Typical Challenges of Early Stage Deep Tech Startups

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Most Common Challenges Early-Stage Deep Tech Startups Face

By Dirk Ortloff, Senior Associate Director at TD Shepherd

My name is Dirk Ortloff, and my focus is on early-stage Deep Tech startups. After helping to build up a startup in The Netherlands in the early 2000 I co-founded my first own startup and sold it after 7 years. In the last three years, I now try to foster innovation in Germany and work as a business angel & startup coach. I coach and mentor several Deep Tech and impact teams to leverage their technology ideas to bring successful products to the market. As a generalist, I can cover various domains (technology, sales, marketing, funding, legal, etc.) down to a certain level and use my network of specialists to fill in where needed. During this work, I discovered several challenging patterns of Deep Tech startup which I will be elaborating on in the story.

Incomplete Team 

It is a common pattern that start-up teams are incomplete. This is especially true for Deep Tech startups. An incomplete startup team refers to a group of individuals who have come together to start a new business venture, but who lack one or more key roles or skill sets necessary for the success of the company. The missing positions may vary depending on the specific business idea and market, but in the Deep Tech area typical patterns include missing roles such as:

Marketing/Sales Lead: This role is responsible for defining the Go-To-Market plan, promoting the startup’s brand, identifying target customers, and developing marketing strategies to attract and retain customers. Without a marketing/sales lead with descend level of experience, the startup may struggle to find its first customers and generate revenue.

Operations Lead: This role is responsible for managing the day-to-day operations of the startup, including logistics, supply chain, customer service, and financial management. Without an operations lead, the startup may lack operational oversight, get lost in some details, and struggle to keep the business running smoothly and efficiently.

Legal/Compliance Lead: This role is responsible for ensuring that the startup complies with all relevant laws and regulations, protecting the company’s intellectual property, and managing any legal disputes that may arise. Without a legal/compliance lead, the startup may face legal issues that could threaten its existence.

An incomplete startup team may still have some members with overlapping or multiple roles, but the absence of one or more key roles can significantly hinder the startup’s progress and success. It is essential for the startup to identify the missing roles and seek to fill them as soon as possible.

What makes the situation more difficult for Deep Tech startups than startups from other domains is the fact, that by the complexity of the Deep Tech sector, a founding team usually requires expertise from various technical roles and therefore is multi-disciplinary in the technical domain already. To keep the founding team small and decisive the Deep Tech domain makes it more complicated to cover the other key roles.

Technology Searches for A Problem / Market 

Technology push products are products that are developed based on new or existing technological advancements or capabilities, with the primary goal of showcasing or exploiting the technology. These technologies typically get developed in universities and research institutes. In other words, the focus is on developing the technology first and then finding a problem / market for the product, rather than identifying a problem / market need first and then developing a product to meet that need.

This approach is often used in industries such as electronics, biotechnology, and pharmaceuticals, where new technological innovations can create entirely new markets or disrupt existing ones. Examples of technology push products include smartphones, gene-editing tools, and virtual reality headsets.

While technology push products can be innovative and groundbreaking, they may face challenges in the market. If they do not meet a clear customer need or provide tangible benefits that customers are willing to pay for, market entry is difficult, at best. This is why many Deep Tech companies need to have an extreme focus on the perspective to take a more customer-centric approach. They need to seek to identify unmet needs, problems or pain points and develop products that address them, rather than relying solely on technological advancements.

Furthermore, they need to keep an eye on the amount of improvement the new product/service provides. If it is not addressing a completely unmet demand, the new product/service needs to provide a gain of at least 10x to convince potential buyers to take the risk to adopt something new/unproven.

Unknown Product Market Surrounding 

An unknown product market surrounding refers to a situation where a new product or innovation is introduced into a market that is not yet fully understood or defined. In other words, there is uncertainty about the potential customers, their needs and preferences, the size of the market, and the competition.

This can occur when a product is introduced into a new industry or market that is still emerging or evolving, or when the product itself is a new and innovative idea that has not been widely adopted before. Because Deep Tech innovations mostly spring-off from universities or research institutes it is a common phenomenon that this type of innovation carries an especially big package of uncertainty. In some cases, the product may be so novel that there is no existing market to compare it to, making it difficult to gauge its potential success.

Navigating an unknown product market surrounding can be challenging for businesses, as it requires a lot of market research, testing, and trial and error to determine the best approach for appealing and reaching potential customers. Companies may need to be agile and willing to pivot their strategies as they gather more information and insights about the target market(s).

However, entering an unknown product market surrounding can also present opportunities for businesses to be innovative and disrupt traditional market structures. If a company can successfully introduce a new product and define a market around it, it can establish itself as a leader in that space and capture a significant share of the market.

Unclear Overall IP Situation / FTO Analysis 

Freedom to Operate (FTO) is a legal assessment conducted to determine whether a product, technology, or process infringes on existing patents or other intellectual property rights of others. It is usually carried out prior to the commercialization of a product or technology to identify any potential legal risks and ensure that the company has the necessary rights or licenses to use that intellectual property.

An unclear FTO situation would suggest that there has not been a thorough assessment of the potential risks associated with the commercialization of a product or technology. This could put the company at risk of patent infringement, lawsuits or other legal disputes, which could be costly and time-consuming.

It is important for companies, especially Deep Tech companies, to conduct a comprehensive FTO analysis before launching a new product or technology. This analysis can help identify potential risks and inform decision-making around licensing agreements, patent acquisition, or product development strategies.

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