In early stage investing I think it is in error to believe that technology vendors are selling solutions. For there to be a solution, there must first be a problem. Many times a prospective customer does not even know he has a problem (and many times he actually doesn't). The point I am making here is that early stage companies generally must convince the market that there is, in fact, a problem. The attributes of the problem must include that its resolution is meaningfully beneficial and that resolution is possible. This process of "selling the problem" to the prospect is fraught with many points of potential failure. Let me explain.
As humans, we long for personal security. The process of automation generally depreciates human relevance and value around the process automated. The human is increasingly commoditized by automation and, as a result, and his wage rate is made to decrease. He becomes a form of appendage to the revised, automated process. Thusly his, "I feel secure barometer" reveals lower-than-normal pressure.
When the eager "solutions" vendor appears at the doorstep of the would-be affected labor pool, this labor pool perceives that something perilous is afoot. "We are about to be commoditized by the machines", they chant and they withdraw inward into problem avoidance. The labor pool is knowledgeable in this regard because it has its own history of dislocating some predecessor process and labor pool in some prior revolution where a now deceased labor pool put up its own fight.
Extrapolated to a larger scale this is the same type of "revolutionary" dynamic that has permeated history disguised as political change - the war between the old ways of making money vs. the new ways. Lenin knew all about this and would have likely been the all-time master of software sales.
As humans, we long for personal security. The process of automation generally depreciates human relevance and value around the process automated. The human is increasingly commoditized by automation and, as a result, and his wage rate is made to decrease. He becomes a form of appendage to the revised, automated process. Thusly his, "I feel secure barometer" reveals lower-than-normal pressure.
When the eager "solutions" vendor appears at the doorstep of the would-be affected labor pool, this labor pool perceives that something perilous is afoot. "We are about to be commoditized by the machines", they chant and they withdraw inward into problem avoidance. The labor pool is knowledgeable in this regard because it has its own history of dislocating some predecessor process and labor pool in some prior revolution where a now deceased labor pool put up its own fight.
Extrapolated to a larger scale this is the same type of "revolutionary" dynamic that has permeated history disguised as political change - the war between the old ways of making money vs. the new ways. Lenin knew all about this and would have likely been the all-time master of software sales.
Successful early-stage technology companies should many times be viewed NOT as technology companies per se but rather highly competent group psychologists. They are psychologists who can untangle problem avoidance and convert it into a purchase order. They can manage around the labor forces that might fearfully resist change. "Fire good, Trog like fire!" Once groups of people believe they have a problem and it is sucking income out of their wallets they generally will stampede to find a solution (sometimes they try and kill the solution and anything that may be a threat). The stampede runs fast and buying the solution happens in a hurry. On the other hand, selling the problem takes time. Studied through this lens my perception of what is in play at an early stage technology company is definitely altered.
1 comment:
Hey Chip,
Rather than comment in the regular way, I commented by rewriting what I comprehended. And during that rewrite, I had an insight that I think you'll like.
this is rough but the basic thoughts are there.
s
Technology vendors bring their hot dogs to market with one of these three approaches:
1) We have an amazing new way of preserving processed meats , 2) Our hot dog technology allows you to store hot dogs at higher temperatures!, or, 3) You can now deliver fresher more flavorful hot dogs to your customers.
The differences in those three approaches determines how well the technology developer will or won't connect with an audience. Has he figured out a real application of the technology? Does the technology actually change the way systems or people behave? Does the technology offer a unique and real benefit to customers?
When evaluating early stage technology companies, successful investors are able to see the potential relevance of a new technology. While the entrepreneur may not see or articulate the path from raw technology to real world uses and benefits, the visionary investor begins to make those connections.
And how do we determine if a new technology will be relevant to a potential audience? Consumers want technology products that improve their experience in any of these three areas: cost, speed or quality. (Usually these come in combinations but an offering will lead with one of those propositions.) If a product can improve an experience in any of those categories, then it becomes a solution. By definition, the existing way (or old way) of doing it becomes the new problem because it's more expensive, slower or of less quality. The challenge is that consumers are constantly being offered new and improved all day long and in every category of their lives. In the hierarchy of choices and finiteness of time to make decisions and implement changes, will the new technology message even register with the audience? Will they care and if they do care, is the benefit big enough to get them to act?
It's not enough to offer a solution. Millions of incremental advances are offered everyday. The size of the problem is defined by how big of an advance the solution offers. And in the larger picture for customers, what other "problems" are being solved for them? Will your technology have a greater impact on their overall business operations than a "solution" being offered in a completely different category?
Developing and selling new technologies isn't about solving problems. It's about creating problems. Invent an advancement great enough to turn the previous way of doing things into a problem. You just tasted a hot dog preserved with WhizBang preserving technology and wow, it has robust flavors! The hot dog that used to taste perfectly fine and that you enjoyed serving and eating at your weekend cookouts now taste a little stale and you're embarrassed to serve it.
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