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[Guest Post] Three challenges that make or break any tech company
Guest post by Igor Pejic, author of Tech Money
Very excited to host Igor Pejic for a guest post in this edition of 99%tech. Igor and I know each other from the Bracken Bower Prize, where our books were both finalists (different years).
Founders are used to dealing with scarcity. There’s always a lack of funding, a lack of time, or a lack of qualified employees. One thing there is no shortage of, is advice. Advice on how to build the team, how to listen to customer feedback, how to achieve perfect product-market fit, how to scale, how to structure your equity, how to build a mindset resilient to failure. And so on. Those things are, no doubt, important to every young and growing enterprise. For tech startups, however, there are three challenges on which success hinges even more than on anything else. In fact, those challenges apply for startups in the search for seed capital, just as much as to a tech giant looking to ride the next technological wave.
I have embarked on a two-and-a-half-year journey to pinpoint what separates hyper-successful tech companies – both incumbents and newcomers – from those that fail. For my new book Tech Money I have interviewed countless leading experts and practitioners, from Silicon Valley to the White House, from finance professors to some of the most successful venture capitalists. I have also crunched numbers on technological cycles and the history of progress, analyzing thousands of databases, studies, market reports, and scientific papers. The outcome? While things like innovative power, operational excellence, and corporate culture are important, outsized success always falls to the companies that nail technological cycles. Concretely, this means three things: First, building your company on an emerging technology that will be heavily adopted and profitable. Second, hitting the right timing of capitalizing on that technology (the trickiest). And third, getting not just the product, but the packaging right.
The absolute foundation: A successful technology
Great companies are defined by great products. But what is the difference between Ford’s Model T and Sega’s Dreamcast console? Between the iPhone and Google Glass? Hyper-successful products share many characteristics, but ultimately what makes them stand out is that they ride on the back of extremely successful technologies like the conveyor belt (Model T) or the smartphone (iPhone). The Sega Dreamcast, on the other hand, flopped after two years because it had ignored the nascent DVD-standard. Google Glass failed to convince customers they should wear displays in front of their eyes because wearables failed in their attempt to dethrone smartphones. So, the primary question is not which company can provide a great product, but which companies are banking on the winning technology of tomorrow.
Let me illustrate that with a personal example. Due to my background in blockchain and digital assets, I have been working with many Web3 startups in the past. Many had brilliant developers and savvy founders. Some of them had really solid technological fundamentals (you would be surprised how many even established blockchain companies don’t). Some displayed an insane speed at adding corporate customers. They were textbook examples of blitzscalers once Mark Zuckerberg pivoted to the metaverse idea. But when the metaverse hype collapsed, all of them were doomed. Some of those companies are still around, a few are even profitable, but none of them is of any relevance on a larger scale. So, how can you tell a successful technology? Adoption. Adoption. Adoption. And I am not just referring to users, but people (or enterprises) actually paying for it. This is the foundation. As an investor, I prefer to have a real need for a technology that’s unaffordable, rather than the other way around. If the incentive for usage is high enough, a way will be found to lower the costs. Costs to launch a spacecraft fell by more than 99% within 25 years. The cost of editing a genome sequence fell from around $100 million in 2002 to under $1,000 within just 18 years and is now pushing the $100 boundary.
The trickiest part: Timing
But how to make sure that you are not building your strategy on a tech that is 20 years away from its prime time? Even for investors, catching a technology at the sweet spot (i.e. the beginning of the steep growth curve) is a science in itself. For founders and managers, it is multiple times harder. The latter have to start working on a tech years before they see how and when adoption will play out. That doesn’t mean, however, that they have to build their business solely on pure hope. There are a number of early trend indicators that give a two-, sometimes three-year advantage over those waiting for the tipping point. Many VCs and innovators obviously watch funding trends, but in my research, I found that there are more subtle signs: Activity in terms of research papers, patent applications, talent trends, and Google search uptick. You have to know how to interpret these indicators, but even then, this kind of monitoring is not an exact science. None of the early trend indicators is. And none of those indicators should be the sole basis of an investment decision. Sometimes those metrics might even contradict each other. However, if you see multiple of them pointing in the same direction, something is going on.
Hitting that right time window means you are the first one to pick the low-hanging fruits in a market nobody saw coming. One of the conversations I had that still resonates with me was the one with Alex Lazarow, the Managing Partner Fluent Ventures. He summed it up perfectly:
“You have a hint that the timing might be right, when there is a big shift in the technology. For instance, it was really hard to have a digital bank without a mobile phone. And then all of a sudden, the mobile phone actually changed the economics of a branch bank and allowed you to do a lot of things like identity verification or fraud detection without the branch. We wouldn’t have neobank unicorns without it. At the same time, it is not so exciting today any more to build a neobank, because we have so many of them.”
In other words: You have to connect the dots before others do, but make sure that the dots are really there. That is why those early trend indicators are so critical.
The top of the pyramid: Packaging
But even if you nail the timing, it will be to no avail if the packaging of the product or service is not ideal. ChatGPT was certainly not the first powerful AI tool available to the public. Midjourney, an extremely potent software for image generation, was far earlier in the market. Up to this day Midjourney has one of the most robust models to create visuals. In fact, Midjourney even had quite some name recognition among graphic designers. The trouble with those earlier applications was that they lacked accessibility and user-friendliness. ChatGPT’s user interface is as simple as the Google search bar. You just type in your prompt or your question. It’s free. It’s versatile. If you wanted to create a Midjourney picture, on the other hand, you first had to sign up for Discord and then…Never mind. By now you have lost almost everybody.
The iPhone was truly visionary and perfectly timed, but it would have never become the most successful product in history if it weren’t for its design and branding, it’s stability, Apple’s golden handcuff approach, and a well-balanced double-sided platform strategy. Packaging won’t matter if you don’t get the technology and the timing right, but if you do, packaging makes the difference between performing solidly or exceptionally.
Igor Pejic is an author, keynote speaker, and banker. His latest book Tech Money uncovers the new rules of investing in the technology age and teaches investors and executives how to benefit from them. His previous title Blockchain Babel won the Independent Press Award and was profiled as a Financial Times book of the month. He was also a finalist in the Bracken Bower Prize awarded by McKinsey and the Financial Times. Pejic publishes the industry newsletter The New Frontier, and his articles and interviews regularly appear in media such as the New York Times, the American Banker, and Bloomberg. Pejic has held different management positions in banking and tech, currently at one of the largest banking groups in Europe.