Brian's Blog

In an earlier blog, I introduced the process of rapidly developing product in a Web 2.0 world. In this blog, I am going to begin a discussion on the process of commercializing Web 2.0 technologies. In future blogs I will discuss specific successful and failed examples and how they fit into this model.

In running, investing, and working with startups, I have observed a process of commercialization that has two broad dimensions:

• Phase of the product lifecycle: The phases of the lifecycle for product development include exploration, development, and production
• Business function: The three business functions that support the product development lifecycle include product development, marketing and sales, and business and infrastructure

In the following table, I illustrate these two dimensions and summarize some detail that takes place within these dimensions.


Business function

Product Development

Marketing and Sales

Business and Infrastructure

Product Lifecycle


· Technology strategic analysis

· Prototype

· Market needs assessment

· Competitive analysis

· Business strategy

· Financial analysis


· Production feasibility

· Iterative prototype development

· Client-specific validation

· Strategic Marketing

· Pipeline analysis

· Pre-production bookings and sales

· Business plan

· Financial model

· Financial assessment

· Business Start-Up


· Production

· Iterative development with continual client feedback

· Sales and Distribution

· Pipeline management

· Operating financial model

· Business Growth

As an idea or product moves through the product lifecycle, the business’ functional support, including marketing and sales and business and infrastructure, needs to be at the commensurate level maturity. In large companies, an infrastructure is typically in place to support a new product as it moves through its lifecycle. But given the cultural limitations of large companies, the trick is often less of supporting the product and more of cultivating a culture to encourage innovation.

Startups are typically building their business support while at the same time moving product through its development lifecycle. In starting a small company, the trick is to balance the resources invested in product development versus marketing and sales versus business and infrastructure. As an entrepreneur, I consider the process of optimizing the balance between these three functions critical to the launch of a successful business. When investment in any one of these functions gets too far out ahead of the others, it is possible that scarce startup resources are not being used efficiently. One way to look at this balance is similar to the portfolio optimization process found in the world of finance, where the entrepreneur is finding the optimal balance between product development, marketing and sales, and business and infrastructure, in an attempt to maximize return and minimize risk.

Below, I provide a few observations on balancing the maturity of each of these business functions.

Product Development

As I discussed in my last blog, the advent of Web 2.0 technologies makes rapidly delivering product increasingly more easy and affordable. Web 2.0 enables entrepreneurs to create prototypes using open source tools to conduct concept analysis on product ideas with very little investment. This enables the optimal portfolio mix to weigh more heavily into marketing and sales than has been traditional with technology startups.

Furthermore, when combining open source platforms with off-shoring, startups can also move through the development phase much more rapidly. Many startups have begun moving much of their development resources overseas to countries such as the former Soviet Republics and India while keeping high-level engineering and developing technical specifications in-house. Moving development offshore tends to be very efficient allocation of resources. Some of the lessons-learned from offshoring include:

• Finding an off-shore development shop that is familiar with your company’s choice of platform and architecture
• Keeping turnover low on your off-shore product team to keep development efficient
• Communicate with your offshore development team that you have a ready stream of projects for your offshore team so that there is incentive for efficiency

For startups, the production lifecycle is an ever-iterating process, as the product matures. But as the product goes to production, it is critical that the product’s support is delivered commensurate to marketing.

Marketing and Sales

With the plummeting price of technology development, more resource can be spent on marketing and sales during the exploratory phase. This enables a more precise targeting of product development toward actual clients – before the completion of the first development iteration. Below, I provide a few highlights:

• Immediately productize the technology and position as providing real, tangible value to business or consumers
• Target your first product development iteration toward actual paying clients
• Get feedback by launching your technology online as a beta
• Take product feedback seriously during the marketing process – if people consistently don’t get it, maybe it’s your product and not the audience

To focus on one area in particular, it is my observation that entrepreneurs tend undersell their technology by not immediately productizing the technology and highlighting the tangible value it can provide their clients. For example, the technology behind blogs has been out since the beginning of the internet and is not particularly complicated. But it took productizing editable webpages as “web logs” that revolutionized everything from citizen news to family vacations. This was strictly a marketing, productizing exercise that had nothing to do with technological innovation.

Business and Infrastructure

Finally, in startups, the most neglected business function tends to be business and infrastructure. And depending on the startup’s exit strategy, this neglect may make perfect sense. There’s no use in investing in infrastructure when the business model relies on scalability that can only be accomplished via an acquisition.

As a quick overview of business issues where startups can’t afford to neglect include:

• Protection of intellectual property
• Developing and implementing a fair valuation formula
• Structuring the business’ legal organization to support potential exit strategies

To focus on one of the above areas, coming up with a fair valuation of the business is critical for entrepreneurs. As a part of this exercise, it is important to work with an experienced advisor in working through the issues involved with valuation. For example, if an entrepreneur is inviting friends and family to invest in their start-up and their initial valuation is too high on the seed round they could be putting their friends and family at a disadvantage when they are ready for the next found of funding.
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