Lessons I learned while raising 10 million $ in venture capital
"Yes, quality REALLY is secondary"
In my career, I raised more than 10 million $ in venture capital for my own ventures. These days, I’m an angel investor in and mentor to a few startups. These experiences have helped me see where many new business ventures go astray when trying to market innovative products and services. After all, history is littered with “amazing innovations” that simply couldn’t find an audience to amaze.
I can simply point to my own experiences: I’ve been involved in the development and marketing of IT products and services for many years, for instance in 2004 I co-founded Nomadesk (“Secure Business Filesharing)” and in 2010 Carambla (“The Smart Marketplace for Parking”).
Both companies develop(ed) innovations with value-propositions that I thought were so powerful, new users would simply flock in once they were launched.
Yeah. Well. While Nomadesk and Carambla are gaining traction today, they were not the “instant” success we all thought they would be. In fact, I discovered that, regardless of how disruptively innovative the product, real success is actually the result of a lot of “heavy lifting.”
Following are three important lessons I learned that may help you strengthen your entrepreneurial muscles and better push your amazing idea into the winner’s circle.
1. Quality is secondary
Many European innovators have a tendency to prioritize product quality over product marketing. This is quite different from our US counterparts. Probably this is because in Europe, innovation is still strongly tied to the academic world, where certainty and predictability are the desired “constants”. In the US, it’s foremost that entrepreneurs run an “innovation business” rather than simply have an innovative idea. In Europe, I often see new businesses stuck with the notion that – in the end – quality will prevail and in order to achieve success, they need to launch products at a highest quality level, even worse, with the richest feature set.
In a perfect world of unlimited resources and time, this may be true. But, in today’s real world of global competition and increasing market demands, an innovator must always ask: “Do I have the resources (i.e., time, money, people, etc.) to get to that end before I start?!” In the world of business innovation and development, there must be compromise. In the trade-off between product perfection and time-to-market, quality must come second.
Don’t get me wrong: quality matters. Every innovation needs to fulfill a baseline of functionality, and it must do this in a predictable and dependable way. No one wants to build (or buy) a crappy product.
But there’s a huge difference between “downright crap” and “highest feature-rich quality”. Unless you are working in a quality-regulated industry like healthcare or aviation, quality is NOT the most important requirement for a successful product launch. The software industry is the best example of this notion. Every user knows (maybe even expects) that the latest software release will have some (non-fatal) bugs. What the software needs to do, for the client, is to deliver benefits that outweigh the risk.
So, if quality is still engraved into your brain as “Job #1”, consider refocusing your efforts at high-quality marketing rather than production. Take the time to really get to know the proverbial “pain” your innovation cures. Find out who is suffering, and how many there are, as quickly as possible. The secret is engaging in rapid prototyping to perform relevant market research on the targeted end-users. With the omnipresence of the Internet, it has never been easier to do this kind of active market research, especially if you are a software-based product.
Both Nomadesk and Carambla continuously build updated versions of our their respective software and test them on a live audience. I never cease to be amazed by how receptive and responsive our early adopter testers are. With the proper tracking systems installed (and a close eye on Twitter and Facebook), the results of such “beta-trials” are sheer marketing gold.
To summarize, lowering your priority on the quality does not imply that you should launch a crappy product. For your marketing research to be of most use, even beta- test prototypes definitely must cure the basic pain but without overwhelming side effects! Constructing innovations in close collaboration with your ultimate end-users ensures that if you build it they will stay… and even spread the word before the products is even finished!
2. Innovation is not like banking: DON’T HEDGE YOUR BETS!
If you are serious about successfully launching an innovative product or service into the market place, never hedge your go-to-market-strategy. It is very tempting to pursue a conservative business strategy that includes every direct and indirect market channel, or all possible customer profiles (i.e., consumer, “prosumer,” small business, enterprise). I understand why this is: you simply don’t know which strategy is best – after all, business in not exact science and your innovation might not have a comparable benchmark product out there which could set the example.
And you might be convinced to go along the multi-channel road by your investors (they are probably bankers; and you should expect them to act accordingly). Still, when it comes down to launching innovations, it’s not a banker’s business. But hard- learned experience has taught me that hedging does not mitigate your business risk. On the contrary, it often creates more risk by reducing your effectiveness.
Suppose you opt for a multichannel approach. It’s clear that each channel imposes specific operational, financial and marketing demands. In most cases, the innovator is ill-equipped to meet all these demands. What seemed a good hedge quickly turns into a juggling act with too many balls. The end result is all of the balls hitting the floor!
With respect to the choice of the target customer profile, hedging is even more dramatic. Product innovations cannot be all things to all people. Communicating ambiguous messages into the market place will never be successful. From a sales process perspective, it’s also unfeasible because of the ways purchase decisions are made, which differ greatly between customer profiles. There’s a reason why niche strategies are often more successful.
3. Be opportunistic and FOLLOW THE MONEY!
It is amazing how innovators, especially from the engineering disciplines – such as me – can get really entrenched by their original product vision. It’s not always easy to keep an open mind, even when confronted with the results of market research that sometimes takes your innovation onto an entirely different road.
Therefore, be opportunistic and always understand that we build innovations to a useful purpose, which may differ from what we originally envisaged. With this mind- set, you will be in good company: after inventing the phonograph, Thomas Edison believed its primary application was dictating business letters. Alexander Graham Bell viewed the telephone as a news and entertainment medium, with subscribers dialing in for access. And correct me if I’m wrong, but Viagra is no longer a cure for heart diseases right? I think it’s clear that these innovations went somewhat astray… to far greener pastures.
Photo: Flickr, robertluna3
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