Watch out for this common startup trap
In this lecture, Richard Caro talks about why so many promising early stage technology development projects get trapped in the Valley of Death.
The focus is on:
- how to avoid this trap, and
- how to escape from the Valley of Death if you fall into it.
Avoiding the Valley of Death
This lecture is also available on DVD (for “lean back” viewing).
About the lecture
This is a live recording (including slides) of a lecture given in April, 2008 to an audience of entrepreneurs in Melbourne, Australia, organized by the Small Technologies Cluster. Most of the principles in this lecture are still extremely relevant today.
All too often, promising technology development projects languish for years in limbo after they move beyond the initial research stage. There is even a name for this: the Valley of Death, which projects need to cross before attracting startup funding, or development partners. These projects are too far along to get funding from “research” sources, but are unable to negotiate partnership or licensing arrangements with large companies, or attract investors, because they are perceived as “too early”.
Some believe that the Valley of Death is an unavoidable feature of the landscape, or that it exists because of flaws in the way investors think. We think of it as more analogous to a sand trap in golf. It certainly exists, and falling into it is bad. However it can be avoided all together with careful planning and good execution. Even if you fall into it, you can get out if you know how.
To cross the Valley of Death one must “bridge” two cultures. Moving a technology project past the Valley of Death is at its heart about building a bridge between two very different world views. A project languishes in the Valley of Death when this bridge is not in place.
On one side are the technologists who developed the project to the point where it appears “promising”, and with “commercial potential”. Frequently they see the objective as commercializing the technology.
On the other side are managers within companies that are potential development partners or licensees, and investors who might wish to invest in the future of the project. For this group, the objective is to build a business, and realize an investment return.
Describe the business
The bridge between these two world views is a clearly articulated description of the business that can be created if the project moves forward. It should include answers to questions like the following.
- What product will the business sell?
- Who will the customers be?
- Why will they want the product?
- What are the competitors doing?
- How will the core technology give us a sustainable competitive advantage?
Creating the “bridge” is often neglected
We frequently see projects, or new ventures, where the team trying to commercialize the technology has not articulated the potential business in all its details. Sometimes they don’t feel the need to do this, thinking that it is really the “partner’s” job. Sometimes they just do not know how. And sometimes, they simply lack bandwidth to think through the myriad of complex issues that need to be resolved.
On the other hand, potential partners and investors rarely see it as their job to figure out what the business is going to look like, and their response is often “Hm, … looks interesting…. but it’s too early”. Meaning, “the technology looks interesting, but until we understand what the business would look like we can’t decide whether or not it sounds like an attractive business proposition”.