Many high-tech startups are stuck in a Catch-22 when it comes to financing their R&D: they have a hard time securing investment because they do not have customers yet; but they cannot get customers without having a finished product, which requires money to develop.
In order to help some of the participants in our program solve this conundrum, we at the AtomLeap High-Tech Accelerator hosted a workshop about R&D-based business models this week. The workshop was imparted by Jessica Schmeiss, a researcher on innovative business models and experienced marketing professional who has worked for organizations like Google and Berlin-based company builder Rocket Internet.
We are devoting this week’s post to summarizing the highlights of the workshop to support our followers struggling with similar issues. Happy reading and, as always, get in touch with us using the contact form on our homepage if you need help to grow your high-tech startup.
R&D and the business model canvas
The business model canvas is one of the most popular management tools to document a company’s business model (see figure 1). There are various versions of the canvas, but the most common one is comprised of nine elements that are quintessential to ensuring a company’s financial sustainability.
In the case of startups with a heavy R&D component, several elements of this canvas are either absent or significantly skewed. For instance, their cost structure is likely made up largely of personnel and R&D spending; revenue streams are difficult to come by; and, without a good idea of what the final product will look like, establishing what customer segments to target can be a challenge. That is to say nothing of determining through which channels to reach these customers.
Making up for the missing pieces of the puzzle
In order to make up for the missing elements in the business model canvas, Jessica recommends you focus on areas that you can control — such as establishing your value proposition, being able to clearly articulate to potential partners how your startup would create value for them, and determining your target customers.
Most importantly, if you are still working on developing your technology, it is important to have a strategy on how to capture value from your innovations. The options to do so run the gamut from seeking formal IP protection through patents, trademarks, or copyright; or more informal ways like secrecy agreements. Figure 2 below provides a good summary of the different ways in which firms capture value from their innovation.
When devising this strategy, make sure to take into account external factors like the type of market(s) in which you operate. For instance, if you choose IP protection as a value capturing mechanism, you should make sure that IP laws are effectively enforced in the market(s) in which you operate.
Another tip that came up during the discussion after the workshop was to associate your startup with a well-known research or industrial institution. Doing so can help R&D-based startups gain more traction and recognition in the market.
The most common R&D-based business models
According to Jessica, the majority of R&D-based startups capture value in two main ways.
The first is the “market for ideas” pathway to commercialization. What this means is that innovations are sold or licensed before they become products in a notional market (for ideas) by commercializing the IP rights to patented innovations that have yet to be turned into products or through the R&D-as-a-service model. The business models for startups that choose this strategy can take different shapes depending on the direction in which they choose to head. For instance, they could focus on a specific industry vertical — or remain industry agnostic; or they could choose various price mechanisms, like subscriptions, flat rates, retainers, or one-off deals.
The second is comprised of collaboration and community-based business models, such as that practiced by co-creation mobility startup Local Motors. Established in 2007, the company brings together thousands of experts on the same platform to work on devising and manufacturing products from start to finish. This is done either upon commission by specific clients(s) or by using a B2B crowdfunding-like system through which customers pay in advance to finance the development of a product.