As a London resident, I’m proud of all of the attention that London has been getting as a preferred hub of new Technology Startups. However, the sad truth is that a lot of these companies are doomed. Leading up to my “Build your Innovation Leaders” London workshop, here is why there is problem:
Over the past 5 years, East London (especially around the Old Street area) has been growing rapidly as a centre for development of Digital and Technology-focussed companies. In many ways, it’s been a huge success:
- Growing from approx 200 companies in the area in 2010 to 1,300 today, according to Tech City UK
- Government investment supporting early-stage companies
- Big established Tech players like Google and Facebook (central London) opening offices which aim to use the developer talent. They’re attracted by concentration of creativity & ability of the developers here
- A number of profitable and successfully innovative British tech companies already established themselves, like those on the Future Fifty list (personally, I love the innovativeness of Shutl, Deepmind, Mind Candy, Huddle, Swiftkey, Graze, Hailo, Transferwise and Gocardless, amongst many others)
There is also a lively social scene where people from all companies drink, mingle and discuss what’s going on. I’ve been going to these events for the past year, and its from speaking to the people on the ground that I’m worried about the future for a lot of these companies.
Scratch beneath the surface, and real questions begin to appear about the apparent success of innovations coming out of London, especially considering the growth in the number of companies and the apparent creativity of the people here:
- Where’s an app developed in London with 100 million downloads? In fact, name me an app with 10 million downloads? Or 1 million outside the UK?
- Where’s a tech company that is even close to an IPO on the major London stock exchanges?
- How many companies have proved to have a sustainable and profitable business model (or, how many will still be here in 5 years)?
Here’s the top 5 reasons I fear for the long-term innovation success of the majority of East London Tech companies, what can be learned from London’s success stories and what they could easily do to improve their situation.
1. Short term thinking, App-arently
You know what’s sexy to work on in East London? Apps! Either for phones or as Web Services. You’re probably shaking your head now, thinking “Well, that’s super obvious Nick! Thanks for nothing”. Yes, some apps and websites can become extremely innovative, especially when they get the perceived customer value mentioned above done right (Snapchat, Tinder, Facebook, Twitter, Google, etc). And everyone accepts the fact that not every App or Web service is ultimately going to make it.
The issue with innovation here though is that this focus on getting a job at a startup developing Apps is likely harming the UK’s ability to develop more long-term innovations which disrupt industries beyond the digital screen. It’s become less sexy to work in more traditional roles which innovate over 5+ years, like engineering or R&D departments in FTSE350 companies. University degrees like Computer Science are becoming more popular as kids dream of working at companies like Facebook or Google, or the next hot upstart.
Yiren Lumarch from the New York Times wrote a truly excellent article last month on Silicon Valley’s Youth Problem, where similar issues are being faced in America’s Tech Hubs, which I highly recommend you read (although it is quite long).
The timeframes within which these types of companies think is also shorter term. Apps are all about the here an now, about getting things done instantly. This fits in with the development mantra made famous at Facebook: “Move Fast and Break Things”, telling them to continuously improve their service or app based on real-world feedback. The issue here is that this development methodology is more likely to result in incremental innovations, rather than big disruptive innovations which ultimately make the biggest impact. Short-term development cycles also mean that these companies will almost always be developing for the current needs of the population, not necessarily those which will exist (or create the future). There is only so far that PHP, Ruby on Rails and Python can take you.
In fact, I would say the most innovative company from East London is the one which is investing in developing its technology over at least a decade. In fact, they were recently bought by Google for £240m, and are called Deepmind. They are developing technology on deep learning that could directly translate into artificial intelligence. That is an innovation that will add more value to millions of customers, and the valuation shows it.
2. Data, Data everywhere, and yet not a Byte is yours
London appears to have an obsession with companies that want to organise information. Make it easier to compare, easier to find, easier to provide opinions on, faster to buy and more beautiful to look at. I’ve even been to community parties which showed off the prettiest work which local Data Visualisation companies had done for clients like Formula 1.
The FT innovated by providing insight on other people’s information
Many of these companies are essentially curating someone else’s information (by taking data input, like price and description, and comparing it against data from competitors) or providing an editorialised version of what they think is interesting / fashionable / important. This isn’t necessarily a bad business model, and in fact it can be a great one. In fact, the Financial Times for decades had a product which delivered news to their readers slower than other newspapers at a higher cost, but their readers saw the value added by the editors selecting which news was important and providing articles on why it was important.
One standout examples in London is Hailo, a taxi booking service which really does make booking a taxi in an unknown area easier. Another is Yplan, which provides suggestions on fun things to at short notice. Both are positive examples of innovation because it improves the customer experience.
However, the issue with innovation failure in these companies is that many of them think that simply having developed a system or platform to show someone else’s data in a new way automatically means it will be valuable to a customer. When I then ask them how many people are using the system / platform, they talk about how it’s still early and growing (even if it’s been out for years). They don’t consider how the customer perceives the value, which leads me to my next point:
3. We think it’s a great idea, so the customer will too
A lot of the entrepreneurs I meet in East London, especially the founders of companies, suffer from the most common problem in Entrepreneurs: Not understanding the Perceived Value of their offering from their customers’ perspective.
Let me quickly reiterate my definition of innovation, which works in every situation:
Innovation is: turning an idea into a solution that creates value to a customer
What are the two most important highlighted words above for an innovation to be successful? The answer is Value and Customer. The difference between inventions which fail and innovations which succeed are that innovations address a specific problem which a customer has with a specific solution which they perceive as adding value to them. The important thing to note is that it is in the eye of the customer, not the company providing the solution.
In contrast, what a lot of I’ve seen in London (and it’s a problem worldwide with many Entrepreneurs), is that they have an idea that they think is new (and therefore must be amazing), and then begin to develop a solution from it. This is especially prevalent when the founders of the companies are from a technology background, as there is a huge allure in developing something which is new, different and never been done before. So months or years and in some cases millions of pounds are spent developing a solution, which is then launched with great fanfare, only to find that the market / customers aren’t interested. That’s not a successful innovation.
What is going wrong? Before they begin developing the solution, they haven’t considered what specific problem (in the customer’s eyes, not their own) their solution is aiming to address. Essentially, they are developing a solution based on an idea, not necessarily a something the customer would find valuable. It’s something that can however be fixed, and I’m going into a lot of detail on in my “Build your Innovation Leaders” London workshop on the 16th May.
Different is not always better. But better is always different.
4. Pivot! Pivot! Pivot!
My god, the number of times I’ve heard this word being used when speaking to people over a drink. It refers to advice given in the Lean Startup, a book which has become a bible of sorts for many Entrepreneurs, around how a company needs to strategically change direction when they realise things aren’t working out as they expected.
That’s sound advice. But it only really works when you realise the reason why things were not working. Then you can understand what would be a better future strategy, and what innovations (whether they are to the offering itself, your internal processes, the service you offer or the channels you work through) will bring you towards that strategy.
I remember a conversation I had at a Friday drinks party several months ago with a founder of a company in sustainable transportation. When I asked them what the business was doing, he mentioned that they had “pivoted” about 3-4 times in the past couple of years, and had another pivot they were about the embark on.
That is an immediate sign that the business understood neither why things weren’t working, nor what they needed to pivot towards. I’ve heard it happen a lot in East London. But if you want to have a successful innovation, you need to be pivoting towards something that adds value to the customer.
5. SHOW ME THE MONEY! Eventually. Maybe…
Finally, a tricky one, but one of the most important ones: many of the digital businesses haven’t established how they’re actually going to make money. Some even consider it a bit of a taboo subject. In many cases, their only goal is to get as many users as possible, and once this is achieved, they’ll consider how to make money later on.
In some conversations I’ve had, a number of entrepreneurs have been even more blunt about their plans for the company. It goes a bit like this (obviously don’t generalise this for all London Tech companies):
- Build a prototype technology
- Get Venture Capital / Angel Investment to build it into a full-blown product
- Set up an office and hire developers to build the solution
- Release it for Free
- Get millions of users
- Sell the company to someone like Google or Facebook
What’s missing there is an actual business model. Using someone else’s money to build a company which you then hope to sell for a profit only works if someone actually wants to buy you. And that is a very, very big IF. Fundamentally, any innovative company needs to have a sustainable business model. They need to have customers who see so much value in your offering that they will in fact be happy to help you get your value back, either by paying for it directly, getting you commission by spending money through it or continuing to use it if advertising is present.
The first Tech bubble burst because so many new websites thought they could ignore a business model, even with millions of dollars in investment behind them. Nobody is immune to this requirement. The secret is finding an innovative business model where all parties feels they are getting value.
For any London companies which do want to improve their likelihood of innovation success, check to see if there are still spaces available for my “Build your Innovation Leaders” London workshop on the 16th May.
Which companies in London do you think are innovative enough to still be around in 5 years time? Let us know in the comments below, and don’t forget to get my weekly Innovation Insights newsletter along with my report on the Secrets of Ongoing Innovation Success.
Wait! Before you go…
Choose how you want the latest innovation content delivered to you:
- Daily — RSS Feed — Email — Twitter — Facebook — Linkedin Today
- Weekly — Email Newsletter — Free Magazine — Linkedin Group
Nick Skillicorn is an Innovation consultant and Creativity coach in London. Find out what Improvides can do for your organisation, and get your free copy of his new book The Secrets of ongoing Innovation Success. Follow Nick at @improvides