I once spent a fortnight in Silicon Valley being trained in strategic planning. It was a fantastic experience. We spent the first week in groups trying to invent new products and industries, a motley crew of scientists, financiers and creatives.
In the midst of the workshops, a very opinionated participant from Miami told us – not once, but twice – that there were many modern technical inventions that no one had ever asked for – the minivan and the fax machine for starters.
Within minutes one irritated Canadian delegate had found the same unsupported assertion repeated on the Internet (AltaVista was really fast in the ’90s). The second time Mr. Miami made the claim a Swedish delegate rolled her eyes in despair and suggested he shut up.
I never did find out if anyone had actually asked for a minivan or a fax machine, but I suspect they did. Looking back it seems like one of those glib consultant anecdotes that die by repetition: Think about who moved your cheese or the one about boiling frogs.
This incident came to mind as I considered one of the key questions faced by any startup: Does the customer actually want the product?
It seems an obvious question, but most of us who have been involved with tech startups can share anecdotes that demonstrate the weakness of some people’s product development or market understanding.
A decade ago I advised a design company that had burned through $16 million of investors’ capital before discovering its real market was 5,000 miles away and in a completely different sector. At one stage, when confronted with budget cuts, its senior managers – all engineers – had cut back the marketing resources, as they carried on developing a product targeted at a market that didn’t want it.
Kevin Dorren, a great Scottish entrepreneur and founder of the successful U.K. food-to-home service Dietchef, confessed recently that Orbital Software – a knowledge management software company he led to an IPO back in autumn 2000 – didn’t really know what its customers wanted.
“We tried to sell it to too many different people, and every time we did so, someone would come up with a different requirement and we’d have to customize the product to suit their needs,” Dorren told a publication produced by a Dietchef investor, Piper Private Equity. “In the end we didn’t have a product but a toolkit that could do lots of different things, but didn’t do one thing really well.”
Dorren applied the lessons from that experience to Dietchef, pre-launch. His team targeted specific types of customers, and invited them to focus groups. Pre-launch planning lasted more than a year.
The point of all this is that – more than ever – startups need to demonstrate far more market appetite than ever before. Investors are more impressed by market research, endorsements, the makeup of the team, and so on, rather than the near-obligatory financial plan that predicts entering profit – miraculously! – by month 36.
Tech entrepreneurs are finding it’s not enough to buy the latest edition of Crossing the Chasm to carry into fundraising pitches: they might be expected to have read it, too.
Investors want to see some numbers, preferably actual sales rather than hopeful forecasts.
This applies to every sector. For the last decade or two, most of us have been taken up with tech only: Software, Web and now mobile apps. But of course many startups are businesses that take advantage of the digital age, rather than being necessarily “digital” themselves.
An example might be Dietchef. An idea that originated in California, this is an online diet service that designs menus for its clients – and then has them delivered. The company has expanded from the U.K .into continental Europe.
So is Dietchef a tech company? No. Is it a food company, a diet or health consultancy? No. It’s all of these things. And it’s succeeding because its founder learned from the mistakes of his previous life, selling a software product with features that kept changing according to the latest client fad.
Next month in Scotland, the final of something called the Scottish Edge takes place in Glasgow. Twenty startup companies are pitching for their share of prize packages worth up to £50,000.
As I scan the list of finalists, fewer than half appear to be “tech” businesses. But I’m willing to bet that every one of them will be using tech to reach their clients. Another chasm crossed, no doubt.
Image: Team Altman
Maurice Smith is a journalist, consultant and entrepreneur based in Glasgow, Scotland.