Here are 3 lessons I learned over the past 5 years from running a technology first product startup (our use case was motion recognition software for accelerometer and gyroscope sensors — we did not have a specific use case which was the core lesson learned!):
- Have a use case for your technology first and prove the market
- Big company partners love to play the slow game – integration and licensing takes 3x as long as you anticipate
- Proof of Concepts Revenue is not licensing revenue
First Provide a Use Case For a Specific Market
In any startup even at the Series B stage requires surgical precision with focus on their use case. Startups have trouble enough getting people to try out a product let alone pay for it!
A technology without product market fit use case needs a couple of things to succeed and even then focus is what lets real tangible results become possible:
- 5-10 year R&D runway (yikes so unless this is your 3/4th venture going to be extremely difficult to have that kind of capital available to you)
- Proof point that people would be willing to pay for it in the future (pre-order campaigns and kickstarters have done wonders here – unfortunately the products delivered consistently under-deliver to the promise made)
- Managed expectations of the customer – if the technology is new expect flaws – as an early adopter the product is more likely to break than work (part of the fun for many people though)!
Big Company Customers Move 3x Slower than You Want
Even for the most novel technologies the timeline to sell into a large company takes 3x longer than initially expected.
One partner we worked the relationship started in winter 2015 and only started having serious licensing conversations in fall 2017 – 18 months for a startup is a life time (make sure you have the capital in the bank to survive)!
Proof of Concepts Do Not Mean Licensing Revenue
Proof of concepts are a way to show some progress from a potential large customer in the aim of capturing licensing or reoccurring revenue:
Getting them to pay the licensing revenue is ~10x harder than you might expect
A proof of concept is essentially a consulting project for your large customer – translating that into reoccurring revenue is extremely difficult!
Here are a few quick tips:
- Don’t do any work for free — even for customers that are amazing brands to put on your customer list – if they are not willing to pay some $dollars for your product they you need to refine your product offering or find a different customer
- Move up the decision purchasing chain as quickly as possible – ask your contact if they have buying power and if not ask to be introduced into the person in their organization who does or what proof points are needed to speak to that person
- Make the scope of your first deal as focused and simple as possible e.g. support implementation for 25 test users for 1 feature – let the business you are working with define the success criteria for the feature and user scope subset — all of the revenue that I brought in during our life was super focused on a specific problem for a narrow number of test users our customer was having which we were applying our technology to
Once you have a sales and engineering flow that is reproducible optimize and repeat as quickly as possible!