How Do Tech Companies Cross “The Valley of Death” into Profitability?

Engerati covers how the European Chamber of Digital Commerce helps tech companies with the #1 issue confronting them:  how to go from innovation to making money.

Technology innovators need to understand the markets in which they are operating and align their business models accordingly, says the European Chamber of Digital Commerce.

There is a lack of synchronicity between technology experts and the business world, and translating a brilliant technological breakthrough into profitability can be a big hurdle to companies staying afloat, says Ria Persad, president of the ECDC in a recent Engerati webinar.

Something many small tech start-ups fail to grasp is that only 10-15% of work is in the technical space and around 80% of activities are non-technical to penetrate markets.

Company talent should be aligned to business objectives but typically 85% of employees are highly technical engineers and there are not many people on the business side:

We don’t see good alignment — companies are too tech-heavy. It’s all product, product, product, and that’s a very small piece of the pie.

Ria Persad

Business objectives should be aligned to productivity, and innovators need to consider the return on investment and not leave that to the customer. Potential clients need to be shown how a product will benefit them, so often the seller has to be more expert in their business than the customers themselves. Entrepreneurs should research what the market actually needs or wants before developing a new technology.

Some companies design their products in a ‘black box’ and release them to market without considering what people will pay for. “That’s quite a big journey. It’s not a happy world out there in tech,” Persad says. Digital marketing can take years, and this is often why investors lose faith in tech companies, as they have short term not long term objectives.

Venture capital investments in US cleantech firms has slumped in the past six years, according to research from Stanford University, which found that start-ups lacked experience in manufacturing or operating a business. This was less important in IT start-ups which are creating new markets than in energy, where new companies are competing with well-established incumbents. But the new spirit of collaboration between utilities and start-ups bodes well for a fresh round of funding. Many initiatives are underway such as innovation hubs and programmes by RWE/Innogy and Enel in Europe, Ameren and American Electric Power in the US, and consortia such as Free Electrons, the Energy Web Foundation and Energy Impact Partners.

Digitalisation is creating great opportunity for new companies with innovative products to sell, but it also broadens their reach to a more globalised customer base. This can lead to previously unencountered issues to do with intellectual property, cyber security and cross-border law disputes. It’s very important to keep tabs on what the competitive landscape is in other countries, especially how similar products are priced.

There is a frenetic pace of technological innovation going on around the world, and the energy sector is one of the central areas of activity. The energy sector, like the financial sector, has been slow to adopt new technologies, as risks to critical infrastructure need to be carefully weighed. But these sectors stand to gain the most, Persad points out.

Communication is the key, she says. “At the moment we have disjointed communication, where nobody knows what’s going on. Profit models are not working. Sometimes the problems are not what you think.”

Involvement with organisations such as the European Chamber of Digital Commerce and Engerati is important for good business practice in this area, as they can provide a common platform for the tech and business side of the sector to connect and get a perspective from the other side of the fence.

With a disjointed business case, it will be difficult to bridge the ‘valley of death’ that ensnares so many promising energy tech start-ups, who may have an excellent product but a weak business development pitch.  The ‘signal to noise ratio’ is sometimes very low, Persad says. “You need to think big if you’re going to stand out amongst all that’s out there.”

To read more, go to Energerati:  An important message for cleantech companies