Finding a Tech Startup’s First Use Case
Startups commercializing a new technology can be overwhelmed by the opportunities available to them. This bounty of options can be dangerous and can lead to failure. I’ll present three examples (plus a counter-example) and point to some ideas that can help make the choice easier.
Super angel and founder Michael Mark wrestled with this problem in his first startup. At age 21 Michael co-founded a company to tie together medical lab equipment with his MIT professor, age 25 at the time. In order to accomplish their goal, they ended up needing to put together hardware in addition to creating software. This created two businesses to run, which is a hard thing for a young company. Listen to the whole story here: iTunes Page for the Angel Invest Boston Podcast you can also read the transcript here: Michael Mark’s Page on angelinvestboston.com.
Mechanical engineer Dave Smith had an amazing technology he was trying to bring to market. It was a way to keep things from sticking to surfaces (watch videos here: LiquiGlide Videos). An outgrowth from the famous lab of MIT professor Kripa Varanasi, the technology was to be commercialized via a startup named LiquiGlide. Press accounts about the technology brought in a cascade of inbound interest from all types of companies. Overwhelmed by the options, LiquiGlide chose to work with a large consumer company to put the technology into their packaging. What Dave Smith did not realize at the time was how long this process would take. He thought the massive interest would somehow translate in faster adoption of the technology. It did not, and LiquiGlide ran out of money. The company had to go back to investors to raise more money under a different plan. This instructive story is told in an interview with Dave Smith on Nic Dupis’ Startup Boston Podcast ( Link to Startup Boston Podcast Site).
Matthew Stellmaker and Keith Hearon had the idea of making plastic out of citrus rinds. Two brilliant scholarship students who became friends at Georgia Tech by being in a music group together, they took different paths after college. Matthew went to work in business, Keith pursued a PhD designing biomaterials. Working at a large company that produces 50,000 tons of citrus waste per year, Matthew thought his friend Keith could create something useful from this waste product. Funding from the large company helped them develop the technology but they were confronted with a dizzying array of possible applications.
Informed in part by Dave Smith’s experience in LiquiGlide, Matthew and Keith reviewed the options in a very systematic manner, soliciting loads of free advice from potential advisors and processing this advice quasi-statistically. They realized that many of the most appealing initial use cases for their technology came with an unacceptably long sales cycles. They opted instead to focus their attention on 3D printing where product cycles are much shorter. This could lead to sales and cash generation much sooner than in other opportunities, but at a cost. They would be foregoing the continuing income that is possible from use cases in more established industries. They decided that this tradeoff was worthwhile given the limited funding available to a startup. The full story is told in their interview on the Angel Invest Boston Podcast launched today (iTunes Page of the Angel Invest Boston Podcast). There is also a transcript of the conversation available here: Keith Hearon & Matthew Stellmaker’s Page on angelinvestboston.com.
Lest the reader imagine that opting for the opportunity that will generate cash the fastest is always the right answer I give the counter-example of SQZ Biotech. Young MIT scientist Armon Sharei figured out a new and better way to get a large range of materials inside cells which then cause the cells to change their function. Lured by inbound requests from fellow researchers, the SQZ team decided to sell the technology as a tool for researchers. Eventually this option turned into a dead end. Users were not sufficiently motivated to try this promising but still-balky technology when there were well-developed but inferior solutions easily available. The company performed an impressive pivot to developing therapies that are only possible using SQZ’s technology. The new approach has been validated by a $500 million collaboration with pharma giant Roche and rounds of venture capital funding. Listen here: iTunes Page of the Angel Invest Boston Podcast or read here: Armon Sharei’s page on angelinvestboston.com.
In conclusion, I urge tech founders to seek a great deal of advice on possible first use cases, paying close attention to the time each option will take in generating cash. However, this analysis has to be done with due deference to the state of the technology. Is the early-cash option a truly robust choice? Have you spoken with enough industry experts to really understand the ins and outs of the markets? Have you looked at that advice in a dispassionate and methodical way?