I think I have reached the moment of ripeness in my concept of creating a research centre for behavioural experimentation regarding the interaction of human beings and smart technologies. By ‘ripeness’ I mean the stage when I can formulate a first business plan, as an elaborate hypothesis to test through detailed market research and progressive implementation. A good name, first of all. I thought about “BeFund”. The ‘Be’ part comes from behavioural experiments, the ‘Fund’ means simply a fund, as my concept involves combining a research centre with an investment fund.
The business concept of BeFund consists in developing a centre for experimental research, focused on studying behavioural interactions between humans and intelligent technologies, mostly those connected to the environment of smart cities. The originality of that business centre would consist in three major traits. Firstly, BeFund will act as both a scientific institution, and an investment fund: it will provide experimental research, rentable experimental environment for conducting such research, and financial participation in the equity of businesses connected to technologies being studied in that centre. Secondly, the experimental approach at BeFund will cover the triangular interaction “users <> technology <> engineers”. The research will include the whole human interaction with the given technology, not just the users’ interaction, but also that of the people who develop this technology. Thirdly, at the difference of most academic behavioural labs, BeFund will create an experimental environment for prolonged stay, and for simulating real life as profoundly as possible.
The market of BeFund will be unfolding in two main stages. In stage one, BeFund will be working mostly with start-ups. The profile of a typical customer will be that of an engineering team with the prototype of a smart technology, just a digital one, or combining the digital with something else (mechanical, biological). The main distinctive features of technologies connected to that type of customer are: the significant importance of human interaction with the technology, and the early prototyping phase of engineering development. In stage two, the plan is to reach more and more established Tech businesses, as customers. The experience and the reputation gained in stage one, with start-ups, will hopefully make the grounds for working with established businesses, at the speeding up of their innovation and/or smoothing out their customer relations.
As the first market is made of start-ups, I am having a glance at empirical data. I plan to start the whole thing in Europe, so I am rummaging in data about the European start-ups. StartUp Hubs Europe seems to provide interesting information. The first observation is that start-ups come in strongly clustered bundles, and, unfortunately, my home country, Poland, does not really lead the way. The biggest clusters of start-ups in Europe are: London (some 330 000 start-ups, €12,7 bln in capital invested), Berlin (170 000, €3,9 bln), Paris (21 000, 3,74 bln), Munich (94 000, 1,32 bln). The overall investment in start-ups is growing, although not really in a hurry. This is rather a steady trend than an explosive curve.
Now, as I have that first piece of information about the market, I am following the logic of denting, chipping, and supplanting. BeFund is going to dent into, chip off, and supplant some of the capital invested in start-ups. In am conducting my first calculations with the case of Warsaw: €120 millions invested in 320 start-ups. A little piece of theory about the diffusion of innovation allows me to simulate the entry of BeFund into the market as a progression along a curve of cumulative normal distribution (this is the so-called Rogers’ model). Those 320 start-ups are the total size of the market. In that total, only some most innovative start-ups will be willing to work with BeFund, and the most innovative entities, in a normal population, make between 1,4% and 3,4% of the total. In a population of 320, it makes between 4 and 11 customers for BeFund. A bit of precision is due at this point. Some businesses come to join the game, some quit, and some others grow past the stage of a start-up. Thus, I assume that the population of start-ups, just as the empirical data shows, is pretty much constant on the short run, and steadily increasing, with some bumps and dents into the trend curve, on the long run. My customer base consists a fringe chipped off that fairly constant, temporary population. As I can read in a report published by StartUp Poland, the overall number of start-ups in Poland is around 620, thus a bit less than double of the Warsaw alone. With the same arithmetic, that makes from 1,4%*620 ≤ x ≤ 3,4%*620 = 8 ≤ x ≤ 21 on-going customer relations for BeFund in the whole country.
I shift my attention to those really big start-up hubs. London, with 330 000 start-ups, and according to the same logic, offers some 4620 ≤ x ≤ 11220 customer relations. Paris, displaying 21 000 start-ups, means, for BeFund, something between 294 and 714 customers. Now, you, my readers, could ask a legitimate question: ‘Is it really so important for BeFund to be exactly in the place where those start-ups are dwelling? After all, with all the online utilities, you don’t need to be exactly at the same geographical location’. Well, yes and no. Yes, you are right that Internet offers the possibility of being very flexible in the actual interaction with customers. Yet, everything I know about the development of start-ups, and about Tech businesses in general, is that they follow a geographically clustered pattern – that of hubs, precisely – and it is hard to explain fully the reasons for that. There is that little something in the logic of human activity, which makes the territory and the distance matter at the most profound level.
When you think about it in less fundamental, and more practical terms, behavioural experiments with technologies require a lot of direct, physical presence, both in the users and in the engineers. The interaction assumed in the concept of BeFund is precisely that abundant human interaction, both human to technology, and human to human. Thus, the lab should be close to its customers. Still, the question how to assure that close presence is very much open. I am thinking about an operational unit in BeFund, with some kind of mobile experimental outset, maybe somehow more frugal than the basic one, yet possible to move in space and to set out at some remote location, out of the main lab.
Anyway, the partial bottom line is that the experimental facilities of BeFund should be located close to its target customers. Logically, BeFund should develop as a network of experimental labs, starting from the busiest start-up hubs (London, Berlin, Munich), and spreading towards those other, less busy locations. Now, in my market analysis, I am moving from the customer base towards competition. In my last update in French (see Oui, tout à fait, c’est de la pensée humaine formalisée), I found just one, academic, experimental facility in Europe, namely that of London School of Economics. I suppose there is much more in the corporate sector, only companies are not really keen to show, to the layman, all of their back-store activities. In general, Europe seems to be lagging significantly behind the United States, in terms of behavioural labs.
Good, I am moving from sketching the market to modelling the relations with customers. Following my past experience in business-to-business markets, I assume the average time required for effectively attracting one average customer is around 6 months. This is an average, which covers both the early birds (two weeks of intense interaction and we sign a contract), and the marauders, whom BeFund will be struggling to attract for years. Still, I stick to that average of 6 months, fault of anything more reliable. On the other hand, there is some sort of common wisdom in the service sector, namely that 18 months is the threshold for transforming an incidental customer into a loyal one. Thus, I can imagine a cycle in customer relations, comprising an average of 6 months devoted to building the first contractual base with the customer, then an average of 18 months devoted to transforming that first beachhead into a durable cooperation, and finally the ‘x ≥ 18 months’ phase of durable, pretty constant relation.
Logically, the first six months of any activity at BeFund is likely to be very much dry biting, i.e. without any monetization of relations with customers. It would be good to develop the whole business so as to assure external financing during that first phase (e.g. through R&D grants). The marketing activity of BeFund should consist of three distinct fields, corresponding to three distinct motivations in our customers: curiosity, trust based on reputation, trust based on experience. BeFund should intrigue and puzzle people, so as to attract those for whom puzzlement and curiosity are natural habitat. Participation in conferences, congresses and forums of all kinds, as well as strongly publicized, own research activity, should fit the bill as for the first two. Individual handling by a dedicated project manager at BeFund should cover the third one. Thus, in terms of marketing, what we need to launch BeFund is a well-publicized research programme, which will kind of introduce BeFund into the scientific market, and subsequently keep us sharp and competitive. Having our own research ambitions, outside those of our customers, seems to be important for efficient marketing.
An idea on the side: that research program owned by BeFund could be an excellent occasion to attract our first customers. Some teams of engineers, envisaging to start up a business of their own, could very well start their adventure with BeFund by participating in this precise project. Anyway, I can see like five lines of action, to be combined in some sort of recurrent cycle: a) prepare the BeFund’s own research programme b) run the BeFund’s own research programme c) publish research (journals, books, conferences, congresses, blogs etc.) d) arrange first contact with potential customers at conferences, congresses etc. e) follow up individually with selected customers.
Now, a quick glance at the financial side, for subsequent fine tuning. I cautiously evaluate the equipment of one, stationary lab between €200 000 and €500 000, depending mostly on the physical scale of the premises. That would correspond to fixed assets in the balance sheet. As for the circulating ones, there are two things to consider: the strictly spoken circulating capital, for covering current expenses during those first six months, dry in terms of revenue, and the liquid capital to invest in those keen start-ups. As for the first component, I provisionally gauge it as equal to the fixed assets (a little accounting trick, when you really are at a loss for numbers). Regarding the second, I assume that a single investment in one start-up, when BeFund would act really as a fund, would go like in €2 000 000, up to €5 000 000 in exceptional cases. All that makes sort of two balance sheets. One, immediately present around, around €1000 000 euro. The second one, kind of hanging around and waiting for investment, would be made of those two-million-euro building blocks.
I am consistently delivering good, almost new science to my readers, and love doing it, and I am working on crowdfunding this activity of mine. You can consider going to my Patreon page and become my patron. If you decide so, I will be grateful for suggesting me two things that Patreon suggests me to suggest you. Firstly, what kind of reward would you expect in exchange of supporting me? Secondly, what kind of phases would you like to see in the development of my research, and of the corresponding educational tools?