It’s a common refrain amongst successful entrepreneurs that had they known how difficult the journey would be, they might never have embarked upon it. And it’s usually said to help embolden those starting out on their own journey. Although many of an entrepreneur’s best life lessons are probably learned from making mistakes, that does not mean expensive errors should be embraced.
Spotting problems early and better understanding the challenges ahead are crucial in staying on track and limiting the cost and consequences when things don’t turn out as planned. 42 Technology has helped many start-ups to develop their first products and has seen them frequently confronting similar challenges on the way. This article considers seven of the most common pitfalls with suggestions for avoiding them.
Failing to balance MVP with the longer term
Today’s entrepreneurial best practice is focused on developing a Minimum Viable Product (MVP) that can be sold to a small group of price-insensitive early adopters, who are desperate for the product. MVP is an invaluable philosophy for de-risking a project as it forces a focus on a genuine ‘pain point’ and helps to create first generation products, delivering early revenues. But it does not provide a robust business case for the longer term.
Early adopters might have niche requirements, different from the mass-market, and can be a distraction for entrepreneurs, leading to product over-complication. MVP should therefore be coupled to an evolving view of how the market requirements will differ when sales are ten (or a thousand) times higher.
Failing to understand how market structures affect sales
Apocryphal or not, the phrase ‘Build a better mousetrap and the world will beat a path to your door’ may be some of the worst possible advice to the budding product developer.
Even the most promising new products can fail to sell as expected if they are presented in a way that is impossible for customers to buy. For example: a paradigm-changing product in a standards-driven industry may need buy-in up and down the value chain before it will sell; larger corporations typically find it difficult to buy from SMEs; or some markets want service, while others want product. Entrepreneurs need to understand the structures of their target markets and how they can best fit into the existing value-net.
Planning an unbalanced development
Many entrepreneurs focus on the aspects of entrepreneurship they are most familiar with, assuming other areas are somehow simpler or can be tackled later.
But bringing a product to commercial success almost always involves multiple risks and challenges. A laser-like focus on one area, for example on theoretical modelling, building first prototypes or branding, will solve problems and generate interesting results but, without balanced risk reduction, the overall threat to a profitable business is likely to be dominated by the issues being ignored.
The bootstrap/equity chasm
Entrepreneurs walk a fine line between raising enough capital to progress a development, while retaining sufficient ownership to make the endeavour worthwhile. And squaring away these constraints can be particularly challenging in early funding rounds.
Securing a sufficiently high valuation when an entrepreneur might have little to show can be tough. Consequently, start-ups often have to compromise by over-promising the upside to investors or understating the total likely investment required. This ultimately harms the entrepreneur’s reputation when the team is ‘found out’ and can lead to a dreaded ‘down round’ or even prevent follow-on investments.
As an alternative, founders frequently try to advance their developments before taking investment; but without proper resources, progress can be glacial. Or, they scale down their dreams to make the pre-money process of ‘pulling themselves up by their own bootstraps’ more viable.
For some projects there is no simple way to cross this chasm and it may be better to opt for an early investor that is not focused on immediate financial return: family, friends, philanthropists, university incubators, or government.
Not identifying/managing all the uncertainties
Most entrepreneurs who have raised public funding (for example through Innovate UK) will have prepared a ‘risk register’ but in an R&D context it is usually more helpful to consider ‘uncertainties’. In other words, examining what it is that you just do not know yet.
A well-deployed uncertainty register equips the entrepreneur to pilot the optimum development route, to identify skills and experience gaps within the team, and to decide where best to focus scarce resources. The register should consider all uncertainties on the road to commercial success, including expectations on what stage of the development each uncertainty will be resolved, by whom, and how.
Failing to plan for change
Even if an entrepreneur has carefully determined their MVP and has a good idea of who will buy their product, why and how, a focus on the highest priorities can sometimes cause product features to be deferred to later product versions when, with hindsight, they would have saved time and money overall.
For example, the need for ‘over the air’ (OTA) software updates is often seen as functionality that can be deferred to help save short-term development cost. However, incorporating the flexibility of an OTA update capability can greatly increase the resilience of the R&D programme to solve some of the (almost) inevitable unexpected behavioural issues that can occur with a system’s early firmware releases.
It is worth investing in some light-touch product roadmapping and ‘platform thinking’ to ensure the initial launch product/MVP can be evolved rather than binned for subsequent release generations.
Not thinking through production ramp‐up
Most developments follow a progressive scale-up in production volumes: from a handful of prototype units through to higher volume manufacturing.
The bill of materials cost is usually relatively unimportant when the mission is to build a single proof of concept unit, but it becomes critical when you want to sell a million units for $20 each. Most design for manufacture stages tend to focus on manufacturing larger volumes at the lowest possible marginal cost, with the tooling investment spread across high volume production. But the budgets required either for a fully tooled product or to scale up the processes used for prototype manufacturing are likely to be prohibitive at the intermediate volumes needed for field trials or year one production. If the business plan calls for a few hundred or thousand units at reasonable cost, then this needs to be carefully planned and budgeted for.
We hope the ideas discussed above will be useful and will help even the more experienced entrepreneur to navigate around the inevitable hurdles and roadblocks on their road to commercial success. Good luck!