Some business advice for academic startups/spinouts

So I love academia, and I also built two businesses. When I dropped out of studying physics to focus on my company, I assumed I knew everything, since I had studied physics!

Turned out that if you enter the world of commerce, it is very bad if you are visibly confused about the difference between business development and sales. It does nothing for your credibility. People in enterprise will likely and correctly conclude that you know nothing about running companies if you are hazy on concepts that are fundamental to them.

Now, unlike say the difference between fermions and bosons, the differences between the marketing, sales and business development departments are of course arbitrary and artificial. No one is forced to use the same definitions as other businesses have chosen.

Yet, if you venture out from academia, perhaps to launch a spin-off, or in other ways need to partner with commercial companies, it is immensely useful to use compatible language.

So here goes. And, because this piece is aimed at smart academics, I’ll also throw in some theory.

Some theory

Before we delve into this fascinating subject, first we’re going to delve into signaling theory, which is studied both in economics and in biology.

We’re told to not judge books by their covers. Yet human beings are exceptionally good at doing just that. One look at an apple will tell us if it is fresh, if it will likely be sweet or sour. Since we have no time to make complete evaluations of everything, our brains have developed extremely powerful shortcuts to find out if something is good.

This can also be likened to Douglas Adam’s “towel” theory:

A towel, it says, is about the most massively useful thing an interstellar hitchhiker can have. Partly it has great practical value. You can wrap it around you for warmth as you bound across the cold moons of Jaglan Beta; you can lie on it on the brilliant marble-sanded beaches of Santraginus V, inhaling the heady sea vapours; you can sleep under it beneath the stars which shine so redly on the desert world of Kakrafoon; use it to sail a miniraft down the slow heavy River Moth; wet it for use in hand-to-hand-combat; wrap it round your head to ward off noxious fumes or avoid the gaze of the Ravenous Bugblatter Beast of Traal (such a mind-bogglingly stupid animal, it assumes that if you can’t see it, it can’t see you — daft as a brush, but very very ravenous); you can wave your towel in emergencies as a distress signal, and of course dry yourself off with it if it still seems to be clean enough.

This is obviously all very good. But having a towel achieves much more than that:

More importantly, a towel has immense psychological value. For some reason, if a strag (strag: non-hitch hiker) discovers that a hitchhiker has his towel with him, he will automatically assume that he is also in possession of a toothbrush, face flannel, soap, tin of biscuits, flask, compass, map, ball of string, gnat spray, wet weather gear, space suit etc., etc. Furthermore, the strag will then happily lend the hitch hiker any of these or a dozen other items that the hitch hiker might accidentally have “lost.” What the strag will think is that any man who can hitch the length and breadth of the galaxy, rough it, slum it, struggle against terrible odds, win through, and still knows where his towel is, is clearly a man to be reckoned with

The idea of signaling is that a company (or an organism) exhibits certain behaviour that leads its environment to conclude all kinds of additional things. You can do this on purpose or accidentally.


A springbok signaling its vitality by ‘stotting’, thus convincing cheetahs it is not worth chasing. Source: Wikipedia user Yathin sk

If you launch your new spin-off while your presentations, brochures and website show three different versions of your logo, you have signaled extremely effectively that you are a rapidly developing place without a marketing department. Because this is true.

Conversely, if you manage to make all your materials use the same font, colors and style, your audience will (unconsciously) conclude that you (generally) have your house in order. Without having to do anything further, they’ll also assume you have competent lawyers and that your taxes are being filed correctly.

Now, signaling is a scary thing. It is immensely powerful, and it could help you tremendously. It might get you into deals that you don’t actually deserve because your product/idea/service actually isn’t that good (yet).

Conversely, you can sink almost infinite effort into signaling your competence and this can get in the way of actually getting things done, like communicating how great your product is, because everything has to wait on your designer people.

Marketing (pixels, fonts, conferences, consistency)

Companies typically have one entity called “marketing”, but they don’t do themselves any favors that way.

One aspect of marketing is to make things look good and consistent. This includes everything with the name of the company on it, including the website, presence at conferences, product sheets, letters, business cards, really anything the world might encounter with your name on it.

Oddly enough, many companies put their entire branding and styling online for everyone to see. This is often called the “corporate identity”, and can include instructions down to the pixel. Apple is famous for this, and everyone doing this kind of marketing would give their arms and legs to work at Apple.


Source: Apple Identity Guidelines For Channel Affiliates and Apple-Certified Individuals

Your own institute might even have such a branding guideline available, and it can be very inspirational.

Now, this kind of thing is important, but it is also tremendously hard work. It can absolutely calcify a company when “everything has to go through marketing” to make sure it looks good and consistent. Nevertheless, it is good to respect this kind of marketing activity, not only for your own company, but also to respect the corporate identity and branding people from your partners.

Through bitter experience, they have discovered that using three different logos inconsistently sends a powerful but unwelcome message to potential partners and customers.

Just don’t go overboard - if you achieve “mostly consistent unless you look really closely” it is already pretty good.

Note that commercial organizations typically get it wrong by labeling both this kind of ‘corporate identity’ work and actual content generation as ‘marketing’.

Content marketing

Once the fonts, logos and pixels have all been agreed upon, it is time to actually describe our products, services or ideas. The one thing this has in common with ‘pixel and font marketing’ is that it too involves signaling, but of an entirely different kind.

What you are signaling here is not just that you are “good”. You are signaling you are “good for this kind of customer/partner/employee/investor”.

Continuing the judging books by their covers analogy, any book with a spaceship on the cover will not be taken seriously, except by science fiction fans. This would shield us from experiencing important Ursula K. Le Guin literature, which involves spaceships, so these are carefully kept off the covers.

It is astoundingly important that potential contacts recognize themselves in your marketing materials and even more importantly, see nothing that rules them out from dealing with you.

Good content marketing people know this and will deliver materials that are tailored to different audiences. This kind of marketing shines if it helps you communicate the right things to the right people.

As noted earlier, the division of labour between marketing, sales and business development does generate a challenge here. Contact with customers is usually reserved to the sales department, who want to do sales. Their incentives are very different.

Yet, the content marketing people need all the intelligence they can get on customers. And they often don’t get it since marketing people tend to explode when they find out what sales people are presenting to customers. There is no need to copy paste this problem from the world of commerce!

Sales

This involves selling your thing. For money. This is very alien to most scientists (it is not at all like trying to get funded!), and in academic settings we therefore assume that “sales” is some alien craft which we should leave to someone else. Alternatively, many scientists and engineers reason that their product/thing/idea is so good that it doesn’t need any sales efforts. “It is obvious”.

Both these approaches are terrible.

The problem is the well known concept of inertia - if left alone, things will continue as they were. Yet your product/idea is new. That means things will have to be set in motion so change can happen. Corporations and institutes are full of moving parts, and these will all have to be convinced that they need to do something new.

Sales in our high tech context consists of reverse engineering the customer’s motivations and needs. This by the way should not be seen as spying. The honest truth is that most large organizations themselves don’t quite know why they exist and what they need.

The people you talk to within a large customer are not able on their own to figure out how to get their behemoth corporation to do business with you. If you don’t believe me, do read this marvelous piece by a famous investor.

Good sales people will work with both the creators of your product, with the immediate contacts over at the customers, but will also explore within that company what the (hidden) motivations are.

This is work that is due your every respect.

Not everyone in sales is this gifted however, and even the best sales people need a lot of stuff before they can get to work: pricing, “beat sheets” (‘why is our thing better??'), product presentations, product sheets, company presentations, roadmap, demos, proof of concept kits etc.

Some excellent sales people can create (copy paste and modify) some of these things for you.

Now, I mentioned before the tension with marketing. Marketing people should deliver all these sales materials, but often don’t do so quickly enough. Or, the sales materials don’t align with what the customer wants. You might for example have materials full of boats and marine things and then you have to present for an airplane company. This leads to the question “so you aren’t really an aviation place?”.

Sales people will often get creative here and make their own materials. These are then obviously not up to the standards from the marketing department. Crucially, the materials may also imply things that are not actually part of the product.

If you make a product that helps prevent corrosion of a certain kind of metal under certain conditions, through a few steps of sales optimization, this might end up as “eliminates all kinds of rust” in a sales presentation. And believe me, whatever you make your customers sign, they’ll show up with that sales PDF once their oil platform is rusting.

This typically leads to Large Walls between marketing and sales. Sales is only allowed to use Authorized Materials and anything they say has to be checked by legal. Relations between marketing and sales departments tend to not be that great.

The danger of this is that the sales department has very good insights into what customers worry about. They may be your best source of intelligence. And because of some mishaps, that intelligence is then not reaching your marketing department.

Unless you get extremely lucky, you won’t be able to hire a good sales person as a small spinout or startup. Sales (unsurprisingly) is about money and not typically about ideals. The vast majority of sales people are “coin operated” and will not be very interested in betting on your startup (with some notable exceptions). Also do know that most non-genius salespeople can’t easily transfer from one field to another. Having a history selling software will do little for your chances of selling corrosion preventing coatings.

The upshot of this is that most small places will typically have to rely on (one of) their founders to quickly learn how to do sales. It is not rocket science, but do be aware that it also a real job that deserves a lot of respect.

Summarising, sales is a very different activity than marketing (both kinds). Sales is always necessary and done well it is quite an art. Sales people should generally not do their own unsupervised marketing. As a small spin-out you could be more flexible here than most large organizations. Because you are small and not yet successful, it is unlikely you’ll be able to hire a great sales person, so best get ready to learn.

Business development

Now, initially, you may find that the sales is not working, even though there (almost) is a product. This could have several reasons:

  • Your product isn’t interesting or relevant
  • The thing you do is not usually sold that way (“interface problem”)
  • Your thing is so important no one wants to buy it from a startup
  • You lack reference customers

We’ll disregard the first option, since nothing on this page can help you if you don’t have something interesting in the works.

Let’s say you invented a better shoe, you’d have only limited problems entering the market. It still won’t be easy, but everyone buys shoes, there is existing infrastructure to sell shoes, you don’t have to explain the concept of shoeing to anyone.

But let’s say you invented a shoe framework on which other people could rapidly develop fashionable shoes, you might end up having an “interface problem”. Your idea is really good and useful, but currently shops either just sell shoes, and can’t deal with your prefabricated half-shoes, or you have to target shoe factories that have no need for your idea (and will even hate it). You lack an interface to useful customers.

A second option is that the thing you made is really really important to customers. So important that they won’t dream of buying it from this tiny startup. In effect you’ve ruined your own market by building something really vital!

Finally, and this is a near universal problem, most customers do not want to be your first customer. They’d rather have someone else take the first bite so they can be “smart followers” in business lingo.

Issues like these are typically not resolved at first, and only manifest themselves as “we’re not selling anything”. Someone then mentions that we should hire a business developer, who would then should go on to, well, develop some business.

Business development is a very worthwhile activity, but it is not something you can solve by hiring a business developer. The interface problem, the “you are just too small and we don’t want to be first” problems definitely need addressing. And there are proven ways to address them - typically through partnering.

Now, I had to learn this the very hard way, a partner can indeed solve your problem, but often won’t. A partner is an organization that is already in contact with customers, probably supplying them with products, solutions or services that could well incorporate your own thing. Typically small companies define a partner as “someone that does all the things that we can’t”. And by definition, your goal then becomes to find a partner, because together you could do everything.

If we look back to the shoe experience, it may be that the partner is already active in the field of semi-bespoke fashion. They already do something like this for trousers perhaps. Through their network, they could also shift your shoes.

There may be other cases where a partner is an existing producer of products and where they might directly want to incorporate your thing.

In both of these cases, you are asking the partner to take on a big risk. Will your stuff work? Will you stay in business for the duration of the project? Will your large partner now get sued because your idea infringes on dozens of patents?

All these things can be solved. You can of course make all kinds of promises, and you may even be able to back these promises with commitments from shareholders, investors and intellectual property rights owners. Key here is making credible promises.

These can lead to a partner lending their own credibility to your invention and thence developing some real business.

But here is the thing - almost NOTHING of that work can be done by someone you hired externally as a business developer! You may of course hire someone to research possible partnerships, and even talk to them to figure out if there is any interest, and to document their concerns and plans.

But if you want any business development to happen, it will have to heavily involve senior leadership of your organization. This goes back to the signaling theory from above - if you say this new partner is super important and you will do everything to make the collaboration a success, why aren’t they hearing that message from the CEO who somehow always has time to meet with them?

Now, there are variations on this theme. If you want to do business development for telecommunication companies, you could hire me for example (except that I’m not available). And if I believed enough in you, I might be able to convey this belief to my contacts in the telecommunication industry, many of whom I have worked with for 15 years.

But the thing is - I could only do this for you in a very limited field (telecommunications). I might also have to somehow get a stake in your company (shares) just for credibility. Also, I’m not even available!

And this goes for almost all people who could credibly do business development for you. Now, you might get lucky of course if you find an industry veteran that is looking for some fun work. But don’t count on it.

And so we get back to the same situation as with sales - a lot of the heavy lifting will have to come from the founders. You can hire outside help to do research and do initial talks, but to get anywhere, the founders (and shareholders and investors) will have to be very heavily involved.

Summarising

Marketing (both kinds!) is very important to professionally convey the right message to partners and customers. It has to look good and be tailored to the right audience.

Sales is not something a fresh spin-off or new organization can expect to hire someone for (unless you get very lucky). Instead, founders will have to become good at this.

Your initial invention/idea/thing is unlikely to be something customers can slot into their lives risk free. Getting them to do it anyhow is not simply a matter of doing sales harder. It requires business development.

Yet, much as with sales, you can’t just hire a business developer and give them them the job. Business development is a founder/investor-level activity thing, that can at best be supported by a business developer you could hire.

Further reading

I’ve collected a potentially useful set of links to other people’s blog posts, my own work and useful books. You can find these here