Why Startups Die—and Why Their Technology Doesn’t Have To

A recent article by Mathias Klenk, Why Startups Die, makes an important point about startup failure. Companies rarely die because of one dramatic event. More often, failure is the result of problems that have been building for some time—lack of product-market fit, dwindling cash, founder conflict, loss of focus, burnout, and eventually the inability to keep going.

I agree with much of that analysis, but after more than 35 years working with intellectual property, licensing and commercialization, I think there is another question worth asking: When a startup fails, does the technology have to fail with it? Very often, the answer is no. And that distinction matters not only to founders, but also to the innovation centers, technology transfer offices, incubators, accelerators, startup funds, universities and other organizations investing considerable resources in helping new technologies reach the marketplace.

We tend to evaluate startups and their intellectual property as though they are the same thing. They aren't. A startup is one vehicle for commercializing intellectual property. If that vehicle stops working, there may still be other ways to move the technology forward.

The Startup Is Only One Commercialization Strategy

When an innovation comes out of a university, research laboratory or entrepreneur, the next step often seems almost automatic: form a company. Develop the technology, build a prototype, validate the market, recruit a team, raise capital, establish manufacturing, acquire customers and eventually scale.

Sometimes that's exactly the right strategy. But there's an assumption buried inside that process that I don't think gets questioned often enough: Does this particular technology actually require us to build an entire company around it?

Commercialization should come before the decision about how to commercialize. Licensing is one option. Strategic partnerships, joint ventures, OEM relationships, direct commercialization and acquisition are others. Startup formation is another. The opportunity should determine the strategy rather than the strategy being predetermined simply because the innovation happens to be new. That's consistent with a broader commercialization principle we've been developing throughout the Academy: commercialization comes first; the execution pathway follows the opportunity.  

This matters because a startup requires an enormous collection of capabilities that may have little to do with the innovation itself. A research team may have outstanding science but limited commercial experience. A software startup may have exceptional technology but little access to enterprise customers. A medical technology company may have strong IP but lack regulatory, manufacturing or distribution capabilities. Those are very different problems, and they shouldn't automatically lead to the same solution: raise more money and keep building the company.

Sometimes the Company Is Struggling, Not the Technology

A startup can fail because it runs out of capital, because the founding team doesn't work, because customer acquisition costs are too high, because manufacturing is more difficult than expected or because the founders can't raise another round. None of those conditions automatically proves that the underlying intellectual property lacks commercial value.

I've seen variations of this throughout my career. Innovators can become so focused on the company they're trying to build that they stop looking at the larger commercial opportunity represented by their IP. The company may have one business model, while the intellectual property may have several potential markets, applications, partners and commercialization pathways.

When we evaluate only the startup, we can miss those alternatives.

A Commercialization Lesson From a Medical Device

One Licensing Consulting Group engagement illustrates the point. A medical-device inventor had developed a patented automated rescue-breathing technology designed to eliminate mouth-to-mouth CPR while delivering oxygen to cardiac-arrest victims. The technology was protected by four U.S. patents and had received positive feedback from EMS providers. What the inventor didn't have was the commercialization infrastructure needed to take the technology to scale—a licensing program, a pipeline of potential partners and a clear roadmap for reaching the market.  

Instead of assuming the inventor needed to build all of those capabilities internally, we looked at the technology as a commercial opportunity. We clarified its positioning, evaluated applications across emergency response, healthcare, outdoor safety, ambulatory services and senior care, and developed a licensing campaign targeting manufacturers and distributors that already had relevant capabilities and market access. 

The lesson isn't that licensing guarantees a successful outcome. It doesn't. The lesson is that the organization owning the technology doesn't necessarily have to become the organization capable of manufacturing, distributing and selling it at scale.

Who Already Has What You're Missing?

One of the questions I frequently ask when evaluating a commercialization opportunity is: What resources are missing, and who already has them?

If a startup has compelling technology but lacks manufacturing, there are companies that already manufacture. If it lacks distribution, other companies already have distribution. If it lacks access to customers, established businesses may already have those relationships. If international expansion would require years of investment, potential partners may already operate in those markets.

The objective isn't necessarily to build every missing capability. Sometimes the smarter strategy is to connect the innovation with an organization that already possesses those capabilities. That's one of the most useful ways to think about licensing—not simply as a legal agreement or a mechanism for collecting royalties, but as a commercialization strategy for accessing resources and infrastructure that already exist.  

Established companies think this way all the time. They license technologies, acquire companies, establish partnerships and use outside suppliers rather than developing every capability internally. Yet with startups, we often encourage exactly the opposite: build almost everything yourself.

That assumption deserves more scrutiny.

The Startup Ecosystem Needs Another Question

This issue extends well beyond founders. Universities, technology transfer offices, incubators, accelerators, innovation centers and investors are putting substantial resources behind technologies and companies long before they reach the marketplace.

Each organization performs an important function. Universities create research and IP. Technology transfer offices protect and manage it. Incubators and accelerators help develop companies. Investors provide capital. But there can still be a gap between developing an innovation and determining the best way to commercialize it.

We've described this as the “missing middle” of commercialization—the work required to understand the IP, evaluate the market opportunity, identify commercialization gaps, determine the appropriate strategy and prepare the opportunity for engagement with industry. It isn't a criticism of the organizations already supporting startups. It's recognition that commercialization preparation is a distinct part of the process that can fall between research, IP protection, startup development and funding.  

That gap becomes particularly important when a startup begins struggling. At that point, the conversation can quickly narrow to raising more capital, finding traction, getting acquired or shutting down. Before valuable intellectual property is abandoned, however, I think another question should be asked:

Is the startup failing, or is the commercial opportunity failing?

An innovation center, technology transfer office, incubator or startup fund that asks that question may uncover alternatives. Perhaps the technology has another application or a more attractive market. Perhaps an established company can commercialize it more efficiently. Perhaps the startup can continue pursuing its core market while licensing applications it doesn't have the resources to develop.

Sometimes the conclusion will still be that the opportunity shouldn't move forward, and that's also a valuable commercialization decision. The objective isn't to keep every technology alive. It's to make a better decision about its commercial potential before more time and capital are committed—or potentially valuable IP is abandoned.

Broadening the Definition of Startup Support

A tremendous amount of money, expertise and institutional attention is being directed toward startup creation and innovation ecosystems. But I believe we should broaden what we mean by supporting commercialization. The objective shouldn't simply be to create more startups or keep existing startups alive. It should be to create more viable pathways for innovation to reach the marketplace.

Sometimes that means building and scaling a company. Sometimes it means licensing. Sometimes it means a strategic partnership, joint venture, acquisition or another structure. The principle remains the same: commercialization strategy should follow the opportunity, not a predetermined business model.

For organizations supporting startups, that changes the question from simply, “How do we help this startup survive?” to “What is the best way to give this innovation an opportunity to succeed?”

Those questions can lead to very different strategies.

Adding Another Commercialization Path

This is one of the reasons I created the Licensing Launchpad™ Academy. The Academy helps IP owners build the foundation for commercialization and understand where licensing and strategic partnerships may fit within the larger commercialization picture. Launchpad Lite provides a starting point for evaluating intellectual property, market opportunities, commercialization readiness and the gaps that should be addressed before moving into a licensing campaign.

We're also interested in working with innovation organizations that want to make this type of commercialization infrastructure available to the startups and innovators they support. The objective isn't to replace incubators, accelerators, technology transfer offices, investment programs or the work they're already doing. It's to complement that work by adding another commercialization pathway when building and funding the startup itself may not be the only—or best—way to move an innovation forward.

Sometimes a startup does fail. That's part of innovation. But before the technology disappears with the company, we should ask one more question: Did the innovation fail, or did we simply run out of ways to commercialize it?

For organizations investing significant resources in innovation, that's a question worth asking much earlier.

If your organization supports startups, researchers or IP owners and you're interested in exploring how a Licensing Launchpad™ partnership could add a structured commercialization and licensing pathway to your existing programs, contact us to start a conversation.

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