The valley of death: why do some start-ups succeed while others don't?
Why do some start-ups succeed in developing into fully-fledged companies within a short period of time, while others fail to do so? In my job as a patent attorney, I sit around the table with start-ups every day and see the type of pitfalls that reduce their chances of growth. But how do you ensure you succeed? The best way for me to illustrate this is through the success story of car innovator Lightyear.
Lightyear was started up by a group of technical students from Eindhoven who participated in the World Solar Challenge. After winning this famous race for solar powered cars they decided to develop their technologies and ideas into a car for the future. The Lightyear One, which is due to be released at the end of this year, is able to drive further and more efficiently than today's electric cars and is furthermore not dependent on the power grid. What started out as a small group of ambitious students has developed into an award-winning company employing over 100 people.
It is impossible to put your finger on exactly why Lightyear is growing the way it is. But in my work with them on their intellectual property, I see practices that greatly increase the chance of growth. To explain what these are, it is useful to first look at the type of entrepreneur within a start-up.
You need more than a good idea
Every start-up entrepreneur has both technical knowledge and business acumen. In the early stages of a start-up this is a perfect mix! The technology is constantly being developed, while at the same time steps are being taken in the business side of the company. All team members are well aware of each other's work and build on it.
No matter how good this setup might be in the beginning, many start-ups have a tendency to get stuck in it for far too long. Even though they may have developed prototypes, or even put products on the market, their growth will eventually stagnate. Many of them will never achieve the necessary increase in scale. That is because this requires a different set of skills, which are not always present in the original team.
As the organisation grows, its structure also changes. Scaling up means more and new departments, designing or improving processes between those departments and clearly defining responsibilities. The growth that seemed to come so naturally, suddenly needs systems and therefore also people who can design these systems.
Return from innovations
From my perspective as a patent attorney, this is exactly what happened at Lightyear as well. In the beginning there was a group of innovative technicians who always had the growth of the company in mind. They knew exactly which technology was innovative enough to be covered by a patent and they knew that such a patent would help them grow. Patents do not just prevent competitors from exploiting your ideas, they also help to attract investors.
But as the company got bigger, so did the gap between the techies and the business developers. The two were no longer one and the same person and no longer worked in the same space. This creates a risk that is also a common problem for established companies. The greater the gap between the innovator and the entrepreneur, the greater the risk that a company will not get optimal returns on its innovations.
Tip 1: Work on systems and working methods
So, recently, I have been working with various Lightyear employees to set up systems and working methods to narrow the gap and keep it small. To make sure that, when it comes to intellectual property, the different parts of the organisation are aware of each other's developments and plans.
This is not only good for their intellectual property, because it increases the chances of valuable patents, but it is also an example of a working method that allows start-ups to develop into scale-ups. The further your company develops, the more differently you have to design the cooperation within that company. This applies to intellectual property, but also to communication, sales and other aspects of the organisation.
Tip 2: Bring in the right knowledge
As soon as the stereotypical 'group of friends in a garage' outgrows the garage, it is a good idea to take a different approach to the collaboration between those friends. Chances are, you will need an outsider to do this. Don't think you can take care of everything, simply because you have been able to do so up to a certain point, but make sure you bring in the right knowledge at the right time. This may be related to technology, entrepreneurship, growth or protecting your intellectual property.