After the consolidation of equipment suppliers, the broadband market has matured with several major players. This has the potential to lead to reduced diversity and creativity in the industry as the barriers to entry are now enormous. Starting a new business in a mature market like this presents new significant challenges. How do you approach financing a new business in a mature market?
First, if you can start a company, the opportunities are huge because competition for new approaches in mature markets is limited and the big players don't move fast. Their incentive is to change slowly to extend the product life cycle. Fast innovation is their weakness. They are slow to respond to market destroyers.
The downside of novice innovators in mature markets is the reduced number of financiers attracted to the space because of barriers to entry and because the most likely outcome is a low-odd M&A game. An entrepreneur needs to find financiers who understand the market and can see the value of new technology.
Given this reality, how do you demonstrate sufficient potential to attract investors? In the hardware space, you need to demonstrate an attractive market entry strategy with simple investments and prices to enter the market. The challenge is this: When the price of success is high, it takes too much investment – and too much risk – before you can accurately assess the likelihood of market success.
Investors invest in perceived risk, so their job is to demonstrate that the risk is manageable. In the past, investors were won over by strategic partners who, as committed customers, financed product launches.