Mind the gap

Most of us have stood on a crowded London tube platform and heard a disembodied voice tell us to ‘Mind the Gap’. As you battle your way to a seat, the warning becomes just another irritating background noise.

I wouldn’t generally advise culling strategy tips from experiences with public transport, but for emerging technology companies embarking on the daunting journey from start-up to global business, minding the gap has never been more critical.

The gaps early stage companies need to straddle between proving a concept, raising money, developing a commercial product, carving out a meaningful market share, and creating a global business of significant value, have never been wider.

In fact, add up all the gaps on the journey to global success and they form a formidable chasm. Former British Prime Minister Benjamin Disraeli once warned: “The most dangerous strategy is to jump a chasm in two leaps.” He spoke wisely.

Helping companies to bridge that chasm in a systematic way is one of the most under-recognised but most valuable roles venture capital firms can perform.

Geoffrey Moore’s book ‘Crossing The Chasm’ contains the broad premise that any new technology is quickly acquired by innovators and early adopters, but there is a chasm to cross in order to get the more pragmatic and risk-averse majority to adopt it.

Early stage companies struggle to achieve widespread adoption of their products or services and many testify to the difficulty of getting a foot in the door of potential multinational customers.

Yet, in many cases (though not all) the development costs of a product can only be recovered if major corporates purchase or endorse the goods or services. Venture capital-backed companies need to do much more than recover costs to achieve their objectives.

Venture capital firms are highly motivated to help companies succeed. That involves much more than just money, although securing sufficient funding to sustain a business through different development stages is vital.

Too often the venture capital/entrepreneur relationship is portrayed as adversarial in nature. At SEP, we have never related to that and have always tried to adopt a collaborative, hands-on approach to our investments.

But tune in to the BBC’s TV show Dragon’s Den and you get a crude impression of an investment world populated by egomaniacs with thick wads of cash and an endless supply of withering putdowns. (Although admittedly, Dragon’s Den’s propensity to attract funding requests for the wackiest of ideas might try the patience of even the most good-natured investor.)

Working closely with portfolio companies to develop a route map to global success is something we take very seriously.

Directions vary depending on the sector a business is targeting or the development stage it has reached but tapping into a venture capital firm’s network is a crucial part of the equation. The ability to pick up a phone to a key contact in a major corporate can open doors to product trials, sales leads, or even result in recommendations for recruiting non-executives with the right expertise.

A common mistake made by technology entrepreneurs is to over-estimate the difficulty of getting their technology right and to under-estimate the difficulty of marketing and selling it effectively.

Succeeding in the latter requires a solid grasp of channels to market. This might mean initial sales efforts are focused on resellers or signing up second-tier customers, which could lead to a later sales to top-tier customers.

It is invariably very difficult to gain a foothold in a major corporation. Senior corporate executives are often unwilling to risk their company’s reputation (or indeed their own personal reputation) by championing a new product created by a start-up.

Sometimes the answer is to strengthen your proposition by partnering with a trusted existing supplier or by allying with a company whose products or services complement your own. At SEP, many of our portfolio companies have done precisely that, and to great effect.

The journey to global success is inevitably a fraught one and sometimes entrepreneurs feel they have been dealt the ‘Do Not Pass Go’ card one too many times. But venture capital expertise and commitment has a vital part to play in helping ambitious emerging technology companies to bridge the gaps and to reach their destination.