Early sales are not enough for start-up tech companies to achieve long-term success, according to Lea Strickland, the founder of Technovation Entrepreneur. Tech start-ups must bridge the gap between early adopters of their technology and mainstream players, who typically desire ease of adoption, lower costs and strong value. See the following article from The Street for more on this.
Start-up technology firms often fail because they consider the first commercial milestone — paying customers — a determinant of long-term success. The actual sale to a prospect that is enthusiastic about a new technology is an incredible (and credibility-building) event, but it is not a signal mainstream customers are ready to adopt a technology. Think about the Sony(SNE) Betamax, which had early sales and some adoption in the marketplace but was beaten by the VHS standard.
Encountering The Gap
The real revenue stream for most innovative technology firms resembles Morse code. There’s an initial singular sale … dot. Then nothing. Work a little more, achieve another sale and maybe a few more … dot, dash, dot. Then, before you know it … nothing.
Traditional wisdom says the lack of sales after winning an initial group of customers is attributable to the failure — the laziness or incompetence — of the sales and marketing team. If they knew what they were doing, the story goes, customers would be buying.
Reality check: Innovative technologies rarely, if ever, experience continuous sales growth after initial sales. In fact, reliance on those first sales as indicators of the market will result in a sales pattern that resembles dot dot dot, dash dash dash, dot dot dot … SOS. A high-tech company and its investors counting on a continuous sales stream can often be doomed by their own “success.”
High-tech, innovative products typically attract other techies, early adopters and innovators willing to put up with the bugs, learning curve and investment (in time and money) required to adopt them. These groups want to be cutting-edge and ahead of the mainstream adoption curve. As a high-tech startup, if you are lucky, you’ll connect with an early adopter (hopefully with big project dollars) who can make, or at least influence, the direction of his company to try or pilot your technology. These tech explorers can lay the foundation for a market entry, but they are more valued for their ability to debug, pilot and understand a product in the real world than they are as a sales barometer.
Building A Bridge
While techies can talk up a start-up’s innovation and products to peers and others in their sphere of influence, they do not hold sway with the mainstream market, where the real money traditionally is made. The mainstream market requires ease of adoption, lower costs and certainty the investment will provide value. Because they want most (if not all) the risk of adoption worked out, mainstream buyers are last to the market to buy. While Apple(AAPL) is able to leap into the mainstream with its iPad and iPhone, its Newton personal digital assistant never got far beyond early adopters after its release in 1993. Despite five years of effort and improvement over the first, clumsy interface, and a decade building innovative desktop and laptop computers, Apple never overcame the Newton’s reputation as expensive and hard to use.
The gap between the first cluster of sales and mainstream buyers can be bridged by understanding the behaviors and characteristics of each group. Start-ups won’t succeed without the initial techie adopter excitement and participation, but mainstream success is only achievable when companies can take what they learn from early adopters and use that information to pave the way for mainstream users — and profitability. Where techies rave about the technology, the early majority buy on value, and a company must manage that relationship and their expectations. Improving performance and results is the bridge between the techie and mainstream decision-makers, and the alternative is falling off a cliff. Proceed with caution and your company and product may just become mainstream … eventually.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.