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Thursday, 19 March 2009

In this crisis, do you choose innovation over revenue?

One of our greatest fear for our startups is that many of them will turn to a service model in their attempts to keep the operations afloat. From a startup point of view, I fully appreciate their intentions of doing so. Personally however, I will not choose such a path.

Don't get be wrong, a service model is not a bad revenue model. What troubles me is when a startup switches from a product focus company to become a service company. That indicates a couple of worrying signs to me:

The different nature of product and service companies
A product company works very differently from a service company. The kind of business processes and the type of capabilities are vastly different. As John Hagel wrote, a service company 'builds building deep relationships with a target set of customers' while a product company focuses on 'developing, introducing and accelerating the adoption of innovative new products and services'. For a startup to go through such changes is almost impossible and inevitably will lead to the startup becoming a zombie company i.e. just struggling along.

Losing of your passion
A startup wants to do something because they are passionate about it (hopefully). It is that original passionate that can help you overcome challenges and achieve your goals. When you switch models because of credit crisis, you are inevitably sacrificing your passion to earn a few bucks. I don't think that will ever help anybody to become successful.

In times of crisis, it is to your advantage to focus on innovation

When you are not focus on building your innovations, you are losing out on a great opportunity to create competitive advantage at a time when competition is at its lowest. Instead of earning revenue, you should focus on hiring the best talent, thinking about strategic innovations etc so that when the economy becomes better, you are in a stronger position to take a market lead. Crisis is the best time to be innovative.

Despite all I have said, I understand that funding is still essential. Hence, we are doing all we can to gather pockets of available financing that is still available and making it easy for startups to assess them. If you building something innovative and needs that extra liquidity to keep you focus on completing it, do drop us a line and we are happy to help.