This column is by Bilal Zuberi, Early Stage VC Partner at Lux Capital.
Surely many of us have seen the famous Gartner Hype Cycle. It is reproduced every year by the IT research and advisory firm Gartner, Inc. We typically see the following version of it shared around which lists emerging technologies along the curve to illustrate what is hot and what is not.
While it is interesting to see if autonomous vehicles are more ‘hyped’ vs NFC technologies or 3D printing, it is important to note that all emerging technologies travel across the curve over a period of time, and above is just a snapshot in time. Every space gets hyped in the beginning, then disappoints (or gets old), and then re-emerges as real products emerge in the markets with customer adoption.
For any particular new emerging technology space, the cycle looks as follows:
Every new technology space (think connected devices, autonomous cars, drones, VR etc) sees a huge uptick in consumer interest when it is first introduced in an easy-to-understand and palatable way, driving hype among consumers (and investors). When the media/press/investor light shines on any new technology space, a few companies tend to really stand out and benefit disproportionately. They get seen as ‘potential leaders’ in the space, visionaries, capable of breaking through the clutter, and emerging as clear category winners. Why they get anointed vs others is complicated. Its likely a combination of being early in the space, having defensible technology, strong teams, great salesmanship by its founders, etc.
These companies that ‘hit the hype cycle’ just right benefit in several ways. With the press and media attention comes a reduction in their cost of capital. They are able to raise more capital at lower prices, are able to hire the best people with that money (as they appear likely to win this new exciting category), are able to do more experiments and get more shots at the goal without as much worry about costs of failure, and are able to attract early partners who are eager to participate in the spotlight.
Unfortunately, many other companies also involved in the same emerging space don’t get to participate in the ‘hype’ part of the cycle. They feel left out of the buzz surround a new space early on. They may not have the media-savvy CEOs and spokespeople, the well-placed investors and partners, or just may be in a geography that is not on the ‘radar’ of those buzzing about the new space. They don’t get the same press, the write-ups, the glorification of their teams and their technology developments, and the low-cost capital that usually follows to allow them to move fast, hire well, and make some mistakes along the way. They (and their investors) wonder how did they end up missing the ‘hype’ cycle? Regardless, the important question is: Are they doomed to fail vs competition?
I don’t think so.
Inevitably the ‘hype’ part of the cycle dies down a bit…The sexy stories start to get old and people start looking for what’s real vs what’s just good story-telling. And then the trough of disillusionment starts to set in which is when companies need to hunker down, start building real products, real solutions, and find real paying customers. This is the execution part of the cycle. And failing here is much more devastating for any company wishing to succeed in a new/emerging space. But if you win here, you win.
Companies that benefit from the ‘hype’ lavished on them benefit from the resources they are able to gather for survival during the tough part of the cycle, but that only goes so far. Let’s not forget some of the baggage they also carry into this phase. These companies sometimes end up raising more money than they need, often at higher-than-sustainable valuations. They have elevated burn-rates as money often tends to burn holes in CEOs’ pockets, and sometimes they get trapped by those hyping them setting unrealistic expectations of them. All of the above can be burdensome for a company when the real challenge becomes making technology work, getting customers to find your solutions worthwhile, and retaining talent as other emerging technologies enter the ‘hype’ part of the cycle. And believe me, any unfortunate ‘down round’ is terrible for morale across the company.
My point is not to say companies that are seen as category winners early on are doomed to fail. Of course they benefit and strong leadership can capitalize on that early success to truly leave their competition behind in the dust…but other companies who struggle to get their voice heard early on still have a second chance — an opportunity to succeed on the basis of focusing on customers, keeping a heads-down attitude towards distractions, and setting internal and external expectations that real victory is only reached by winning customers, revenues and profits. This is the real part of building a business, the real hard part. And you can win at this. Don’t miss the execution phase!
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