The biggest challenge for truly disruptive technology companies is how to fund their market adoption. “Do we bootstrap it or do we raise funding?” I admit it was much easier almost 15 years ago when I was raising money in the dot-com era. There was a lot of investments getting done on concept, but not anymore. Rule of thumb these days seems to be that entrapenuers are responsible for design and prototype, while angel investors fund on proof-of-concept and early market validation. Series A seems to be primarily for funding adoption. Now, there are always exception to the rule; either the founder has prior experience , the technology is sufficiently complex and expensive, or there is sufficient differentiation to drive displacement within an existing market sufficient to reduce risk for the investors that they will fund earlier. But, for most early stage technology companies, funding is tied to business performance. In reality, the management team needs to plan for bootstrapped growth to survive until you thrive.
It has been surprising to me to see how many technology companies that still believe that investors generally invest in your technology innovation. It is even more surprising to find how many of those same companies think their buyers do the same. When we talk to the investors and the buyers, the conversation is about adoption; investors are focused on how to drive market adoption, buyers are focused on their problem adoption. The key to understanding how to help the business grow, solve the buyers problem, and mitigate the investors risk is simply understanding the inverse relationship between disruptive technologies and adoption. The more disruptive the technology, the harder the adoption. The harder the adoption, the more risky to buy for the buyer and the investor. The harder it is to buy and invest, the harder it is for the business to survive, let alone thrive, and reach wealth creation for the founders.
So here are my Top 5 Myths /Misconceptions for Disruptive Technology Companies
1. Market Adoption Takes 18-36 Months – Look, the reality is that new markets don’t just form. They are expensive to build. Truly new concepts are even harder. In reality, markets are an aggregation of buyers. Markets for when a critical mass of buyers starts to use the same language to self-identify with a a category. After a while, new buyers will use that language to find the category and the vendors in that category. The misconception is that it takes a long time to build a critical mass of buyers. It takes a long time for the buyers to ADOPT your solution language, but they are discussing business problems today. Investors look for short-cuts that lower their investment costs in building the market. That is why they look for sales relationships, OEM deals, ready made buyer relationships, competitors who have already invested in building the category, etc. Anything to shorten the time it takes to get in front of the buyers and get the critical mass of sales. They know it is expensive to pioneer a market.
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