For Products, Technology Still Matters

3/14/14Follow @stanreiss

Popular media has seriously overshot on the relative importance of marketing and design versus technology for product companies. Just spend some time perusing the usual outlets and you’ll quickly forget that startups employ technologists.

What’s scary is it’s not just media—the rest of the world is starting to follow. The number of companies, raising very real money on crowdfunding sites, that have a cool-looking prototype and technology “to be developed” is staggering. Venture funds are hiring design partners instead of technologists. And they’re investing in pretty, empty boxes.

Don’t get me wrong, marketing and design matters. A lot. And there are plenty of product markets where technology doesn’t make the difference for innovation.

But let’s not forget what most product startups do: they deliver a product with fundamental capabilities to do something for a customer, and try to sell it in a world increasingly full of alternatives. Most customers, business or consumer, would much rather buy from an established entity they trust instead of dealing with startup quality assurance, service, and supply chain issues. They will only buy the new product if it fundamentally does something dramatically better, or does something different, than the alternatives, and it takes real technologists and great technology to do that!

The downside, of course, is that tech development takes time and is risky. Aggressive technical projects are scary, as they often run behind schedule and sometimes fail. Yet if they succeed, the upside is tremendous and competition matters less. Netezza offered a 100x price performance advantage because of really cool technology. Palo Alto Networks is worth $4.5 billion because their firewall is fundamentally better than the one they displaced. Arroyo really built a better media streaming engine than anyone else. Splunk did in fact build a better way to look at your network.

Fortunately, despite all the design hoopla, technical innovation is not dead. For example, we just funded Quanttus, a health monitoring startup based on really impressive MIT technology. Design and marketing will be critical for the company, but still the overwhelming bulk of their employees are engineers. Eventually they’ll win or lose based on their technical prowess.

There are several other examples as well. [These are also Matrix investments---Eds.] Qualtre is working diligently on making cellphone gyroscopes good enough for pedestrian navigation, an incredibly tough problem with a huge payoff. Xtalic has manipulated the crystalline structure of metals to reduce the amount of gold used in electronic materials. Sila Nanotechnologies has embarked on an ambitious project to make batteries last longer. Many others are working hard at universities, government labs, and research groups in larger companies like Google that are carrying forward the legacy of Bell Labs.

We in the entrepreneurial community have to continue to celebrate and support technology if we want to avoid a world of prettily designed products with nothing inside, a world that will quickly devolve into cutthroat price competition as everyone offers the same value. That means entrepreneurs have to build real stuff beneath the covers and VCs have to have the courage to take technical risk. We’ll all be well rewarded for it: customers buy fundamental value, and if you deliver real value you’ll be paid regardless of whether you happen to be in the hot bubbly space of the moment or not.

Stan Reiss is a General Partner with venture capital firm Matrix Partners. Follow @stanreiss

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  • Doug Helferich

    From both an investor’s and founder’s perspective, how do you balance technology risk and upside when trying to pick the right technology to either fund or build a company around? I agree the design trend is overbought to some degree, but as a founder you can’t employ the luxury of the portfolio approach that investors have at their disposal, so it can be tempting to aim for what looks like more of a sure thing in the short term, even if the ceiling isn’t as high.