Startups: embrace change

Editor’s Note: Welcome to Reality Check, a feature for RCR Wireless News’ new weekly e-mail service, Mobile Content and Culture. We’ve gathered a group of visionaries and veterans in the mobile content industry to give their insights into the marketplace. In the coming weeks look for columns from Tom Huseby of SeaPoint Ventures, Mark Desautels of CTIA, Seamus McAteer of M:Metrics, and more.
“Strange fascination, fascinating me
Changes are taking the pace I’m going through.”
–David Bowie
Whoever said that change is the only constant must have worked at a startup. Because there is only one thing you can be sure of in startup life: The business model will change. The most brilliant ideas still require refinement when confronted with reality.
A friend of mine tells me that the average startup goes through five different business models before finding the one that works. Believe it or not, this doesn’t sound excessive to me. It takes time to figure out what the market wants of you.
These twists and turns in the lifecycle of a young company are not necessarily negative. Yes, it does happen that companies in their death throes begin to flail about as they seek any form of traction. So sometimes wild gyrations in a company’s business indicate truly adverse circumstances. But healthy young companies go through these transformations as well. Think of it as growing pains. Surprisingly often, promising startups emerge improved in response to these challenges and changes.
Many of the companies we’ve worked with at our firm, including some of the most successful ones, have gone through multiple iterations of their plan before hitting the big time. Take Tegic Communications, for example. Tegic is the maker of T9 text input software. It’s the most widely distributed mobile software in the world today, having shipped on over 2 billion handsets. Would you believe me if I told you they started out in the mid-’90s as a software product designed to help quadriplegics to type? It’s true. The Tegic team had built their predictive text input system to enable wheelchair-bound people to type with their eyes using nine discernable eye positions (eight directions plus blink). Then someone made the connection that there are also nine keys on a phone keypad. Someone else noted the still-early SMS market. The rest is history and a huge success story.
Tropos Networks is another one. Tropos is the dominant player in the metro-scale Wi-Fi mesh market, with over 500 deployments worldwide. Their products pioneered the red-hot municipal wireless market in the U.S. Yet Wi-Fi was nowhere to be found on their initial plans. The founders wanted to build a low-cost base station to support affordable broadband access in remote corners of developing countries. They found that a flexible mesh system was the cheapest way to do it-if they could solve some challenging problems in distributed frequency optimization and predictive wireless routing protocols. To keep costs down, they used unlicensed Wi-Fi to test their mesh algorithms. As it happened, right then the Wi-Fi market started to explode, and they ended up staying in Wi-Fi. So what started out as a company designing base stations for emerging markets morphed three times: first to unlicensed mesh products, then by supporting specialized applications like public safety and remote data management, and eventually by sensing and building an entirely new market in metro-scale Wi-Fi.
Why did these companies go through these transformations? Because they listened to the market.
So how can a small company set itself up to ride this roller coaster without going off the rails? Here are some thoughts gleaned from eight years of investing in mobile startups.
–Pick your partners wisely. Know the different stages that your potential investors and partners excel at. Early-stage investors and advisors are a specialized lot, bred for tolerance for ambiguity and for the ability to see patterns. It is a different skill set than later-stage work. If your company is in its early stages, make sure you seek out venture capitalists who know how to build companies from the embryonic state. I sometimes start working with companies six months or more before they are ready for their first venture round. It’s the best way to get to know the entrepreneurs and their company-and for them to get to know me as a long-term partner.
–Listen. The market will tell you what it wants-if you’re willing to hear it. All too often we trumpet the virtues of our wares so loudly that we fail to hear what the market is telling us. You can change your product, you can change your model, you can even change your team-but you can’t change the market. You can only respond to it. So listen to it.
–Maintain your degrees of freedom at the outset. Don’t lock yourself into a corner. Some partnerships open one set of doors while closing another one. This is particularly true of partnerships between early-stage startups and large enterprises or corporate investors. Be aware of what degrees of freedom each partnership allows. What would happen to your company if the partner hit financial troubles? Does a relationship with the partner rule out one with its competitors? Too many of these in a young company can limit your ability to respond to the demands of the market. And that can be deadly.
–Know your core. Even though the companies above went through radical changes to their products and business models, each had a core competency that did not change. In some cases it was not obvious at the beginning! This is another place that a good VC or advisor can really help out with an outside perspective on what is truly sustainable and differentiated about your business.
So at the end of the day, the key is to stick to your knitting-but be flexible about what it is that you are knitting.
You may contact Jodi directly at jahic@voyagercapital.com. You may contact RCR Wireless News at rcrwebhelp@crain.com.