A great way for IoT companies to cross the chasm

Crossing the chasm is hard for start-ups, as Geoffrey A. Moore explained so well in 1991. It is also well-known that going from a consulting business model to a product model is really difficult, says Internet of Things (IoT) entrepreneur, Magnus Melander.

There are practical challenges like cash flow sales and marketing, but the challenges related to mind-set are the most difficult. In essence a consulting sales person always tries to sell at least what a customer is asking for, while a product sales person has to manage customer expectations on release dates, prices and features.

Companies are still trying to change because the ability to scale faster and more profitably is seductive, and the ones who succeed can end up in a much more interesting situation. No risk, no glory! There are also examples where companies separate the platform they use as consultants from the consulting, and SAP is a great example of that.

In the IoT space I believe we have an additional strong argument for going from consulting to product. All IoT solutions include hardware, connectivity, data collection, data analysis and distribution of information. Customers want to leverage these systems to improve their business, that is why most IoT solutions are customer-, application- or industry-specific.

The traditional way to develop an IoT company is to “get hold of” a platform on which to develop customer applications. So most IoT companies come with a technical asset which they try to turn into a solution for a specific customer need. The challenge is to learn enough about an industry or application to make customers impressed and eager to buy.Crossing_the_chasm_cover

Wherever I go today I meet IoT start-ups with solid but quite generic platforms and some customers, often in different industries to make it even more complicated. They might have invested a couple of million dollars to develop and maintain the platform, often using external money. The combination of IoT rapidly becoming an international business and quite local, and not really specialised IoT platform companies, will unfortunately create problems in many IoT start-ups.

I have now seen a couple of IoT start-ups successfully going from consulting to product and believe it is a great way to go. By taking the de-tour as consultants they can finance their company themselves as long as they need. In the consulting stage they might test different potential markets for their product, they build relationships with customers, partners and potential recruits in the target market and they can develop their product back home in stealth mode if they like.

The most dangerous point in the development of a company like this is when they decide to jump from consulting to product. A clean-break is required to make sure all resources are focusing on the product from day one and to manage legal, ethical and practical issues. It has to be well planned to secure cash flow and a fair chance to have paying customers. Marketing and sales have to be ready to roll right away. The end result is a well-focused, prepared and customer-centric IoT company which the founders still own. If it fails, it is still painful but clean and quick.

It is still challenging to go from consulting to product like this, but if this is the plan from the start one can mitigate risks by hiring product people and structuring the business as a product company. And again, no risk no glory!

The author of this blog is Internet of Things (IoT) entrepreneur, Magnus Melander. It first appeared on connectcompute.

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