An Indecent Proposal – Why pure Commission Based Remuneration won’t work

Time and again we come across start-ups that expect us to do their business development and sales on a pure commission basis. Here is why this won’t work.

There are literally thousands of high-tech starts ups all over the world. But how many of them manage to survive and become successful? In the US, 90% of high-tech start-ups are failures, and it is fair to assume that this figure also applies to other countries. The reasons for failure are manifold: wrong product, wrong target group, wrong business model, wrong timing, wrong team, or a combination of all these.

Everybody seems to be aware of these statistics – except start-ups. Now, it is of course understandable that a founder believes in his own innovation and its success. Otherwise he wouldn’t get started in the first place.

But start-ups need to take a step back and look at things from an external perspective. And from that perspective, there is a 90% chance that the start-up will fail – even if everybody involved believes in the concept of that particular innovation.

Therefore, expecting someone else, who has no stake in the start-up, to do business development and sales purely on commission basis, is expecting someone to work for free with a likelihood of 90%. I call that an indecent proposal.

It seems amazing that in the year 2015 it is still necessary to explain the importance of a professional and structured market development – and that it doesn’t come for free. But I could give numerous examples of start-ups that failed because of exactly this misconception. And that is not only a pity – it is totally unnecessary!

Involving a professional business development specialist will cost money – but it will drastically increase the start-up’s chance of survival and success.

Who is more important – me or me?

As an entrepreneur with a start-up, you have to wear multiple hats: technology and product development on the one hand, marketing and sales on the other (and don’t forget tax and book keeping!).

Many start-ups have a strong focus on the development of a technology. And this makes absolute sense. Without a product you got nothing to offer.

However, with time the focus has to also include marketing and sales. Questions like “What will I offer to whom at what price?” have to be answered before approaching the market.

Many will think we are stating the obvious. But we have encountered simply too many start-ups that think that once the development work is done, customers will come by themselves and produce a flood of orders. Unfortunately, this happens very rarely.

Most of the time, a lot of sweat will be required to position a product in the market – no matter how brilliant it is. And many times, at the end of the technical product development, all the initial funds have been used up and nothing is left for professional marketing and sales.

Therefore it is a good idea to set some business development funding aside right from the start, keeping in mind that the first sales cycles will be very long and require quite some financial endurance on the part of the start-up. Very often more than the technician in you might expect!


Government Support for Start-ups – a reality check

Most governments are intent on helping start-ups off the ground and foster entrepreneurship. They create agencies, committees, funds, incubators – creativity abounds!

These institutions receive funding and lots of verbal shoulder clapping. But the road to hell is paved with good intentions!

The money drip provided by the government becomes a drug and the main “raison d’être” for many institutions. Instead of helping entrepreneurs, they spend most of their time (and resources) with political trench fighting.

And when a start-up from their community does succeed commercially, there are immediately half a dozen proud fathers (i.e. government institutions) coming out, claiming responsibility for that success.

We are not denying the need of support to entrepreneurs. Quite to the contrary! But we have to question the feasibility of “too many cooks in the kitchen”.

Sometimes less is indeed more!

Speed kills – so does delay

As much as one has to appreciate the urge of innovators to deliver a perfect product to the market – perfection can also kill an innovation. We all know the 80/20 rule (or Pareto principle) that the last 20% of a project will cost the most time and resources.

What therefore happens frequently is that start-ups get stuck in last, final details and loose precious time to go to market. Chances are that a similar technical development is already being worked on somewhere else in the world, because this is what happens when the time is ripe for a technology. If this competitor is faster, convinced that “80% is good enough”, then this gives them an advantage over others, who get bogged down by details.

Another factor that tends to cost start-ups their success, is the naïve belief that marketing and sales can be done “somehow on the side”. Especially engineering driven start-ups tend to think like that. It is always a painful for them lesson to find out that having a good technology is only one condition for success – taking it to the market in a professional way is the other one.
We have seen many examples of start-ups failing, because they spend too much time with technical detail, and are ignorant about the challenges of actually taking products to market. R&D is definitely a precondition of success – but so is marketing and sales.

So, if you want to maintain any technological edge that you have over your competition, make sure that you take your product to market as fast as possible. Or else don’t even bother with R&D in the first place!

Europe and the European Union (EU)

Often Europe and the EU are used as synonyms. But this is totally wrong and misleading.

Europe as a continent consists of ca. 50 countries with a total population of 740 mio.  28 of these countries, representing a population of 500 mio, are also members of the European Union.

The EU constitutes a huge single market, surpassing the US in terms of Gross Domestic Product (GDP), while having a lower debt ratio than the US.

For companies wanting to export to the EU, the single market means that once their products are within the EU, they can be moved to other EU countries without any further tax or bureaucratic hurdles.

But let us not forget the European countries that are not part of the EU! Countries like Turkey, Ukraine or Russia are huge single markets with lots of potential for smart products. So, depending on the potential of a product, it may be worthwhile to take on the bureaucratic and other challenges that doing business in these countries entails.

So, when about to start export business to Europe, make sure you weigh the pros and cons of focusing on the EU vs. the European non-EU countries.

5 Trends for 2014

A new year usually starts with lots of predictions of what is to come upon us – from summer fashion to politics and mobile handsets.

i2i wants to chime in with our 2 cents about relevant trends in the new year. Of course we will focus on topics we understand –  IT and telecommunication.

1)      Security: The NSA scandal created a lot of awareness of the vulnerability of our daily communication. Especially corporations will increase their security measures to protect themselves against industrial espionage. This offers huge potential both for vendors and service providers.

The average private users will probably not change their communication behaviour, but offerings by service providers with a focus on increased security and privacy may still be appreciated by this customer segment.

2)      Convergence of IT and telecommunication: This trend is nothing new, but considering the enormous potential, there still is a lot of potential for integration, especially in countries with outdated telecommunication infrastructure. For service providers offering services that combine IT and telecommunication (like Unified Communication) has huge growth potential, especially in the Small and Medium Enterprise market. LTE will accelerate this trend even further.

3)      Network automation: The mergers of the past, and also the emergence of new, competitive hardware vendors have led to large service providers with a fragmented hardware ecosystem. This is expensive to operate and prone to failure. Technologies that help service providers to optimize their network management and reduce operation costs will be more and more in demand.

4)      Life science meets IT: Costs for healthcare are rising everywhere. Technologies that help to reduce these costs by automating certain activities, aggregating, analysing and distributing data will be sought after by health insurances and medical institutions.

5)      Social niche communities: Facebook may be on the decline or not. But one thing is certain: Niche communities are becoming more relevant. People like to engage with likeminded, and they don’t necessarily want to do that “in public”. The same applies to brands, who want to engage with their advocates, without relinquishing all their data to the big social networks.

Of course there will be more trends than these ones, and we are not pretending to provide a finite list.

But if you happen to be active in any of the listed areas, you will be in for lots of opportunities in 2014!

Europe is (not) Europe

There is plenty of news about Europe: good, bad and irrelevant. Companies wanting to take their products to Europe should distinguish between important facts and irrelevant white noise.
Europe is very diverse. Although some countries (especially in the Mediterranean region) are encountering economic problems, many other European countries enjoy a thriving economy (e.g. Germany).
Also in terms of infrastructure, there are huge differences. The Eastern European EU members have done a lot of catching up already, but still have way to go until their infrastructure is at the same level as in Western European countries.
What does this mean for companies wanting to export to Europe?
• Is your product of interest for a fully developed market with high buying power? Then focus on Germany, UK, Scandinavia etc.
• Is your product of interest to fast growing economies, e.g. to leapfrog technological developments? Then look towards Eastern Europe.
• Does your product save cost in some way? Look at economies that are not doing so well, or that have generally a lower buying power.
Of course this is a very superficial view, but the intention is to give a rough idea of the diversity in Europe, and what it means for companies wanting to do business here.

Defining your Fundamental Business Model

One of the first steps of taking your product global is to define the offering. Will you be offering physical goods, immaterial goods, services or intellectual property (e.g. patents)?

This seems to be an almost stupid question. But when taking a closer look, the answer is not that clear-cut. Let us use the example of a (hypothetical) biochemical substance used in agriculture. Let us also assume it is a proprietary invention, protected by patents. The product is currently being produced and distributed in Canada only. As the global potential for this product is considerable, the producer intends to go global.

What fundamental business models are there to choose from?

  1. Distribution of the physical product: The producer will need to find a distribution channel and modify the packaging (depending on the target market). The logistical effort is quite high, and depending on the weight/value ratio and the shelf life of the product, shipping it overseas may not be feasible. On the positive side, the producer will stay in control of most of the value chain, which will be reflected in a high margin.
  2. Licensing the production: The producer can probably find a partner, local in the target market, which can produce the product locally. This not only saves shipping and import duties, but also makes obtaining certification easier. Usually, the local partner will also have an existing distribution network. The margin in the scenario will be lower than in scenario 1, as the producer outsources part of the value chain.
  3. Selling the patent: Certainly a drastic move, but if the buyer is a global player, selling the patent can be very profitable and relieve the producer from all headaches of going global on a big scale. Our Canadian producer might also be able to retain a license for the domestic Canadian market.

So, when thinking about going global, be open for different scenarios. What is right for your home market is not necessarily right for the rest of the world. Being flexible with your business model, will maximize your success!

Going Global? Get it right the first time!

i2i specializes in helping ICT companies take their products to the global market. Going forward, we will share some of the more interesting experiences  – but not all 😉 – in a regular blog.

After all, what use is experience, if you don’t share it?

You will be able to learn about many aspects of international sales activities, like legal, tax, macroeconomics, logistics, HR, business etiquette, market research and product positioning. Our team has decades of front line international business experience.

One by one, we will highlight opportunities and pitfalls, dos and don’ts based on our present and past global business engagements.

We hope that our blog will help you to maximize your success in the international market.

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