In the past entrepreneurship was viewed (and taught) as a single process, with a single approach to creating a business plan and securing funding for a startup. The best entrepreneurship textbooks and blogs assume that advice to startups is generalizable. But as I learned from my students this “one-size-fits-all” approach does not work for all startups. Different market opportunities present radically different startup risks and costs.
Capital Requirements
In my class students form teams and spend a semester building a detailed plan for a company. When I started teaching I launched project teams with this advice: All you need is a half a million dollars to start a company and at most a few million more to scale the company.” And the students nodded, OK, yes sir, and they wrote down, “a half a million bucks to start.”
The next week in class a project group raised their hands and said, “Hey, Professor Blank, we found out the common wisdom in the biotech business is that “we need $10-20 million just for the R&D phase and 100’s of million to get through clinical trials.”
“Of course,” I said, “Life science is completely different. The time to product and scale of investment is radically different than other startup markets.”
Intellectual Property
At the next class I said, “You all ought to get out and start talking to customers on day one, and get early feedback on your idea. You don’t need to worry about any Intellectual Property (IP) issues. Just get out of the building.”
The next week another team, working on a new type of solid oxide fuel cell, remarked, “Professor Blank, in our industry there’s a ton of patents and stuff and people tell us we shouldn’t be out there unless we start patent protecting all our IP.”
“Oops,” I said, “you’re right. In clean tech nanomaterials you guys need to be talking to patent attorneys. Don’t share the details of your manufacturing process with customers until you’ve locked up your intellectual property.”
Government Regulations
I turned to the class and said, “The rest of you can keep building your company and shipping your product because you don’t need to worry about government regulations. You’re a startup, just get your product out the door.”
The next week another group raised their hands, “Professor Blank, we’re building a medical device and there’s something called the 510K that the FDA requires, and that’s a two-year process.”
Verticals Are Different
I began to realize that entrepreneurs (and their professors) act like every vertical market and industry has the same set of rules. The guidelines I had originally proposed to my students worked for enterprise software or Web 2.0 startups, but medical device, biotech and cleantech startups required radically different approaches.
So the first heuristic is: do not assume the startup rules are the same for all vertical markets.
Now when my students begin their team projects, I list 13 vertical markets on the whiteboard. Just for discussion, the markets I chose were:
- Web 2.0,
- enterprise software
- enterprise hardware
- communications software
- communications hardware
- consumer electronics
- games software
Vertical Markets – Click to Enlarge
- semiconductors
- Electronic Design Automation (EDA)
- clean tech
- medical devices
- life sciences
- personalized medicine
There’s nothing special about this list other than it represents a diverse set of markets. If your market is missing, just add it as we go through this discussion.
Entrepreneurs who have experience in the vertical market they’re entering do this analysis automatically. If you don’t have deep knowledge of the domain you are about to start a business in, you need to begin by understanding the answers to questions like these:
- What vertical market are you in?
- Do you have domain expertise in your market?
- Do you have advisors who are domain experts in your market?
- Do your potential investors understand your market?
- What is it that’s unique about the market I’m in?
We’ll talk about the implications of what vertical market you’re entering in the next few posts.
