Growth Times

My friend Fred Sweeney of VG Partners pointed me to this interesting call for help by the biotech industry in Canada, whose start-ups are finding it difficult to raise money to survive, let alone thrive. In these times of hardships, the ventures with the least obvious path to commercialization and revenue are the ones who suffer first and most. Given the lengthy development cycles and uncertain payout, biotech ventures evidently stand at the frontline of the crisis.

What all that shows is that a start-up should at all times be able to articulate the revenue model it is proposing to pursue. It should tie all its current efforts to this model, or “reverse-engineer revenue” as per the expression I coined at GrowthRoute. Doing just that provide three benefits: one, you stand in first row against competing start-ups when comes the time for VCs to hand out cash; two, keeping your eyes on the prize helps you identify where to focus your efforts today, and better allocate your current resources; three, spending some time thinking about how you will make money could point to nearer-term sources of revenue you may not have thought of.

Without a destination and a map to get there, you can have a tight ship and yet run it in circles. Better to never count on the government to get you back on track.

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Jacqui Murphy of Tech Capital wrote a fascinating blog post today, listing the top resources any venture in Canada should be aware and possibly take advantage of in this downturn economy. Quote:

1. There is amazing talent on the street right now. Many of these folks have received severance packages and are approaching the job market with “flexibility” in mind. Reach out to these people and engage with them as advisors, employees who are interested in working for equity, and/or potential co-founders/partners.
2. Map your industry ecosystem, identify strategic partners and customers, prioritize them, and use FREE social media tools (LinkedIn, Twitter) to reach out, ask for introductions, and ask for help — shorten your path to market any way you can.
3. Attend the “unconferences” (StartupCamp, BarCamp, DemoCamp, mesh) to meet people like you who are wanting to roll up their sleeves and help others (and themselves) build companies with limited resources. These entrepreneurs are not waiting around for venture capital, they are building in the absence of financing with customers, value propositions, revenue and profits in mind.
4. Look to existing government programs for support. Make sure you are filing for SR&ED Credits and applying for the Ontario Interactive Digital Media Tax Credit. Introduce yourself to your local IRAP and OCE representatives to see if they have any programs you might qualify for.
5. Reach out to MaRS, Communitech, and OCRI and hook in to their Entrepreneur-In-Residence programs. These organizations are very knowledgeable about tools that are available to entrepreneurs and they know how to efficiently access a number of government programs.
6. Check out the Microsoft BizSpark program for free development resources and support.

Tech Capital Partners Blog, Feb 2009

You should read the whole article.

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Great entry by Jon Worren on Why the chasm still exists, on the blog of Toronto’s innovation hub MaRS. Nicely complements the last post on this blog.

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What do the Wii, iPod, iPhone, netbooks, Facebook, Rockband, and Twitter have in common?

All of the technology these blockbusters required was available before they were conceived. None of them hinged on any technological breakthrough. What Apple, Nintendo or Asus did was taking clues from the market and reassembling technological bits into one coherent solution for users. And not just coherent, but also simple and easy to articulate. The Wii? A video game console designed to maximize fun for friends and families. The netbook? A lightweight computer that fits in a handbag and lets you surf the web. The iPod? A simple music player that integrates nicely with an intuitive music store.

By reverse-engineering actual user needs, these companies opened up a vast market for people who don’t care about technology, don’t want to see technology, or hear about technology, and only want something that does the job. For the Wii, that would be a video game device that’s fun, entertaining, with a lightning fast learning curve.

It’s worth repeating: customers don’t buy technologies. They buy solutions. That’s even true of B2B customers. If your technology does not fill a specific need in the market, you might get funding for a pilot project, you might even get VC money (many venture capitalists used to be CTOs), but you won’t get replicable, exponential market success. That’s why it is worth wrapping a research effort around a user need that can drive market success.

Market success and competitive differentiation can come from a number of sources, and technology is only one of them. Peter Drucker talked about that extensively in his book Innovation and Entrepreneurship, detailing other systematic sources of successful innovation such as changes in demographics or perception. Drucker offered commercial banking and health insurance as examples. We can lengthen the list at will: in addition to the iPod and the other examples I provided above, take McDonalds, car sharing, or Lego. Technology often is an enabler, but rarely is it the only one, and rarely is it adopted in the market without some significant transformation.

As such, the concentration of human resources into technology, which I witness at a number of start-ups, strikes me as vastly unbalanced, and almost certainly throttling the potential of innovation. The existing venture ecosystem, especially in Canada where I live, reinforces this bias by funding and rewarding technology-driven innovation much more than the other forms of innovation, be it through government R&D grant and tax incentives, commercialization programs and technology-obsessed VCs, or ultimately the self-perpetuating cycle of market-myopic entrepreneurs breeding another cohort of market-myopic entrepreneurs, supported by investors just because that’s the way it’s always been and where the government and VC money goes.

The power is in the last mile. If you’ve figured out how your technology will help someone with something, it is worth a hundred times what it was before you did. Make it a million times more if you figured out how to monetize it as well. That’s why the Apple, Nintendo, or Harmonix (the creators of Rockband – check out this video in which they explain how they centered their development around the idea on togetherness rather than just music creation) of the world focus first on defining that market need. The others focus on developing a technology and then figuring out what to do with it. That succeeds too, at about the same rate one hits the jackpot on a slot machine*.

* unless a government program and/or a VC blinded by their unconditional love for technology bails you out, of course.

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