Setting Yourself Up for Spinout Success
When setting up a new venture, everything is unproven.
More often than not, something core to the idea is based on a false assumption. The healthiest mind-set to start from is that something about your initial target customer, proposed solution, route to market, or customer problem are fundamentally flawed. Your goal is to find these flaws and correct them before you run out of time or money.
This is a founding rule of start ups. Your role as the entrepreneur is to stack the odds in your favour and engineer as high a likelihood of success as possible. To convince others that although the problem is difficult, they are in the right hands. In the future, you may need to convince:
The university or college to patent your idea and/or allow your to spin out
Investors that they will see a healthy return from investing into your idea
Co founders to join you and commit to your shared vision
Partners to work with you and potentially even fund you
The first customers to trust you and buy your solution before it's proven
To understand how this step fits into the wider research commercialisation journey, see our article on "How to Commercialise Your Research"
Setting yourself up for success
Here we focus on the early days of starting up and going from 0 to 1.
The largest value additions to your business case and where it will be first interrogated will be:
Your Knowledge Base to build a viable business
Your Advisors and Team to support your journey
Your Proof of Market Need from talking with prospective customers
Your knowledge base
Don't be pigeon-holed as "the associated academic" to a project
Most founders we work with come from a strong academic background and are often world leaders in their field, but have limited experience with the commercial world and how it operates. Often, we are introduced to teams that are trying to commercialise an idea but are struggling to gain traction either with the university, partners, customers, investors or all of the above.
The Problem
The first barrier to tackle is building the commercial knowledge base to let you fully articulate the journey ahead. An essential component of this upskilling is familiarising yourself with the phraseology and terminology used by the commercial community.
This ensures that not only are communicating your proposition in a language everyone understands, but also that you avoid being "pigeon-holed" as the academic associated with the project and your commercial input dismissed.
We find this manifests most commonly in two scenarios;
When an academic founder is reaching out to industry and the conversation is stuck perpetually as a matter of academic interest and novelty rather than a serious commercial proposition
When the university is apprehensive about commercialising the academic founder's idea and cites lack of commercial experience of the team as the limiting factor in not moving forward
Our Advice
The working business knowledge you need to amass is broad rather than deep. Each topic is reasonably straightforward to master but ultimately you must be strategic with how you acquire relevant knowledge and understand how the application will influence your business decisions.
We have a list of recommended reads here for first time entrepreneurs.
Keep in mind you don't need to be a master of any of these topics, but you do need a strong enough working knowledge of all of them so that you can hire in the right people to support your company.
However, to gain the day-to-day know-how and opportunity to apply these ideas with feedback, we would encourage future founders to spend as much time as possible working with former or current founders to really understand the in's and out's of venture formation.
Find a local incubation or acceleration programme and reaching out to mentors or founders. This will give you a community of peers to test your ideas against and start to refine your thinking through feedback and iteration. Importantly, this will also build your support network and understanding of the local ecosystem vital in the journey ahead.
Your advisors and team
Build a team of complementary expertise
Early in conversations with investors, they will ask you a very simple question, "Why you?"
The answer to this question considers the whole start-up venture team and support network, not just specifically the person to whom the question is addressed. It considers not only your technical ability to realise a solution into existence and overcome barriers, but also the commercial insight to correctly identify the problem and deliver a solution to it.
The Goal
As above, you aren't supposed to have all bases covered as an individual founder, but as a team, you should be able to eliminate most weaknesses. Your goal is to accrue a team capable of making the start-up phase of the venture a reality.
Investors, universities, and partners all look favourably on having a commercially experience member of a team. This however doesn't need to be a founder, but can instead be an advisor or mentor that the founding team leans on to guide and steer their decision making abilities.
Building the right team and advisors will de-risk the proposition for both investors and university technology transfer teams that the IP and investment is in safe hands.
Finding an Advisor or Team member
Advisors come in a few flavours of relevance for spin-out companies, but the core capabilities are as follows:
Technical/Scientific - to help steer the product development or research
Market - to benefit from familiarity with or connection into the marketplace
Commercial - with experience of steering high-risk ventures
Regulatory - to help overcome regulatory barriers before entering the market
Investment - to develop an investment strategy and make relevant introductions to investors
Some combination of the above
For advisors with commercial, investment, regulatory, or market experience the useful length of the relationship will typically be multiple years. When the company is starting, you may feel that advisors will not engage with out payment or equity position, however typically this is far from the case.
Most advisors understand that developing a strong working relationship with the founders is important is understanding if there is effective rapport and value added to both sides. While providing guidance in a mentorship capacity most advisors are happy to take a long-term view of the engagement and will typically engage without charge.
If in the future, you are looking for them to do more than offer advice and instead need support in conducting market research, compiling a business plan, accessing their network of contacts, or soliciting investment this typically is where it is sensible to start some conversation around payment earlier rather than later to help manage expectations.
Your proof of market need
The most valuable signifier you are on to a strong proposition
There is a truism you should repeat to yourself to keep you interrogating your customer's behaviours vigilantly; "People often express wants but they ultimately buy needs". Placing those words in anecdote, many of us may want a Ferrari, but ultimately sitting in our driveway is much more likely to be a Vauxhall.
Fortunately, there are many programs that support customer identification and interview. In the UK, ICURe is a program that offers university researchers 3 months of support to explore the commercial potential of their research. Most countries, universities, or colleges run similar programs designed to prove a market need for an innovation.
The Problem
Extracting accurate information about a customer's needs and developing a solution that draws that customer away from their current solution is incredibly difficult. The process of talking to customers about their problems and your proposed solution without biasing the data you are collecting is also incredibly difficult.
It's very hard not to express enthusiasm for an entrepreneur's idea when they are standing in front of you pitching its virtues. Complements and expressions of intent to purchase are flattering, but they don't help you to truly understand what the customer is experiencing, where their real pain points are and how eagerly they are seeking a solution. These metrics will ultimately determine buying behaviour much more accurately that talking to customer about your product before its ready, when there is no pressure to make a purchase.
Our Advice
Take a page from "The Mom Test: How to talk to customers & learn if your business is a good idea when everyone is lying to you" by Robert Fitzpatrick, which we reviewed previously here.
By relegating flatter and complements about your solution to the category of "biased data" and instead by focusing only on collecting information about the true customer behaviour and decision making process of your customer, you will develop the foundation for knowledge that will enable you to identify how and where your solution fits.
Importantly, questioning should prompt customers to recall specific behaviour from their past, not hypothesise about future behaviour or make generalisations about how they usually act; all of which are subject to bias.
Without priming a customer about your proposed solution, focus solely on how they encounter the problem under investigation. Criteria to extract are:
Instances where the customer encountered the problem, what were they prioritising to solve it
How they solved that problem, which product or solution they used and how they found it
Why they selected that approach over other approaches or solutions
These questions reveal your competitors, the marketing channels your proposed customers use to find these competitors, and what is important to them in making a purchase decision. Questions not on this list include "is there anything you would change about the process?" and "what if a product did X or Y or Z, would you buy that instead?" as both of these lines of questioning elicit generalisations not backed up by buying behaviour or ask the customer to make predictions of future behaviour.
Problems are more valuable than solutions.
It's comparatively straight forward to build or design a product. Ensuring that product meets the needs of the customer is ultimately what dictates the success of any given solution. With accurate insight into your customer, your job as an entrepreneur becomes much more straight forward.
Building your case
Building the commercial strength of your proposition is an essential step in preparing for the start up or spin out journey. For details on the broader research commercialisation journey, see our article on “How to Commercialise Your Research”.