New tech ventures face many hurdles, not least, access to affordable capital. Regardless of whether you are a startup or a spinout tech venture, if you are trying to convert know-how into a monetised digital solution, to solve a compelling health problem, then there is a better way: be customer-funded alongside pursuit of raising angel, venture or industrial capital.
The Power of Networking
I work within a global network of like-minded entrepreneurs and enterprises, where new ideas are actively encouraged and embraced. This provides startups with a way to rapidly validate new tech products and services.
The notion of The Lean Startup has been much discussed, since Eric Ries wrote the book in 2011. I think that what many digital entrepreneurs and tech startups are hindered by is making the assumption about needing to have at least a 'Minimum Viable Product (MVP)' in a complete state, before engaging with would-be, target 'Early Adopter Customers'. This blog post challenges this assumption!
The best investors in a startup or spinout venture are customers. They rarely, if ever, take equity in your firm, they don't sit on your Board telling you what to do - but they do have the ultimate vote in whether your 'Value Proposition' truly meets their needs, or not. They are voting with their money (and sometimes their careers) in becoming paying Early Adopter Customers.
However, it is equally important to avoid being a 'lone wolf' or thinking that you can achieve global (or even local) dominance in digital health and social care or bioscience, by operating as a 'lifestyle company'. Investors are key to scaling a business - but the trick is timing. So, whatever a startup does, winning paying early adopter customers is key.
Firstly, lets look at the barriers - or perceived barriers - to enabling a startup or spinout tech venture to be truly customer-funded, with say, an ultra-conservative organisation, such as the UK NHS:
- Cost and time to create a Minimum Viable Product (MVP).
- Willingness of customers to invest in products ahead of completeness.
- Placing trust in new, unknown brands and little understood products.
Identifying Early Adopter Customers
Startup or spinout tech ventures need users or other participating stakeholders in any digital innovation process to be truly responsive - e.g. Design Thinking. So, from a psychographic profile perspective, what characterises the ideal Early Adopter Customer?
At a human level this cultural trait of the Early Adopter Customer can be identified and measured by what psychologists call a 'Need For Cognition (NFC)': a personality variable reflecting the extent to which individuals are inclined towards 'effortful cognitive activities'.
Stakeholders who are inclined towards 'effortful cognitive activities' means people who like problem-solving, who embrace challenges - and who ask, and respond to insightful questions. Need For Cognition (NFC) is also related to openness and conscientiousness (Sadowski & Cogburn, 1997). This reflects both openness - a curiosity and tolerance of new ideas - and conscientiousness - a willingness to engage in effortful thought (Verplanken, Hazenberg & Palenewen, 1992).
So, how can you identify Early Adopter Customers, using everyday social media and email marketing tools? The answer is to provoke responses from target business or consumer decision-makers who are inherently inclined towards these 'effortful cognitive activities': people who ask and respond to insightful questions, as defined above.
In practice, Early Adopter Customers are those empowered, motivated people who recognise the problem you are solving, and who, beyond agreeing with your approach, are motivated to make a timely move towards taking up your 'call to action'. This is where Early Adopter Customers can engage at the earliest stages of a startup - not waiting for the 'Beta' test. Making Early Adopter Customers part of the design and development process also means adopting the best practices related to Design Thinking.
Your Startup Checklist
Here is my Startup Checklist: some very simple but tough questions that venture capital, angel or industry investors have asked me or my clients over the years. This applies with, or without Early Adopter Customer funding for any startup or spinout tech venture.
Can you describe your opportunity in one sentence – or, at most, in one paragraph?
Ability to Execute
Is your ability to execute feasible for an unknown small start-up?
Intellectual Property Assets
What are your sustainable intellectual property (IP) assets in the face of hyper-competition that characterises all technology markets? No patent or solid copyright = no sustainable IP.
Do you have one or more real pre-committed or actual customers? No customer(s) = no investment.
Sustainable Competitive Advantage
How are you going to effectively compete with incumbents and new entrants?What is the source and long-term sustainability of the company’s differentiation?
Meaningful Value Proposition
What is the serious problem your company is trying to solve?What evidence is there to suggest that there is a compelling need for your value proposition?What value would customers attribute to this problem?What bad things happen if the customer delays or declines a buying decision?Why is no one else offering this solution?Who are the key competitors – current and future?
Return on Investment
What is the clear path, timeline and the return for the (customer as) investor?When does the company become profitable?What size will the burnrate be until profitability?How long is the buying and selling cycle?
Culture and Values
How many hours per week do the founders put in to the business?How will the company conserve cash and get all of its employees to think like owners?What compensation packages does the company intend to offer employees?Are the incentives of key executives, founders and (customers as) investors aligned?What essential elements define the company’s culture?How is the company vision clearly communicated to and understood by all employees?Are the right employees located in the same place as each other?What percentage of the investment goes towards executive team salaries?
What can go wrong and how will you survive it?What alternatives are available to the company if a major risk materialises?Which of these risks could be fatal to the business?What alliances could help the company mitigate risks?
Sales and Marketing
Do you have an experienced sales and marketing player in your leadership team?How do you compensate the sales organisation?