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 whether, for example, all functionality is necessary or whether user preferences have changed. We recommend developing hypotheses about the market and product and testing these regularly. This ensures customer-driven development and 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 and 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 attention to the pilot customer's expressed needs and continuously checking that these coincide with the market you seek to serve, and that you have a common goal for the collaboration. Perhaps the pilot customer also contributes with financing. Although the capital is attractive and seems critical to survival, it is important to have a conscious relationship with the advantages and disadvantages that an industrial owner can have, both in the short and long term. An industrial owner can entail bindings upon exit, at the same time the power of an established industrial player can be what ensures that the product is realized 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. The consequences of this can be a lack of ownership of the tasks, a changing 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, and many entrepreneurs spend a significant amount of time on this. One risks spending all their time reading about different grants, writing applications, entering competitions, attending talks and seminars, 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 is not anchored in a conscious assessment of the capital 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 or avoiding dilution, the consequence is often that later funding rounds become more challenging.

We recommend that companies develop a strategy for the initial development stages, along with a capital plan. During this phase, the company should have established initial hypotheses about customers and the market, including a value hypothesis, and a plan for how these will be tested. 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, capital has been obtained from one or more investors, and the company has 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, this means that reporting to investors is de-prioritized, and the general manager spends a lot of time on manual reporting to public grant providers 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, and the general manager quickly becomes a bottleneck in several processes.

We recommend that the company carry out an overall survey of the stakeholders and the various stakeholders' requirements for the company. This, as well. simple liquidity planning should be the focus when establishing the structures in the accounting system. With the right set-up in the accounting system, complemented by a cost-effective reporting solution, reports to the stakeholders will come out at the touch of a key, and updating liquidity forecasts will become a left-handed task. This is a simple and cost-effective measure that reduces the administrative pressure on the general manager and enables the key people to focus on the company's core activities.