When to fish, and when to cut bait...or wait, is there another option?

So, you're in a high-tech start-up, and the technology doesn't seem to be performing as you expected or the product development is hopelessly behind schedule.  What do you do?  If you're part of the founding team, or at least one of the decision-makers, when do you decide that it isn't going to work and close up shop?  When the money runs out?  Key to this thought process is to do an assessment of just exactly what intellectual property the company does have, even if it turns out that the technology has no legs.  I mention intellectual property not just in the patent sense, but also in a most general sense:  just what does the company have that is of value?  Does it have really sharp people that can recast the technology or its intellectual property into another market?  Has the company developed expertise in its original market such that even though the technology doesn't work, it knows the market and customers so well, that it can use other technology to build a product that will sell into this market?  Find out what your company has or does best, and build on that expertise to reinvent yourself.

Focus on your core competencies

There are many "layers" of product development, from core IP to a complete system.  To get a new, disruptive product out the door, sometimes you need to develop layers that are beyond your core competencies.  But be sure to do this for the right reason:  because it's necessary to gain market acceptance.  Then, once the market has accepted your disruptive product, shed the layers that aren't part of your core competencies and don't have high gross margins.  After all, it's your core competencies that help give you that unfair advantage over the competition.  Here's an example:  Qualcomm developed CDMA back in the late 80's and early 90's.  But to get this new, disruptive technology accepted in the market, it had to make handsets and infrastructure equipment (not part of its core competencies, and becoming commoditized).  Once CDMA became a popular standard, it shed its handset and infrastructure divisions, and focused on its core competencies:  IP licensing and ICs.

Get the product out the door and optimize later

This is a follow-on to my previous post on validating your market.  Entrepreneurs, especially engineer entrepreneurs, like to make that first product perfect.  It's nice to be a perfectionist and strive to make the best product, the most reliable product, with the right colors, or the right bells and whistles, etc.  But this will most likely come at the expense of time and money, and you might guess wrong on some of the features.  Build your first product (or service) and get it out the door.  Early feedback from customers is very critical, as it will tell you what you need to focus on for the next version.

Have you validated your market?

This post is a follow-on to this post where I asked "Are you solving a real pain?"  Entrepreneurs sometimes get caught up in believing in their own product so much that they really fail to validate the market before fully developing the product.  This also is sometimes referred to as "drinking your own kool-aid."  There are numerous ways to validate a market, depending on the type of product or service you are offering.  Let's say you want to offer a new widget for sale on the web.  Before you even spend a penny on developing it, how about spending a few bucks on a website that describes this widget, perhaps a little money to SEO it, and a button on your website that says "Click here for more info" and another button that says "Order Now" (which can return a polite message referring to order-backfill).  Even before you can fulfill any orders, you are collecting very valuable market data...all before you've spent a penny on developing possibly the wrong product.

Are you solving a real pain? Old-school versus New-school

My last two posts talked about product differentiation and the importance of having a product family.  Now, I want to briefly discuss whether your product has merit.  Old school says:  "Is your product a painkiller or a vitamin?"  It certainly is nice if your product truly solves a pain in the market you're pursuing, but with all of the social networking websites out there these days, I have to ask if these really are solving a pain, or are they just darn fun.  Facebook, Twitter, Foursquare, SCVNGR, Zynga, etc.  Are they solving a pain?  I don't think so.  Even Betty White said Facebook is a complete waste of time (lol).  My point here is that if you are told (or you admit to yourself) that your product isn't a painkiller, perhaps there's still some merit if you have a unique twist, or a particular approach, or something that the market will embrace.  So, perhaps the other old-school saying is still the best question to ask:  "Will the dogs eat the dog food?"

Product Differentiation with a Sustainable, Defensible Barrier

You tell me you have a new widget.  There are similar widgets out on the market already, but you say yours is better.  It has more bells and whistles, or it has different bells and whistles.  No one else is offering this product/service today.  Should I invest?  Well, you have to do lots more convincing first.  Do you have any defensible IP?  How broad is your defensible position, or could a competitor design around it and not infringe?  You say you don't have any real IP, but you're first to market, and you can run faster than the competition?  The rule-of-thumb is a competitor can design it twice as fast as you took, so if it took you two years, your competitor will be able to offer it in a year or less.  I'm not saying these cases are non-starters, but be sure to look very critically at how your product is differentiated, and try to quantify why it's better.  Better performance?  By how much...10%?  10x?  Create a competitive matrix with features on one axis and all of your competitors (and you) on the other axis.  Then, fill in the "bingo card" to see if you're really head-and-shoulders above the competition.  Especially in cases where there is a questionable defensible barrier, it is absolutely critical that the founders have vast domain knowledge and a Rolodex filled with contacts that will enable them to build critical relationships in their target industry.