Maki.vc joined forces with Combient Foundry to put together a survey on collaboration between industrial deep tech startups and corporations. Our first crucial steps across the Death Valley took us from tech development to successful pilots. Now we turn our focus to commercial deployments, the next critical phase of the journey. Our study showed that less than half of respondents had been able to get to commercial deployments, and only 10–20% had reached multiple commercial deployments. What keeps so many startups from reaching bigger deals and repeat sales?

All functions must reinvent their way of working in order to get to commercial deployments

When an industrial deep tech startup reaches commercial deployment, it means that its technical solution is in permanent use in its customer’s production environment. Usually, the aim is to do multiple similar deployments within the same organization — e.g. in different factories — or within the same industry. Reaching commercial deployments is often a question of life and death for industrial startups — but how to get there? I’ve compiled some key learnings for startups looking to move from pilots to commercial deployments, based on my own experiences and discussions with both corporate and startup executives.

1. Define the product and finalize productization

In our survey, over 90% of startup respondents said they are responsive to a corporate’s customization needs — and indeed, product customization can work well in the pilot phase when customer needs are not fully understood and the product is not ready. However, when you want to progress to commercial deployments, you need to have a crystal clear understanding of the final product and freeze the product version — especially when your solution includes hardware. The product itself must bring significant value to the customers and have as little external dependencies as possible in order to make decision-making and deployment projects easier. This is where startups often go wrong:

“Most of the industrial IoT solutions never get to the commercial deployments simply because they are too narrow, and the end users don’t see enough value in them” - Vesa Laisi, President of Danfoss Drives

Defining the product and finalizing productization is not always an easy thing to do as you may find yourself juggling many different (and often contradicting) product feature requirements from different customers. Managing customer requirements calls for efficient prioritization, as well as specialized account and product managers. The best product managers understand that they don’t need to deliver on every request the customer has — instead, they manage the product roadmap with their own vision, offering customers insight on the best solutions to reach their goals.

It’s important to learn to say ‘no’ to customers and guide them when it comes to what’s important and what’s not. The best products that succeed in commercial deployments are not the ones that have the most features, but rather those that solve the biggest customer pain points with the simplest solution available.

2. Start enterprise sales and professional account management

While it might be enough to convince one individual in the company when selling a pilot, you must be able to convince the entire organization in order to get to commercial deployments. It’s important to start these activities early enough. However, this is where startups often fail: they underestimate the sales work needed on multiple levels of the organization to close the big deals. Also, if you only have one point of contact, there’s a huge risk for long delays if this person leaves or is assigned to a new role.

That’s why mapping the decision-makers and influencers of an organization is crucial. The R&D staff and innovation team can often be extremely excited about the new technical innovation, but it doesn’t mean that the business owners and production managers automatically share the same enthusiasm. Even if you have a good result from your pilot, it’s an absolute must to get the business owners and real users of your product excited about it, too.

So how to hack this? In addition to traditional sales, you need to start professional account management practices in order to have many-to-many communication and a clear responsible for the account. The account manager’s job is then to make sure that the two companies build a strong business case together and that there’s buy-in for it throughout both organizations.

3. Build capability to deliver high-quality products in volumes

When corporates find a strong business case, there needs to be a legitimate plan to scale up production and convince the customer that the collaboration will continue in the long-term and that they’ll get what they’ve been promised. This is an area where corporates have some doubts — our survey showed that over 50% of corporates are not ready to execute long-term strategic partnerships with startups due to their perceived unpredictability.

Hannu Martola, CEO of Detection Technologies and LP of Maki.vc highlights the importance of quality:

“When I started, our biggest constraint to sales was quality and our reputation. Our products did not last in real-life environment. Customers were frustrated, they did not want to talk about our new product ideas — and the sales started to decline. We urgently started making changes to the products and their processes, starting from material choices. At the same time, we started a heavy program to boost our sales to existing customers as well as find new customers. In order to succeed in this, it was critical to change our company culture from a very technology-oriented to a more customer-centric and service-based one. When the company culture is sales and customer oriented, product design is good, and all the processes in the supply chain are well-defined, scaling up the company suddenly becomes much easier.”

Designing products for manufacturing is an area that causes trouble for industrial deep tech startups. Here’s how Rene Kromhof, an angel investor and ex Heptagon SVP Sales and Marketing, puts it:

“Engineering a proto or a pilot is pretty damn hard, but scaling up from making one to making thousands or even millions is something entirely different. Here’s how companies fail: They start to produce more and then the product simply doesn’t work. The key thing here is to “design for manufacturing” which means that already at the engineering design phase you take into account things like manufacturing tolerances, temperature operating ranges and what not. This way you can make a robust design that is manufacturable. Knowing your manufacturing capabilities, limitations and tolerances is key to making a product that is scalable.”

For an industrial deep tech startup, building a supply chain typically means working with multiple subcontractors that have the ability to scale up production quickly when needed. Paying enough attention to your subcontractor selection is crucial, as you’ll quickly become dependent on them. In addition to production, after-sales processes (spare parts, maintenance, customer support) are an area that is often overlooked. If there are no credible capabilities in place for all these, it will be difficult for a corporate to commit to multiple commercial deployments.

4. Tell a compelling brand story

Deeptech and industrial startups are typically founded by teams that have a heavy research or engineering background. Unfortunately, this often means that the team tends to underestimate the need for and importance of branding and marketing. When you have a great brand and story to share with the world, it’s easier to get people excited about your vision and attract more customers and partners, too. What’s more, a high brand value can also justify a higher price for your product, leading to better margins — and better margins make many other things easier, especially when production volumes are still low.

If you’re looking for inspiration, start with Stanley Robotics and Boston Dynamics — they have well-thought storylines and clean visuals, making them great examples of industrial deep tech brands who are able to communicate the value and capabilities of their tech to their end users. What’s more, Boston Dynamics’ marketing videos are exceptionally memorable in the industrial deep tech space.

5. Comply with corporate standards

As previously mentioned, commercial deployments rarely start with one “yes”. In order to close a deal, you need thumbs up from multiple functions within a corporation, which can be a time-consuming process. Every function in customers’ organization doesn’t need to be a strong advocate, but you should at least meet their minimum requirements. This can mean anything from possessing industry and quality certificates to meeting cybersecurity requirements.

Food, marine, and oil & gas are all examples of industries that have their own certificates and special requirements that you must comply with in order to get to the production environment. Many corporates also demand that their partners have standard ISO quality certifications in place in order to be approved suppliers. If a startup is not fully aware of these early enough, there is a high risk for long delays in sales process due to missing certifications.

Cybersecurity is another common area that can become a bottleneck, as startups must often conduct security audits in order to be categorized as approved suppliers. This is especially the case for industrial IoT startups that want to have two-way communication between the startup’s product and a large industrial automation system. Big corporations simply have too much to lose if something goes wrong in their production, so it’s natural for them to expect high standards in these areas.

“Making a deal with a corporation is largely an exercise of minimizing the perceived risks for the customer. Often not the most advanced technical solution wins but the overall lowest risk one.”- Rene Kromhof, angel investor, ex Heptagon SVP Sales & Marketing

Moving to a new level is impossible without a clear focus and sufficient funding

An R&D-driven team might be enough to get you from technology development to pilots, but a full team is needed in order to get to multiple commercial deployments. This involves having the capability to handle all the different functions of an organization, as you must be able to move forward on all fronts ‒ sales, production, operations, and marketing. For this to happen, you need to have more specialized people in your team — for example account managers, customer service specialists, R&D and delivery project managers. In the early days, these roles don’t all have to be full-time and some functions can be shared, but eventually, you want to have clearly defined, specialized roles in your team.

To make the journey easier and progress in the areas that I mentioned above, you need to have a sharp business focus. For example, if you work with over five different verticals, it is simply impossible to execute efficiently on all fronts. Even a few different verticals is challenging, depending on how many commonalities these verticals have. Although big changes are needed in many areas, there’s no need to solve everything exactly in parallel. It’s often better to pick the most acute issues and solve them one by one.

“Sequencing actions is essential: as a CEO, you see burning issues everywhere and you just need to let some of them burn longer than others”
- Hannu Martola, Maki.vc LP and CEO, Detection Technologies

The journey from pilots to commercial deployments can be lengthy — not just due to corporations’ long decision-making cycles, but because it may require many changes within the company. This should be taken into account when doing fundraising for the startup. If your runway is too short, you end up running out of cash before you’ve reached any commercial deployments — and that is an extremely difficult position to raise more funding.

Overall, the journey from pilots to commercial deployments is probably the most challenging phase in an industrial startup’s life-cycle — but also the most rewarding one. Once you’ve hit multiple commercial deployments, you can start to shift focus to scaling your business via repeat sales. But there are still some extremely boring yet important matters to be handled in order to ensure a smooth journey across the valley of death — that’s why our next post covers IP protection and contracting, two attention to detail areas you simply can’t afford to overlook.

Author: Paavo Räisänen is an early-stage VC investor at Maki.vc. Focusing on B2B SaaS and Industrial Solutions. paavo@maki.vc @PaavoRaisanen