and are able to identify such customer
needs that are unfilled or poorly met.
At earlier times, Microsoft did this
with PC programming languages,
Netscape with a mass-market browser,
and Apple with the Macintosh, iPod,
and iPhone. Some entrepreneurs create companies around a product or
service they themselves desperately
want, as Steve Wozniak did with the
first Apple computer and Steve Jobs
did with the iPad. But attracting funding from professional investors usually requires more than emotion: They
want quantitative and qualitative data
demonstrating the superior benefits
of the new product or service as well as
what potential users are willing to pay
to get it. This value to customers ultimately depends on what competing or
substitute products and services are
available and at what price.
Some startups enter a market with
a product or service that is cheaper
but less functional than what large, established firms offer. The new offering
may seem to offer little value and the
venture little potential, but this evaluation may be misleading. Clayton
Christensen’s 1998 book, The Innovator’s Dilemma, discusses this specific
type of opportunity and threat—when
large firms focus too much on existing
customers and fail to recognize the
threat of new technologies, services,
or business models that are initially
inferior but improving quickly.
examples have occurred with small
disk drives, personal computers, digital photography, and Internet-based
or SaaS applications versus traditional
4. strong evidence of
Startups need to convince investors
that actual customers are willing to buy
the new product or service. Most entrepreneurs underestimate how difficult
it will be to sell beyond “friends and
family.” Some new companies boast
they have lined up many beta users and
marketing partners, but these are not
as convincing as actual letters of intent
A prototype or early product version
helps land new customers by allowing
them to visualize how the product will
work. Product firms that try to get cus-
tomers or funding without a prototype
generally have trouble.
5, 6 Service start-
ups do not have physical prototypes,
but they can try to convince customers
to begin with a limited engagement
and then use a small success to indi-
cate they can handle a bigger project.
5. overcoming the “Credibility Gap”
The “credibility gap” is the fear among
customers that the venture will fail,
leaving the buyer without technical
support or a future stream of product upgrades. Since more than 90%
of ventures do fail, this fear is real.
It is easy for customers to go with an
established vendor, even with an inferior or more expensive product.
This situation leads to a “Catch- 22”:
a startup must line up paying customers to serve as references for new customers, but new customers will usually not sign on unless the startup has
sufficient money to last a significant
time period. The credibility gap may
be the most common cause of failure
for startups. To tackle this dilemma,
startups can do several things. They
can offer large discounts to get those
first reference customers, or partner
with established firms for long-term
support. They can line up investors,
advisors, and board members to show
the startup is a viable enterprise. Or
the startup can package its product or
deliver the service in such a way that
the customer experiences immediate
benefits and does not have to worry
about the venture’s longevity.
6. Demonstrating early
Growth and Profit Potential
Many investors want to know how the
startup will grow the business and generate enough cash to reach breakeven
and maybe even profitability. These
does not make
a market attractive.
are more important.
The ACM nominating
Committee is preparing
to nominate candidates
for the officers of ACM:
members at Large.
Suggestions for candidates
are solicited. names should be
sent by november 5, 2013
to the nominating Committee Chair,
c/o Pat Ryan,
Chief Operating Officer,
ACM, 2 Penn Plaza, Suite 701,
new York, n Y 10121-0701, uSA.
With each recommendation,
please include background
information and names of individuals
the nominating Committee
can contact for additional
information if necessary.
Alain Chesnais is the Chair
of the nominating Committee,
and the members of the committee
are Sheila Anand, Susan Dumais,
ben Fried, and Fabrizio Gagliardi.