Thoughts on Startups Navigating established Route-to-Market Rules

An otherwise great product can fail miserably when Route-to-Market rules aren’t understood, followed, or intelligently circumnavigated. It’s a common problem for both big and small companies alike, but can especially spell death for startups when not properly understood. In this post, I’ll share my thoughts on this challenge.

To illustrate my point, I’ll cite a first hand experience I encountered years ago yet have seen repeated time and time again. I’ll start with a pivotal conversation I had with a frustrated yet brilliant friend, engineer and startup founder. His frustration stemmed from committing countless months, including weekends, to thoughtful design and execution but not seeing the fruit of his labor and passion in the form of revenue. It went something like this: “We’ve built this great product, it solves real problems, the cost and time savings associated with using it are easy to understand; so why aren’t people buying it?” Logically, from an end-customer “device” perspective, he was spot on. And there were in fact prospective users that understood the message and intuitively bought into it. But they wouldn’t make the final move to purchase the product. Why not? Because, simply put, there were both route-to-market and related product life cycle constraints in the way. While it’s easy to understand product deficiencies (E.g. Excess CPU utilization, not enough capacity, buggy software) route-to-market constraints are subtler but just as limiting.

What this team of brilliant engineers didn’t fully appreciate was that because their product fit into a category of solutions predominantly sold by OEMs to end-users, it had to either sell through the OEMs or successfully navigate around them, at least to the point where it had the OEM’s attention. 

The problem is that selling to OEMs out of the gates for a startup is far from trivial and to circumnavigate around them, would have an associated cost of customer acquisition (and associated execution model) and support model that many either simply can’t afford from the start or don’t know how to rollout in stages without breaking the bank. Back to my example, prospective users viewed what this firm was delivering as a supporting pillar, not the “building” itself. The customer’s natural predisposition was to work through OEM suppliers, including being provided unified post-sales support. Mainstream buyers often need a compelling reason to switch. Add a bit of pragmatism to their buying psychology- as in being risk adverse. Breaking this logjam isn’t always easy.

The OEM partners in this example, and many others for that matter, spend huge sums of money and time on testing and validation as well as costly sales, support and marketing. I’m not addressing a simple OEM non-branded resell model, I’m talking about the OEM putting its name on the product and listing it as part of its offering. Combined, these activities serve to build confidence among mainstream customers. In this particular example, the targeted OEM partners perceived the product to be problematic because, although as a standalone product it could deliver tremendous end user value, it distracted from their existing product and support models. There wasn’t enough market force to compel it to take on the product yet. Was it initially the intention of this startup to upset or work around these would be partners? No, not at all. In fact, several were consulted before getting too far down the road. But it became murky. Very intelligent “physical sense” oriented people were involved, clearly understanding the physics of connectivity (software and hardware) but not being as mindful in maneuvering the facts and messaging as to how partners could be far more successful when selling the product, or how fast. In my opinion, one shouldn’t interpret a potential OEM’s input that the product is “really cool” and disruptive as a commitment to resell and support it. It can become cloudy and difficult to read, especially when the OEM expresses interest to learn more or even requests to evaluate the product internally. Not faulting the OEM, as it just wants to keep a pulse on what’s going on in the market. Keep in mind that integrating and launching new products for your typical Tier 1 OEM is a Juggernaut.

Many OEMs respectfully monitor startup innovation and even admire (meant sincerely) the leaders and engineers of startups. They respect the fact that this is where a great deal of innovation is born. They respect the risk and the personality profiles of those taking on the risk. Entrepreneurship meets Big Business. But I’ve seen too many startups get prematurely excited when an OEM returns a phone call or agrees to a meeting. Generally an OEM gets really interested either when it hears or sees significant business going the startup’s way, especially if it includes what it sees as its customers, or when another OEM is threatening, and the startup’s solution fills the void.

I’m not suggesting that if you can’t secure this permission and support, and your still convicted to continue, you’re doomed. If you believe strongly in your mission and value and have a number of customers to back you up- explore your business model and understand what has to change and the cost of that change. Can you afford to go at it alone for a while and bypass the standard channels? For example, can you build out a very focused but small direct sales force (with founders at the ready to help) where it matters (certain tested and proven verticals crying for a solution or Geographies) and afford the costs that go with that? Relying on a distribution channel might be a bit premature. Generally VARs and VADs want to see a new technology or product category materialize before investing time and money, unless they’ve worked with you for years and there is trust. Granted, there are some VARs with a business development bent.

Generally, disrupters come not out of large going concerns but startups that don’t have much legacy business to lose, and have a reasonable understanding of the cost and time associated with customer acquisition. Many have a roadmap not just for product but for go-to-market. This works better when there is a Sea Change in technology that transforms the physics of delivering value propositions and startups can be quick to respond, versus legacy vendors clinging bit too long to the status quo, in fear of losing a grip on the market and revenue. Taking the eye off of constant innovation has a heavy cost. Hitting these cycles just right requires skill and precision, not to mention some luck…..on both sides of the coin.