There is no shortage of innovation and ideas in the world today. The UK in particular has a strong track record of generating new technology based concepts: over the past ten years many of these ideas have been turned into product and service demonstrators, using proof-of-concept funds provided mainly from public sources, via research institution grants and regionally-targeted funds. In general, we have become very good at crossing Chasm 1 in building new technology-enabled businesses.
Over the past twenty years, we have also become quite good at crossing Chasm III, where proven products and services with sustainable business models can be scaled to reach a large customer base. This challenge is well-defined since there is clarity on the target markets and customers, the product or service is usually well-established, and success requires a good management team and effective execution.
Where things continue to be very difficult is in crossing Chasm II. Vague allusions to the ‘valley of death’ don’t really help us to understand and tackle this challenge. This really is a difficult thing to do and requires the following things to be addressed:
- An understanding of the target eco-system in which the new product or service will be deployed, including the roles of suppliers and partners
- Clear understanding of the Customer: this includes current, anticipated and ‘created’ needs
- Clarity on the precise components of the product or service, ‘impedance-matched’ to customer need
- Sustainable business model, which may itself be the primary innovation
- Clear understanding of channels to market and how the product will be ‘sold’
- Finding funding for this relatively high-risk activity
Historically, Venture Capital was designed to support the crossing of Chasm II: investors would balance the high risks against potentially high returns. Unfortunately, since the collapse of the dot-com bubble and the continuing problems in investment banking, VCs have been increasingly reluctant to invest in crossing this Chasm II, instead focusing on what they call growth stage. In reality, their focus is now on scaling up proven propositions, by crossing Chasm III.
So we need to focus now on how we can improve the chances of crossing Chasm II.