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Why R&D May Be Every Startup’s Not-So-Secret Formula for Long-Term Success

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SaaS giant Zoho recently surpassed $1 billion in annual revenue and its CEO and co-founder Sridhar Vembu attributes this success to the company’s commitment to research and development (R&D) capabilities across all categories and markets. . Zoho, in fact, spends three times its marketing spend on R&D, has received 25 patents in the past three years, and also aims to double its investment in technologies such as blockchain and artificial intelligence.



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R&D is one of the critical aspects of building a sustainable business. And it’s not just limited to the medical or manufacturing fields. “In a rapidly changing world where consumers are unlocking new markets and displacing old ones, it is crucial for any business, not just startups, to actively reinvent themselves by replacing their legacy products or services with new ones. For example, any company that wants to keep its legacy to sell old wine in new bottles is turned upside down overnight. dharma to force their organization to continue to ‘wow’ their customers by seizing exceptional opportunities in new and innovative ways to meet the demands of their customers,” said Anirudh A. Damani, Founder of Artha Group and Managing Partner of Artha Venture Fund.

Be it Apple, Microsoft, Google or India’s leading IT and pharmaceutical companies, R&D has been a crucial growth engine for all successful businesses. Ankur Mittal, co-founder of Inflection Point Ventures, explains it with Apple as an example. “If you look at the growth of the company in the early 2000s, they invested in R&D for the iPod, and then they leveraged that for the next few years. And while the iPod was a success, they started doing R&D on the iPhone. And when the iPhone became a hit, they killed the iPod by making iMusic a button on the phone. And now everyone buys iPhones because that all of their music is stored on iMusic which comes with Apple, so they have strengthened their ecosystem to improve the sale of iPhones today, so even though some existing Apple users today are attracted to certain features of Android , they find it extremely difficult to leave the Apple ecosystem because they are deeply embedded in it – and that’s the power of R&D for any business,” he said.

Why R&D is often bypassed

While it’s undeniable that R&D leads to growth and its absence hurts innovation, many companies haphazardly ignore it and jump into the market in order to generate revenue faster. “The reason for this may be either external pressure from investors and stakeholders, or sometimes a reflection of a lack of long-term vision by the founding team. Skipping R&D may generate revenue in the short term but no is definitely not sustainable,” he added. said Mittal.

Companies often also struggle to determine the right time to move from R&D to bringing the product to market. “Ideally, after launching with MVP, it’s important that ongoing R&D be done to keep improving the offering and utility and to keep building differentiators. And not every business will need deep R&D , but even these companies must constantly experiment with new ways to acquire and retain customers,” he added.

In addition to offering steady business growth, R&D also comes with tax benefits. This allows companies to continue investing in R&D without a big burn. Despite this, the struggle is sometimes how R&D is handled from a company’s cultural perspective. “R&D is usually done in silos where the final product/service is presented to the customer without actually involving them in the development journey. Therefore, customers accepting the final product is a gamble. In most cases, the result is a big failure that alienates the company’s key customers and ultimately destroys shareholder value,” Damani said.

R&D requires resources that do not result in immediate sales but in the long term. So, with the stress on cash flow, R&D becomes the last priority. “However, spending on R&D helps improvise the valuation because it helps build the RPI and dig the business. If companies are able to rapidly deploy products with the help of R&D, it will definitely improvise their There are companies that have won solely because of IP rights despite having lower sales numbers,” said Anil Joshi, Managing Partner, Unicorn India Ventures.

Fight against delays and fix R&D expenses

To address the R&D backlog, experts suggest having a separate team for this outside of the core business offering, with clear goals and vision. “It should be a team that understands the needs and requirements of the customer and therefore can continue to work separately while taking input and ideas from those who understand the core business operations and offerings. Because what often happens is that the key operations team become so busy running day-to-day operations that they sometimes lose sight of experimenting and continuously improving the overall offering experience,” said Mittal.

“The R&D effort usually comes from the founders and management team. It can’t be pushed down their throats. There has to be a mindset,” added Brijesh Damodaran, co-founder and director of investments, Auxano Capital.

Most innovative companies devote 5 to 15% of their expenses to R&D. However, there is no fixed percentage to define how much R&D spending is appropriate for a startup. “It depends on the nature of the business, the market it is targeting and how it plans to go about it. What is important is to realize that in order to grow at a high growth rate, she needs to keep experimenting with new side offerings,” Mittal said.

R&D spending also varies by industry. “Startups in specific sectors such as SpaceTech, MedTech, SaaS and DeepTech require more research and development (‘R&D’) up front than D2C products. However, a founder should consider R&D expenditures as investments that generate a ROI and appropriate decisions made (with impunity) for experiments that do not meet the startup’s minimum ROI requirements,” Damani added.

Today, there is a growing realization that R&D is an important tool for long-term sustainable growth. Even though some companies have surpassed it, most companies have started investing in R&D resources even if they do not generate short-term revenue.

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Post expires at 4:39pm on Sunday December 4th, 2022