The company has been founded, and you have identified a customer need with an associated sketch for the product. The hypotheses have been tested in the market and the product outline is becoming more and more refined. The founding team is falling into place, and the company may have made its first hires. Consciously or unconsciously, an organizational culture is formed, and you have rigged the company for product development. What happens next?
 

Critical conditions

Product development is in many ways a very challenging phase. Both organization and product develop at the same time, and it is easy to lose track of the big picture. There are three pitfalls in particular that you should pay particular attention to:

• Product development becomes too technically focused and market orientation is forgotten. Many forget to check with the target group. It is important to ask whether all functionality is still necessary. User preferences may have changed over time. We recommend developing hypotheses about the market and product and testing these regularly. This ensures customer-driven development. It prevents the product from early on acquiring many complicated features that do not affect the customer's willingness to pay. Verification from the market is also something that reduces market risk. It can affect how you perceive the investors in a capital raising process.

• A pilot customer can consciously or unconsciously dictate product development. The feedback from pilot customers is in many cases important and necessary for the company's development. However, it is important to have a conscious relationship with the pilot customer's role when involved in product development. We recommend paying close attention to the pilot customer's expressed needs. Continuously check that these needs match the market you aim to serve.
  Ensure you share a common goal for the collaboration.. Perhaps the pilot customer also contributes with financing.Although the capital may seem critical to survival, it is important to assess the full implications. You must consider both the advantages and disadvantages of having an industrial owner. These effects can be significant in both the short and long term.An industrial owner can create exit-related obligations.These obligations may limit flexibility when leaving the company. At the same time, an established industrial player can be crucial.
  Their influence may ensure the product is realised at all. Clarification of expectations and agreements are therefore very important. 
• Missing system for measurement and accountability. Measuring the product development phase is experienced by many as demanding, as there is little information in financial data. This often means that the company establishes strategies, but not associated functions for measurement and accountability. This may lead to unclear task ownership, shifting focus, and an inefficient development phase. There should be a clear plan for this phase, which makes the organization responsible and manages it. In this way, one can channel focus, ensure progress and keep stakeholders informed of changes in communicated plans.

 

Challenging financing

Financing the startup phase is, for most companies, a combination of public grants and owner contributions. Navigating the landscape of grant providers and foundations is often time-consuming. Many entrepreneurs spend a significant amount of time on this. One risks spending all their time reading about different grants.
Time is also spent writing applications and entering competitions. Attending talks and seminars takes additional time, and trying to pitch the company to angel investors. Many do this with the aim of raising as much capital as possible, while others are motivated by minimising dilution. The capital strategy lacks a clear assessment of what is needed to move the company to the next phase. This often results in a slow start or an early valuation that is artificially high. Even if the company feels it has succeeded in raising capital, challenges may still arise. Avoiding dilution can seem like a win, but it may have consequences.
Later funding rounds often become more difficult and demanding.

We recommend that companies develop a strategy for the initial development stages, along with a capital plan. During this phase, the company should establish initial hypotheses about customers and the market.
These hypotheses should include a clear value proposition. The company must also create a plan for testing these hypotheses effectively.Investors are generally focused on return potential and risk. This should be reflected in the company’s plans from the very beginning. You need to ensure you have raised sufficient capital to get from startup to project completion.

Examples of services from BDO`s industry team;

• Accounting, CFO and legal services, including capital planning. Assessment of financing options, assistance in issue processes and application writing for public grants (also applies to EU funds)
• Financing and ownership strategy
• Scalable systems for handling internal and external reporting, including liquidity management and management of capital use, as well as. reporting to the board and owners.
• Seamless reporting on publicly supported projects, including financial reporting on EU funds, for example Horizon Europe.
• Employment agreements, including option agreements and remuneration mechanisms
• Systems and procedures for follow-up of employees
• Industry-specific business development for tech startups based on lean startup
• Cooperation agreements
• Efficient accounting and payroll delivery in cloud-based systems
   

Increasing demands on the organization

In the product development phase, many people experience a greater need for administrative functions.

The company may have employed several people and capital has been obtained from one or more investors. The company may also have received public grants for one or more projects. The company has more and more stakeholders to deal with, but the development of the product gets all the attention. In many cases, reporting to investors is de-prioritized. The general manager spends significant time on manual reporting to public grant providers. This is often necessary to ensure payment of funds. Manually updating liquidity forecasts to have an overview of how long the capital will last takes time. At the same time, the CEO focuses most of his time on raising capital to ensure the company's survival.

In other words, increased need for administrative systems and structures is the first consequence of the company growing. The general manager quickly becomes a bottleneck in several processes.

We recommend that the company carry out an overall stakeholder survey. The survey should identify the various stakeholders and their specific requirements. This, as well. simple liquidity planning should be the focus when establishing the structures in the accounting system. With the right accounting system set-up, reporting becomes much easier. A cost-effective reporting solution can simplify stakeholder communication. Reports can be generated instantly, with just a keystroke. Updating liquidity forecasts becomes a quick and effortless task. This is a simple and cost-effective measure that reduces the administrative pressure on the general manager. It enables the key people to focus on the company's core activities.