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Invest in customer value first, technology second

Invest in customer value first, technology second

We tend to think that good start-ups come with new technology. It is, of course, true in many cases – think about all the new business models enabled by the Internet and mobile connectivity like targeted online advertising (Facebook), teleconference services (Zoom), or e-commerce (Noon). We even refer to the start-up sectors by adding “tech”

We tend to think that good start-ups come with new technology. It is, of course, true in many cases – think about all the new business models enabled by the Internet and mobile connectivity like targeted online advertising (Facebook), teleconference services (Zoom), or e-commerce (Noon). We even refer to the start-up sectors by adding “tech” to the traditional industry name – for example, fintech, traveltech, or healthtech.

This practice can create an illusion that throwing a well-executed digital solution at a problem equals a successful start-up. Nothing can be further from the truth, especially in the consumer sector. Technology enables new business models by scaling the value, not by creating it from scratch.

Businesses like Uber, Amazon, Noon or Talabat all share impressive technology, but this technology is used to scale the value that has nothing to do with digital or the internet. Before the ride-sharing companies, we used to order taxis by phone, or ask friends for a lift. Grocery delivery is also a very old practice (for example, fresh produce has been routinely delivered to wealthy households for centuries).

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Sleek digital experiences and automation makes it easier and cheaper to accomplish these tasks. This makes them available to millions of people at the same time – and, by doing so, skyrockets the value of these businesses.

Here is the rule of thumb my co-founder and I use in building our own start-up: Check if a low-tech feature creates value to consumers. If yes, invest in building the technology to scale it. For example, beautytech is currently flooded with apps that offer consumers to use an AI-based algorithm to rate the look of their skin.

The image recognition technology behind these apps is fantastic – it is so advanced that it can really count the wrinkles on your forehead better than yourself looking in a mirror. If you have at least for a second imagined the prospect of having such an “anywhere, anytime” wrinkle-inspector at your fingertips, you can probably guess why none of these apps is successful.

On the other hand, if a low-tech solution works, the high-tech version of it has a chance to be extremely successful if it manages to maintain the core of its customer value while enabling a larger scale. Particularly in the consumer sector, the technology’s role is to bring down the cost, improve accessibility, convenience and increase speed of a solution that works in an analogue world.

Beautytech is currently flooded with apps that offer consumers to use an AI-based algorithm to rate the look of their skin

This, for example, can be the case with personalised medical or financial advice, automated and AI-assisted accounting, or a drone replacing light bulbs just-in-time (it’s time for someone to come up with one, isn’t it?). Once the customer value is certain, the next difficult question to ask is about the sophistication of the available technology for scaling the solution.

The order of the questions is important. Start with “Is there enough value?” and only then ask “Is there a technology advanced enough to help scale it?” The next question is “Would it be economical?” The answer might be “Not so much” in case of the light bulb drone.

Start-up people tend to be fascinated by new technologies, and it is easy to be biased when you start with the tech part. Silicon Valley investors often use the expression “technology looking for a solution” to describe start-up ideas that focus on technology rather than customer value first.

As the MENA start-up sector is developing at a rapid speed, investors need to become more and more sophisticated in evaluating the opportunities at an early stage. A healthy dose of scepticism can help separate the wheat from the chaff in an environment where buzzword technologies like AI, machine learning, or blockchain are often presented as the solution to all problems.

Avoiding the “technology looking for a solution” trap can save both investors and founders a lot of wasted time, effort and money.

Maria Semykoz is an entrepreneur and investor. She is a co-founder of a skincare tech platform What’s In My Jar.
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