Aug
16
2013

Should startups be wary of disruptive technologies?

Max Firth

Martin Zwilling recently wrote in Forbes about disruptive technologies, and how – while novel concepts may displace existing technology quickly by societal standards – this “quickly” may be too slow to save initial start-ups in the space.

His view was major changes on how people do things, a societal process that used to take 20 years to complete, is now much shorter. He cites the example of smartphones, and that it took six years from the introduction of the first Apple iPhone, for smartphone acceptance to now reach 50%.

He also noted that it took seven years for Facebook to become cash flow positive.

This kind of timescale, quick by historical standards, is longer than the survival lifetime of a struggling startup. Martin said the following:

Too many of the startups I know who highlighted their disruptive technology early ultimately ran out of money and had to shut down for being “ahead of their time.” They did everything right, but the market just wasn’t ready. Sometimes this is just an excuse for other problems, but don’t forget the old investor saying: “being early is the same as being wrong.”

The challenge for any startup that introduces genuine game changing innovation is that it is not uncommon to run out of cash and backing before it can realise its potential.

Having funding in place and reliable revenue streams that bring vital cash into the business is a must (even if they are distinct from the game changing innovation). Despite the headlines, banks continue to provide a vital source of finance to businesses that are already generating cash or can back their innovations up with guarantees. There are also angel investors and investment houses prepared to back businesses with potential.

There is also a lot businesses can do themselves to make sure that they make their existing funding last. Running lean and minimising spend on non-essentials is a vital first step, and even the smallest micro-businesses can now access the tools they need to ensure they have good credit management practices in place.

When cash is at a premium it is important that businesses don’t expose themselves to customers that can’t or won’t meet their commitments, that they accurately understand how long it will take customers to pay up and to obtain real time insight into changes in the financial situation of existing customers that could jeopardise future payments.

At the same time, it is vital that small, disruptive businesses prioritise getting their propositions to those potential early adopters that will also be reliable customers. They should do everything that they can to find good potential customers, and screen problem prospects out of the equation.

Knowing whether a prospect is financially viable and reliable will help a business to understand whether to engage with them in the first place, and the most appropriate payment terms if discussions progress to a commercial relationship.

There will always be a market for genuinely game changing technology. If you’ve got great technology that will change the world (and a market to go after), make sure you concentrate your efforts on the right contacts in the right businesses. There are still plenty of them available if you do your homework.


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