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However, there are ways to succeed in competing with an
entrenched incumbent. The history of high-tech attests to that, whether
it’s in computers, disk drives, chips or chip equipment.
“It takes too much money.”
The concern
here is that it takes quite a few millions of investment dollars to
develop the product, millions more to set up the manufacturing
operation, and then millions more still to setup the worldwide sales and
customer support organization.
When a VC sees all those
millions, they do the math and say that it would take too much money for
the return, and it’s not worth it.
I will discuss
in the next section strategies that could minimize the
total investment, because who says you have to do
everything yourself?
“There’s a limited exit
strategy.”
In VC vernacular, “exit strategy” really means, “How am I going to get
my money back?” There has been no IPO in semiconductor |
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1 – You must have breakthrough technology
For years, if you had significant product improvement (say, 50 percent
or more) over what was available on the market, you would have a chance
to win. Depending on the specific product, that may no longer hold true.
These days, you need something quite different as well as much better to
compete successfully against the entrenched market leader.
Your technology must be so
“disruptive” that it enables you to leapfrog the incumbent and to take
the market leadership away – for the market segment in which you compete
– or at least to become a strong Number 2 player in the meantime.
Using breakthrough technology to
compete against the incumbent is not a new concept. Many high-tech
companies in the chip industry and elsewhere have successfully employed
this strategy. However, as the industry matures, the need to own,
protect and leverage a breakthrough technology becomes a prerequisite
for start-ups.
Having such a competitive advantage
is no guarantee for success, but without it, it’s almost a
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