If You Build It, They WON’T Come.
The importance of partnerships in validating product-market fit for Frontier Tech companies
In the digital start-up universe, accelerators like YC have built an entire ecosystem around training entrepreneurs how to successfully get start-ups off the ground and funded. The most important aspect of the early stages of company building is validating product-market fit. This concept of product-market fit is hammered into entrepreneurs’ brains, and the VCs who back them are laser focused on stress-testing whether product-market fit truly exists or not.
Unfortunately, in the Frontier Tech space, product-market fit concept is not as highly prioritized and is even overlooked entirely in a majority of cases.
The reason for this is quite simple: most Frontier Tech companies start with a fundamental scientific innovation, and the application for this innovation is determined later. Exacerbating this, the technologists who found Frontier Tech start-ups are often wedded to their initial inventions and develop products in a vacuum. This often results in the inability to raise capital or leads to the development of products that don’t fit broad customer needs. Both results can be catastrophic.
Having worked with dozens of frontier tech companies over nearly two decades, however, a few themes emerge around product-market fit in this space.
Signals of product-market fit look very different in Frontier Tech.
In the digital start-up ecosystem, product-market fit is often associated with obvious and measurable KPIs such as revenue, revenue growth, active users, customer acquisition costs, lifetime value, etc. As entrepreneurs are building their businesses, these metrics (or a subset) serve as their gauge of traction. Additionally, venture capital investors look for these metrics as signals of product-market fit, which helps inform whether they believe specific start-ups are likely to grow into huge, profitable businesses.
In Frontier Tech, product development can take anywhere from a couple years on the short end, all the way to a decade-plus in fields like biotech. This means that KPIs like revenue or user metrics don’t become evident until much later in a company’s lifecycle. In contrast, many digital starts-up can point towards these KPIs before their first institutional investment round.
Historically, the lack of early measurable KPIs has made it challenging for venture capital investors to evaluate whether a Frontier Tech start-up has achieved product-market fit and therefore will win in a given market. Thus, entrepreneurs need to develop and validate other interim signals for stakeholders and investors to evaluate. At Bison Ventures, we believe the best early signals of product-market fit are customer partnerships with large and recognizable industry players.
Partnerships are critical for validating product-market fit, and to ensuring you’re building the right product.
Frontier Tech start-ups are very different than digital start-ups. In most cases, Frontier Tech companies are developing products that fit within broader systems. For example: machine learning chips within a broader data center ecosystem, or next generation lithium metal batteries within an electric vehicle platform.
This unique characteristic means that no matter how strong the innovation, Frontier Tech start-ups must partner within their respective ecosystems to develop products with the correct specs, form factors, price points, etc. Only through these partnerships can technologies morph into products that are seamless adopted once development is complete.
There are of course some exceptions to this characterization, such as companies that market and/or sell their products directly to the end consumer. Impossible Foods is a good example of such a company. Nonetheless, it was early partnerships with celebrity chefs, like David Chang of Momofuku, that help build buzz for Impossible’s product. This also showed investors/customers that the Impossible Burger could be delicious, healthy, and good for the planet all at the same time.
Frontier Tech partnerships can take on many forms, but the end goal is the same: the development of products that will result in commercial sales in large, multi-billion-dollar markets. The second part of this statement is particularly important — entrepreneurs should be seeking partnerships that result in the largest possible addressable markets, not niche products for one-off customers.
If a Frontier Tech company can develop one or more partnerships that fit these characteristics, this will ensure companies don’t spend 5 to 10 years developing products that ultimately have a tiny addressable market.
These partnerships also serve as excellent validation of product-market fit that will help entrepreneurs attract investors and hire the best engineers and executives to scale their businesses. Without this validation, Frontier Tech start-ups often struggle to raise capital and scale their businesses.
The most successful frontier tech companies partner early
The stronger a company’s innovation and value proposition, the earlier it can attract customer partnerships.
Early partnership interest is a strong signal that a start-up’s innovation is solving a large pain point for a customer that has no/few other viable solutions. Simply put: the bigger the pain point, the more risk a customer is willing to take by partnering with an early-stage start-up.
On the flip side, if a start-up is building a solution for a market that has many possible solutions already, or if the pain point is not very big, customers are less likely to take a risk on early technology co-development. This is a bad signal, but it’s important for investors and entrepreneurs to know it regardless.
Based on the above observations, it becomes obvious that the most successful Frontier Tech companies are the ones that are able to partner early because it signals they are building game-changing solutions. These early partnerships usually result in strong early investment, which in turn becomes a virtuous cycle for Frontier Tech start-ups.
It’s important to note that these early partnerships don’t necessarily need to be large deals. Many of the most successful Frontier Tech companies started with partnerships that were small in scope, or with second/third tier customers. After some technology derisking, these early partnerships often translated into bigger deals with top-tier customers, and ultimately tens or hundreds of millions of dollars in sales. It’s acceptable to walk before you run in this field.
Summary
The learnings around product-market fit in Frontier Tech is a core part of how Bison Ventures selects its investments, and how it works with entrepreneurs. We are looking for companies/entrepreneurs that embrace this concept of early partnership and validation of product-market fit. For promising start-ups where this concept might not be as obvious to the entrepreneurs, a key part of our value-add is working with start-up founders to instill the same maniacal focus on customers as is seen in the digital start-up space.
