A contribution from Frederic Wohlwend, Managing Partner at Forestay Capital
The importance of scaling innovation
“We’re innovators!” “Our product is unique!” How many times have you heard these claims? How many times have they turned out to be true? The answers, I suspect, are many times and not often. Because real innovation is rare, as it should be. That’s why when it truly does exist, it’s even more important that it is nurtured and grown. Innovation emphatically does not automatically equate to success: We always talk about the winners, but not about the failures. And there are many more of the latter; according to Crunchbase, an incredible 80% of seed ventures fail to reach an exit.
A big part of the reason for this, I believe, is because innovation can be killed by lack of appreciation of the market. It’s rarely a company’s tech itself that causes them to crash and burn; it’s much more usually lack of market preparation and lack of expertise about how scale-up can and must be achieved. Look at Tech Labs and the genuine innovation developed there – a great many never even make it out of the door. If innovation is to be in any way meaningful and impactful, then rapid but long-term market expansion is the only way forward. But this requires much more than capital… scaling is difficult. Really difficult.
It can be all too easy for both inventors and investors to fall in love with a technological innovation and to be blinded by that love, underestimating market adoption hurdles, whether they be products’ market fit or readiness. Or the fact that the market can and does change and, of course, crash. Understanding and adapting to these dynamics is crucial, but more so is the timing, which the market itself sets: Arrive too early and customers will be scant; too late and competition will have got there before you and you will
be knocking on a closed door.
That is why it is vital that a properly thought-out scale-up strategy is in place before going substantively to market and, arguably, even before significant fundraising begins. It’s tempting, when launching, to get sucked in by the buzz, and that applies to both inventors and investors. In terms of fundraising, this can (and has) lead to something of a gold rush, with investment sought and given without due thought to what comes next.
Instead, fundraising itself needs to be a part of a carefully considered growth plan, and one that should be in place from an early stage: Plan first, capital later. Getting it the other way round, as so many have done in the past, can create problems of both sides of the coin: A number of innovative start-ups have raised too much capital because of its excess availability on the market, leading to overly high and ultimately unachievable valuations; conversely, others have failed to consider the true cost of scaling, raised too little and, because of that, simply failed to take off.
In defining a strategy for scaling, it might also be necessary to face some uncomfortable but important truths, the failure of which to acknowledge in the face of blind faith in the innovation can lead to heartache down the line. Take, for example, the fact that many of the truly “deep” and “disruptive” innovations in tech often fail to scale because of the unassailable fact that asking a customer base to fundamentally change its habits and skills will make that tech’s adoption too much of an ask. In such a situation, is seeking to scale viable or advisable?
