DeepTech Playbook

The importance of Product-Market Fit cannot be understated, and this chapter is dedicated to it. This is true for any venture and, indeed, also applies to DeepTech start-ups.

Lack of Product-Market Fit is a major reason why start-ups fail. It has impact on fundraising and commercial performance. If investors are unsure about Product-Market Fit, they won't invest. If it takes too long to find Product-Market Fit after Launch, revenue generation fails.

A start-up's business objective is to build products and sell them to customers many times, at scale, as represented in Figure 5. It is scale that allows the company to profit from Economies of Scale, which fundamentally is the reason why a start-up can be an attractive investment considering the high risk.

Figure 5: DeepTech start-ups financed by venture capital need scalable businesses. "Scalable" refers to the ability of the product to profit from Economies of Scale, which means to profit from cost advantages that a business can achieve as a result of an increase of sales volumes.

A product, in this context, can be a Hardware, a Software, a cloud-based service, or a combination of any of the previous. Entrepreneurs that build consulting ser­vices that leverage knowledge and skills of people by selling their time to customers are running a consultancy model, which does not scale and, thus, is not suited to raise capital from venture capitalists. Also, DeepTech products that require extensive installation or integration with customers do not scale if a major part of revenue is stemming from installation/integration.

It is imperative that the market potential of the product is large and, for Swiss companies, international. Why? Only large markets justify investment in DeepTech ventures, and they increase the probability of the start-up to be exited at a valuation that creates attractive return for investors (and founders). Be ambitious.

Value

Selling a product is a transaction where the customer pays to receive value. Value is the customer's perception of benefits and advantages when they use the product. In other words, the customer is happier with the product than without the product, and that's why they are willing to pay for it.

It is a mistake to think that customers immediately understand the value of new products. It is not obvious to a potential customer that a new technology, as novel or technically performant as it may be, provides value. Value is the customer's point of view of experience, satisfaction, and outcomes derived from interaction with the product.

As a rule of thumb, value is either quantitative (i.e., it can be measured) or emotional.

Examples of quantitative value:

■Improving customer's economics: cost savings, added revenue, improved ­earnings, etc.

■Saving time: offering efficiency and time-saving benefits.

■Simplifying: reducing friction by making things easier to use, or processes less complex, etc.

■Decision-making: transforming decision-making from uncertain Hypotheses to evidence-based facts by providing analytical evidence.

■Quality: higher-quality features that improve outcome when compared to ­customer's competition.

Examples of emotional value:

■Attractive design: shape, form, colour, sound.

■Seamless and intuitive usability.

■Reduction of customer's fear of failure.

■Ability to signal power and success by purchasing the product.

■Reduction of customer's fear of missing out.

It is impossible to understand value without intimately knowing the customer (since the customer's perception of benefits and advantages is the basis for value).

Unless the product is sold directly to consumers, the customer is rarely a single person. Rather, "the customer" is a group of individuals, or personas, who are involved in the process of making a purchasing decision. Let's call that group Decision-Making Unit.

Each individual persona has their own interests, needs, and roles in the decision-making process.

The key roles within a Decision-Making Unit may include:

■User: Users are the individuals or teams who will be directly using the product or service. Their feedback and needs are critical for ensuring the solution aligns with their requirements.

■Advocate: The advocate is the person or group that first recognises the strategic or operational need for a product or service and starts the buying process. They may identify a problem or an opportunity that requires a solution.

■Approver: The approver is the critical individual or group with the ultimate authority to approve or reject the purchase. They own the budget, need to be able to argue the cost, pay for the product, and profit from economic benefit. There are situations where the approver does not own the budget and/or does not profit from a return on investment of a purchase. This situation is common in the medical device Industry. Therefore, we may have to introduce two additional stakeholders:

·Payer: the stakeholder who is at the beginning of the flow of money.

·Economic beneficiary: the stakeholder who profits financially when the product is rolled out.

■Influencer: Influencers are individuals who may not have the final decision-­making authority but who possess the power to sway the opinions and preferences of other Decision-Making Unit personas. Their input can significantly impact the buying decision.

If one persona of the Decision-Making Unit vetoes the purchase of the product, there is no sale. For example, the vice president engineering (i.e., the approver) of an engineering services company will veto the purchase of a simulation tool, which was identified by the team lead mechanics (i.e., the advocate) and assessed as being state of the art, if they are not convinced that cost saved by shortened design cycles of mechanical components will offset the investment (i.e., the price of the product).

How to Figure out Value

Decision-Making Unit personas are generally unreliable at stating value. Henry Ford's quote is quite true: "If I had asked people what they wanted, they would have said faster horses."

We can't ask potential customers what is valuable to them. We need to make a detour and talk to the Decision-Making Unit (DMU) about needs and problems, in short: pain points. DMU Pain refers to the specific problems, challenges, or frustrations that DMU personas experience. DMU personas are more reliable stating pain than stating value.

When we understand what the DMU is suffering from, it is the start-up's task to formulate how the product is reducing pain. And there we have it: we have derived a Value Proposition.

Value Propositions are concise and simple statements of the benefits, functional and/or emotional, perceived by the customer.

In the ideal case, Value Propositions address pain that is:

■frequent (i.e., within a market, many of the potential customers have the pain),

■urgent (i.e., mitigation of pain can't wait),

■costly (i.e., not addressing the pain creates significant cost for the potential ­customer),

■recurring (i.e., the pain repeats, which means we can propose recurring value and can capture recurring revenue).

It is not the goal to find as many Value Propositions as possible. Rather, it is an exercise of focussing. It is better to define a small number of Value Propositions and make sure they have great impact.

Business Model

Let's assume we have identified DMU Pain and derived attractive Value Propositions. This is the process of creating value. To complete the picture, we need to figure out how to financially capture this value. This is referred to as Business Model.

A Business Model, in the context of this playbook, consists of three elements:

■type of revenue generation

■flow of money

■Willingness to Pay

Type of revenue generation

There are four fundamental ways of generating revenues:

1.Non-recurring or one-off: the product is shipped, the customer is billed once, and that's it.

2.Recurring pay per use: the customer is billed based on the actual usage of the product. Examples:

·Cloud-based services: Amazon Web Services follows a consumption-based pricing model. Customers are charged based on the resources they consume or the specific services they use. This means that customers only pay for what they actually use, and there are no upfront fees or long-term commitments.

·Hardware disposable/consumable business: Gillette's sells proprietary, disposable razor blade cartridges that are the only ones fitting onto the Gillette razor handle (with the handle being a one-off Business Model).

3.Recurring pay per time (subscription, rent, licence): the customer can access the product if a regular fee (monthly,...