Accelerating Tech Startups 2019

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R A C O N T E U R . N E T 03 /accelerating-tech-startups-2019 ACCELERATING TECH STARTUPS @raconteur /raconteur.net @raconteur_london Sophie Charara Associate editor at W IR ED UK, she writes about technolog y and culture. Nick Easen Award-winning journalist and broadcaster, he covers science, tech, economics and business, producing content for BBC World News, CNN and Time magazine. Karam Filfilan Business editor and journalist specialising in HR, the future of work and innovation. Previously deputy editor of Changeboard. Emily Hill Journalist and author, she is the former commissioning editor at The Spectator and feature writer for The Mail on Sunday. Rich McEachran Journalist covering tech, startups and innovation, he writes for The Guardian, The Telegraph and Professional Engineering. Oliver Pickup Award-winning journalist, he specialises in tech, business and sport, and contributes to a wide range of publications. Distributed in Published in association with Contributors Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 3877 3800 or email info@raconteur.net Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher. © Raconteur Media raconteur.net CB Insights 2019 Publishing manager Jack Bailey Deputy editor Francesca Cassidy Head of production Justyna O'Connell Design Joanna Bird Sara Gelfgren Kellie Jerrard Harry Lewis-Irlam Celina Lucey Colm McDermott Samuele Motta Jack Woolrich Head of design Tim Whitlock Associate editor Peter Archer Managing editor Benjamin Chiou Digital content executive Taryn Brickner he lone tech genius is dead, long live product market fit. That's the advice you could take from the concept developed by Andy Rachleff, now executive chair- man of the Palo Alto-based invest- ment services firm Wealthfront. In other words, teams and talent are important, but not as important as conceiving or pivoting to "an idea that addresses an amazing point of pain around which consumers were des- perate for a solution". So what does product market fit mean for tech startups going into 2020? It starts with connecting to the real world. According to Cyril Ebersweiler, gen- eral partner at SOSV, and founder and managing director of HAX, a two- stage venture capital programme for hardware in San Francisco and Shenzhen, startups can determine whether their product or service is actually meeting a need through con- versations with potential customers. "In the business-to-consumer (B2C) space, the customers are for the most part early adopters, and it's easy to con- fuse being successful with that group and having a business for the masses," he says. "In the business-to-business (B2B) space, said needs are generally well understood by entrepreneurs since they most likely are coming from said industry, but they have yet to make sense out of the product and the company's business model." These conversations can take a number of forms. At Gallium Ventures, a London-based strate- gic consultancy that works with early-stage startups, venture capi- talists and large listed companies, the team encourages founders to allow cross-pollination between, for instance, sales, public relations, social and marketing teams. "Google Analytics is also a sur- prisingly underutilised resource for brands and can help various internal teams in sussing out what works," says Heather Delaney, founder and man- aging director of Gallium Ventures. Mr Ebersweiler, meanwhile, stresses that HAX has used "every possible channel to validate product market fit over the years". This includes more than 120 kickstarter campaigns for B2C startups and hundreds of pilots on the B2B side. David Haynes, director of the Vive X programme in Europe, works in virtual reality (VR) and augmented reality (AR) innovation, where there is a lot of exciting technology that may not scale. He encourages start- ups to focus on tracking whether their customers are actually using their products. "For a consumer VR startup this means looking at user engage- ment and retention, such as daily or monthly active users, and not just the number of downloads or press atten- tion," says Mr Haynes. "For an enter- prise VR startup, it means being able to show they've moved past proof-of- concept stage, or initial conversations with the team, and the product is being deployed and used throughout an organisation." One metric that is often quoted by tech startups in relation to product market fit is the importance of an LTV:CAC ratio. This is simply the life- time value (LTV) of a customer as it compares to the customer acquisition cost and an ideal LTV:CAC is thought to be 3:1. It affects everything from product pricing and the channels through which the startup will be acquiring customers. "The LTV:CAC ratio really comes down to the margin you make and the model you are working with," says Melissa Snover, founder and chief executive of startup Nourished, which is based in Birmingham and 3D prints personalised vitamin "stacks". "Our fully integrated business model is more complex to set up, but allows for us to have a higher net margin to spread awareness and the dynamic flexibility to pivot and develop more products as the demand dictates." It's even more important for start- ups building B2B hardware to meas- ure, says Mr Ebersweiler, and difficult to put in place. "Take Amper, a com- pany which monitors the manufactur- ing activity of a factory," he says. "They had to work on very cost-efficient hard- ware to justify their CAC or make it close to what a typical SaaS [software- as-a-service] model would be." The LTV in this case comes with the "stickiness of the solution" as once this type of technology is physically embedded with a client, such as a manufacturing facility, it becomes very difficult to replace the system with something else. It's not just accelerators, but startup founders themselves who are navigat- ing this concept with a view to 2020. As Ms Snover explains, some of the best consumer products and services are "born from a sincere need or pain point, often felt by the founder in the first instance". Then comes the research to see how many people there really are in this cohort. "With direct-to-consumer models like ours you can assess mar- ket fit with customer reviews, trac- tion and pick-up rate of the product, as well as referrals from existing cus- tomers," she says. These ideas of traction and refer- rals point to an important aspect of the concept. "In general, product market fit is when your customers spread out your product," explains Mr Ebersweiler. "In consumer hard- ware, this definitely means a number of customers that's out of the ordi- nary and high growth. The remain- ing component is ease of acquisition and this is where most could fail as distribution is a complex and costly system to put in place." Within this framework, the friction to test hardware, such as consumer gadgets, which have been recom- mended to you by early adopters, will be higher than instantly downloading an app. "Not everyone is going to love the product," says Ms Delaney. "But once you understand the similarities between the customers who do love the product, you can leverage that to make a product or service a greater success." Achieving product market fit with something genuinely new and inno- vative can be daunting for people such as Tayga Baltacioglu, founder and chief executive of the clean- ing app Cleanzy, which launched in the UK earlier this month. He also points to "the power of personal experiences" in identifying prob- lems to solve, which could include issues faced by workers in the gig economy. "Increasingly, the businesses which succeed and find the right fit are those that address social or environmental issues," he says. "Without these elements at the core, I believe businesses are unlikely to find a place in the mar- ket of 2020." New tech must deliver real-world solutions True "product market fit" may be the key to success, but a successful outcome can be hard to measure Sophie Charara Warren Wong on Unsplash T 42% 23% Not the right team No market need 29% Ran out of cash P R O D U C T TOP RE ASONS WHY S TART UPS FAIL Analysis of startup failure post-mortems

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