Do you lead inside-out or outside-in?
A new study sheds light on why many promising start-ups fail, despite their groundbreaking technologies
The re-opening of markets during Covid-19 resulted in an unprecedented wave of Israeli start-ups going public. While tech companies have been trading huge sums and making big promises to investors, we all know that not every promise is genuine. To succeed, tech innovation should always be backed up by a strong business strategy, and of course, a little luck. That’s where the conflict between inside-out and outside-in kicks in.
While the outside-in strategy focuses on understanding competitive customer needs to create market-tailored products, the inside-out approach focuses on the company’s talent and internal capabilities to ‘revolutionize the market’ and create innovative technologies.
What’s better? There’s no definitive answer, but we should always rely on research, or as W. Edward Deming put it: “Without data you’re just a person with an opinion.”
A recent study by Israeli researchers Dr. Yoel Asseraf and Prof. Aviv Shoham among 200 executives in both established companies and startups found a clear link between company strategy and prospective global success. In comparison to companies that worked inside- out, companies that adopted an outside-in strategy developed marketing, sales, and customer relations capabilities, that resulted in twice the power to predict global business success.
“While entrepreneurs who work inside-out believe that amazing technology is ‘the real thing’, our results show that it’s better to adopt an outside-in approach”, says Dr. Asseraf.
Innocence, ignorance, or arrogance?
These findings are consistent with previous research and surveys that have already found that 90% of start-up companies’ failures are market related. Companies with an inside-out approach have been found to ignore competition and consumer behaviors and develop innovative products that no one really needs.
Another reason why so many promising start-ups with groundbreaking technologies fail, has to do with cultural gaps. When it comes to foreign markets, not everything meets the eye and culture differences can turn out to be much bigger than we think. Branching out in a new country without in-depth research and proper preparation is naïve, immature, ignorant and arrogant, and may cause your business to fail miserably.
What can we do about it?
- Strategize: Start developing your global activity by first building the foundations of your business environment, alongside the development of your amazing technology.
- Do your research: There’s no short-cut or substitute for in-depth marketing research, getting acquainted with the region, and partnering with local agents when necessary, before branching out in new global territories. Understanding and adapting your product and strategies to intercultural differences will improve your chances to succeed on a global level.
- Acknowledge your competitors: Many enthusiastic founders have made the common grave mistake of thinking that their technology is so unique that it has no market competitors. But a closer look at the market usually reveals direct or indirect competitors that might use a different technology but will still meet the same customer needs. While everybody wants to be Steve Jobs, most of the time it doesn’t work that way.
- Be humble: It’s important to keep in mind that we don’t know everything, and that the world is not just waiting for us with open arms. Be humble, be diligent, avoid shortcuts and do your homework.