almost everybody can learn this skill set if they get themselves to be passionately curious about the journey from an idea into a business model. Treat your startup journey like a scientific expedition. You will be less prone to making assumptions that kick you in the back later on. You will pick up more intel and process it more effectively, you will be more open to sound challenges to your ideas, you will have make meaningful introductions and conversations, and in the end you will make more informed and thus better decisions.
2. Build a business, not a product.
If you want to change the world, build a viable business. That is the best and most reliable way for your vision to gain traction and have actual, lasting impact. I have never understood people who think that turning an innovation into a business means you have to compromise or give up on your values. In fact, that is a very narrow definition of what a business is, which I don't share at all - it falls way short of the amazing things a successful business venture can achieve to the benefit of everybody.
By that same logic, don't go out with a vision to build a product, instead be determined to build a business. Take both the "M" and the "V" in MVP dead serious. Don't build anything that the market doesn't pay for. Don't build anything that is not viable. And don't think that having a validated, working MVP translates into having a viable business. Because if you can't price, sell, and service your MVP, then what good for was spending time and money on it in the first place. Thus, when a customer or channel partner lets you in on the flaws of your current product design, your pricing, your technical support, or your value proposition, don't let the engineers determine on whether to implement that feedback or not.
Build a product ownership team that balances technical, commercial and strategic aspects.
This is by far too often not fully adapted STEM founders, and I understand why. Allowing a customer criticize something you've devoted your entire career to isn't supposed to go down easy on anybody. But imagine the things you will be able to achieve 7 years down the road if you make smart business decisions early on and end up growing your team to 10, 100, 500, or 1000+ employees. That dwarfs everything else by comparison. And that's everybody's loss if you let the 'inventors' of an idea roam free without repeated, permanent market feedback. Market feedback MUST include how you will market, sell, and price your solution, and those are things you have to measure by getting people to actually sign purchase orders and transfer money into your bank account. If you don't get that aspect right, even the most ingenious product on the planet can't save you.
3. Spend money on two things: gaining traction, and fixing your weakest link in the chain.
The startup journey can be compared to an equation with a large number of known and unknown variables on each side, each representing potential risks and opportunities. Now every startup has to solve its own, unique equation. There is absolutely no universal template or concept that applies to such a complex process (the fact that most VC funds don't deliver the return they promise to investors is the best proof for that).
Hence, I really suggest you to trust your instincts and ask yourself one question prior to every major decision: Does spending time and money on it either offer me the greatest expected leap forward towards reaching my next big milestone (exit/licencing/break-even/next investment round/product launch/etc.) or does it reduce my biggest obstacle towards that step. This is what matters the most.
The answer to this question is not just different for every startup, it might even vary from day to day.
Winning poker players often spend hours losing a tiny bit of money each round until they make one bold, yet calculated move to win their money back many times over. I know a startup that spent practically zero on marketing for 3 years, then they invested 150k at once. They were bought a few months later, but without that new storefront / website / case study / event series / etc. they would not have been an attractive acquisition target to anybody. They had successfully launched their product bootstrapping their funds, until the unappealing brand image they portrayed became their weakest link.
Another case I am familiar with involved a team that had to spend half of their working capital on buying out the previous founders, because THAT was the one thing that prevented their exit deal from going through. Can you imagine the conversations with your lead investor in this situation? I couldn´t. But then it happened: Retired founders on the board equals no exit. No exit equals everything they worked on in the past years is lost. Ergo: That was the one thing they had to do to get closer to their next big milestone. And ergo, getting their investors on board was crucial, no matter how hard, time-consuming and risky it would be.
There are countless such examples. At the end of the day, each may or may not apply to your startup. But what I am completely sure of: If you always dedicate your resources towards building traction and fixing your weakest links, you´re investing them wisely.
4. Do as people do, not as they say.
Founding, working for or investing into a startup has become very sexy in the past years, with all the good and bad that comes with that trend. Once you appear on the radar of the startup stage, you´ll meet extremely interesting, bright and helpful people who are more than willing to throw their best effort at your venture for very little reward, and you will find people who are looking to take advantage of you in the most distasteful manner while smiling in your face. The startup industry is by all means a representative sample of society. Now if you are entering that world with little or no prior business experience, don´t be shy. Meet the startup world with curiosity, but don´t think that people who are "passionately helping young entrepreneurs" or "revolutionizing the impact of medical care in developing countries" have no ulterior motives.
At the end of the day, aren´t we sort of all selling something?
Founding a startup is a calculated gamble with quite significant stakes for all of its stakeholders. At times the odds are stacked against you, and you have little wiggle room to move forward. You may decide to keep your team in the dark about how likely you will complete your next funding round until you run out of cash. You may go see your first client and tell him that three other clients have already signed an LoI. Sometimes people may lie you in the face, and one year later they end up confessing to you that without that lie they would have lost their company that same day. Do you really want to spend your days blaming them for picking the least of two evils?
Everything people say in a business context - especially in the startup world - has to be taken with a grain of salt and unmasked in the context of their business interests (and yes, that goes for this article, too!) - So when you meet anybody - a potential investor, co-founder, employee, board member, advisor/consultant/business angel, corporate partner, etc. - try to first understand their interest. Do that by evaluating their past and current actions, and only their actions. That will give you a much better understanding about whether they can add value to your venture or whether they will waste your time and money or even jeopardize the future of your company.
5. Brace for Impact.
You cannot disrupt anything without having an impact on other peoples hopes and dreams, their income, budgets, employment prospects, year-end bonuses, etc. Building any sort of business is thus an uphill battle by definition, as going against vested interests and diverging established income streams will not go unnoticed and unchallenged for long.
If you have found a viable way to create added-value for your prospective customers, that´s great. Now build an actual product. Find a way to appeal to customers. Get them to buy it (and no, not sign an LoI. Buy it for actual money). Build a marketing & sales organization that can replicate this process. Deal with technical setbacks along the way. So far so good? Congratulations. Now the real battle lies ahead.
Because once the incumbents start taking you seriously, will give you hell for threatening to take away their cherished market share. I have seen incumbents offer entire startup teams a huge sign-on bonus and much bigger salaries if they change sides. I have seen established companies with long term business relationships suddenly offer six-figure discounts to clients when they started collaborating with promising new startups. I have seen start-ups locked out of established distribution channels in their core markets, challenged in courts, copied, and molested in the marketplace in just about every imaginable way. It´s all fair game.
Here´s the silver lining: If you really really have a better offering, you have a real chance to shift the market in your favor. As long as your business model works and you can create, deliver and capture value-added to your customers, you´re in the game. Keep your eyes on gaining traction at ANY point in time and fixing your weakest links in the chain, keep making your product better, keep investing in marketing and sales, and keep making sure your customers don´t just perceive your offering as superior, but are also willing to pay for it.
And here is the best part: Size works both ways. Don´t envy your main incumbent competitor for its size, history, and its marketing war chest. Instead, feel sorry for them because of their red tape, their multi-year distribution agreements, their rigid SAP set-up, and their super diligent legal department. Being one small step ahead of every step of the way is just enough to have them chasing a ghost. Or as one friend once told me: Big fishes eat small fishes. But not fast fishes.