How to create something that is totally new or radically different from existing alternatives? We have been confronted by this problem for a long time, and we currently have three clients who face the same type of problem.
Defining ‘fundamental technology’ is not straightforward. We think of this a new technology that has no existing customers or usage or alternatives, but something which many people might find useful to build other things on top of. This is different from creating a new social app or CRM SaaS. Not to denigrate those, to build those well requires incredible hard work and talent, but they can be built using existing tools, and customers are already educated in some aspect of the product. Those can be great new products, but they are not fundamental or foundational.
The problem with something that sits at the root of something fundamental is that they are very hard to fund and grow into commercial prospects. The big, obvious examples of fundamental technology – the transistor, the Internet, mobile phones, the photovoltaic cell – largely came out of either government backed programs or massive corporate R&D programs (which often had some form of government backing). The Internet came out of Darpa – the US military’s R&D arm. The semiconductor, the mobile phone (sortof) and the photovoltaic cell all came out of AT&T’s Bell Labs, during a time when AT&T held a government-sanctioned monopoly, and all three stemmed from some form of military R&D project.
There are other less grand fundamental technologies. The obvious examples are Google and AI and Qualcomm and CDMA. Google did not invent AI, not by a large stretch, but arguably they led the way in commercializing it. Google also deserves a lot of credit for a host of other technologies – notably distributed databases and a whole host of ‘Big Data’ tools. Qualcomm of course did not invent CDMA, that was Heddy Lamar, but unquestionably they made it a commercial reality, and all of modern smartphones are built on top of their R&D work here. Google was able to fund its R&D work through its search ad cash engine. Qualcomm had to struggle with a viable business model (tracking trucks via a subsidiary called Omnitracs), and used the funds from that (plus some government research grants) to bootstrap CDMA into a viable mobile technology.
One of the hardest problems faced by such companies is that not only do they lack for customers, they lack for partners. Typically, they need a whole ecosystem of partners and developers to make their technology viable. For a start-up this often translates into a vast amount of time spent doing custom work and educating partners. These other parties are always larger which means they are going to make the start-up jump through hoops. Every start-up faces this when selling to enterprises, but here the challenged is doubled. Just to get to a working product means working with large, hard-to-work-with partners and only then selling to large, hard-to-work-with customers.
Many venture investors entirely shun these kinds of investments because they recognize the high level of difficulty. Or worse, they do not recognize them and quickly get frustrated when things do not progress quickly and the company has to raise more capital. One way to deal with this problem is to stage the investment more clearly. Typical investments are staged to fund creation of the product, then achieving revenue and then funding for growth. Start-ups creating something fundamental should state explicitly at the outset that their first milestone is not product but technology. There is an extra step here, possibly two extra steps. Another good path is to seek out strategic, corporate investors but these typically take much longer to invest, and often find conflict with internal teams wary of outside solutions – the notorious Not Invented Here syndrome.
Working in the company’s favor is that new technologies tend to have a wide range of partners to choose from. If you can make a lot of people’s lives easier, the likelihood of finding someone to take a chance with you go up. These kinds of companies need to make the most of building up their ecosystem, a tough balance for a company with limited resources.
Perhaps the best asset these companies have is that new technologies tend to instill fierce devotion. There are a lot of people in the industry who love technology for technology’s sake. Finding something new still excites people like us, and loyal fans can become sponsors and champions inside of larger organizations. This is true for any new product, but often doubly true for new technologies.
There are no easy answers to this problem, at least none that we have found yet. At their most basic, new technologies need a lot of time to develop and a lot of money. But when they work, they can be incredibly exciting.