By: Jack Danahy
Cybersecurity companies proliferate in a way that is unique, emerging in response to market demand driven by the innovations of attackers or the unsupportable accumulated burden of managing multiple solutions that have come before. As a result, creating a cybersecurity company comes with an increased emphasis on long-term technical viability, compatibility, and clarity of purpose.
Today, the average organization is already managing 76 different security tools, an increase of 19% over the past two years. A new entrant into the security market is required to propose a clear, compelling, incremental, security value, to earn the opportunity to become number 77. While new ideas and approaches can move our market forward, the first requirement is to identify, understand, differentiate, and fill, a need that is pressing enough to get attention from security professionals, 84% of whom are already burning out. Creating a company that can thrive in this environment is a challenge, especially when typical investors are driving topline growth, analyst reactions, and expansion of total addressable market.
Creating a Company Built to Succeed
Over the past 10 years, venture investment in cybersecurity has risen by ~1,000%, while the average round of investment has more than doubled. Investors are creating a rarified but increasing class of synthetic unicorns, driving $Bvaluations through their own investments in 9-figure rounds. This glut of capital and inattention to profitable growth have created a troubling mix: Investors have created a narrowing window of potential exits because of their elevated price. Customers are integrating technologies that will fundamentally change in the likely event of acquisition or financial stress, causing real disturbances in their security posture and staffing. Young cybersecurity companies are creating financial models that take them to the next financing event, not to long-term stability, independence, and viability. This model is already collapsing for some, as financial market concerns are cutting valuations and available cash, leading to undercorns, down rounds, and cost-cutting for companies in multiple markets.
New companies looking to pair rapid growth with financial stability will focus on the following areas:
- Clarifying Security Value and Outcomes
A clear description of the solution’s incremental security value to customers is the most important element to creating interest and exposure to a new company offer. Clarity means that the words used create an accurate and demonstrable depiction of the capabilities and application of a new solution. While intentionally vague language (meant to imply greater usefulness or coverage) is common, it’s ultimately damaging on two fronts: Overselling capabilities complicates identification of high-likelihood prospects and exaggerating solution applicability buries the new company in a noisy swarm of similar value propositions.
Early-stage companies need to hunt for their success with a rifle. Large legacy firms wield shotguns. Rifle shots deliver clients and feedback only when accurately targeted, while shotgun value propositions can create victories without knowing which of many pellets made the difference. Whether projecting marketing spend, sales funnel performance, or direct competitors, specific and accurate messaging and outreach are the most effective means of ensuring clear knowledge of ideal personas, customers, and campaigns. Whether projecting messages for email campaigns or keywords for advertising, clarifying your aim and your target matters.
- Early Customer Access and Adoption
Everybody agrees with your security value proposition until you ask them to pay for it. Whether you are talking to prospects or investors, attributing success to meetings with positive comments is a meandering path to misery. Nothing provides meaningful direction to a new company that exposure to a broad base of customers that fit the pattern of the projected target for the solution. Definition of a minimum viable product (MVP) through the perspective of the founders, through competitive analysis, or through input from a limited number of well-meaning colleagues will create an initial offer that is some number of degrees of off optimal. Early focus on development of a community of interested but objective third-party subjects is a must for that early formulation of everything from product requirements to messaging.
Following-up with these relationships to create early paying customers, even when steeply discounted, also benefits (or even enables) funding. In a change that has evolved over the past several years is a requirement for meaningful revenue as a prerequisite to a Series A. As a result, the initiation and cultivation of an early customer community is critical to both a market-driven and financially supportable new company.
- GoToMarket Program Development
Founders, especially of cybersecurity companies, hold a strong belief that all they need do is build their solution and its value will draw clients effortlessly from the market. Nothing could be further from the truth. Ralph Waldo Emerson is credited with the statement that a person could “build a better mousetrap and the world will be a path to your door”, but that wasn’t true, even in the days when mice were more of an issue. A new company needs to develop, articulate, and execute on a plan to take their idea and ultimately their product to a market that is as crowded as the Chatuchak market in Bangkok. The plan will force clear messaging in its early stages, will provide relative measures of optimal suitability, and will ultimately describe a clear path for the nascent Marketing and Sales organizations.
As you look to create this plan, it’s helpful to think about marketing as rising from a solid understanding of four pillars, the four P’s of product, price, place, and promotion. The new company can look to each of these pillars for opportunities to showcase their own uniqueness, and on finding success, can prioritize those elements through early development and growth.
Create Your Own Racehorse
As new companies are born and teams imagine all that is possible, it’s natural to look towards a future of billion-dollar valuations and market dominance, especially when investors are willing to present the funding to make it happen. To build a company that can endure changing financial pressures, one that can pick its own path to growth, the racehorse is better transportation than the unicorn. It’s reliable, understandable, and faithful; its needs and capabilities are known. Leave the intentional unicorn investment profile and development to the financial firms that reap unicorn benefits and build a business that support your values, your customers, your team, and your future.