As a continuation of the first entry about “The untold challenges of designing Smart Cities” and a little more in-depth exposure than the overview article available here, I dwell in this article a little more on the extraordinary challenges small companies face when selling into the Smart City market. There are three, to be more precise: i) complex political cycles; ii) long commercial sales cycles; and iii) non forward-looking procurements.
Concerning political cycles, most of the things you sell into the city will go through some form of public approval or procurement. The problem is that these procurements are, in many countries around the world, heavily coupled into political activities. In most countries, there are the city elections, the regional and the government elections. These elections however are rarely synchronized. Plus/minus 4-6 months of each of them, the political, and thus executive and financial firepower, is completely paralyzed. If timing is unfortunate, this can leave you with only a 20% sales window opportunity. Can smart city business thrive under these conditions? You need to be prepared!
To make things worse, due to the absence of large scale smart city rollouts with proven business models, decisions to use, or at least to trial new technologies, are very political in the sense of personal relationship to town halls, political agendas, etc. That is not a good turf for smart growth either.
Concerning long sales cycles, these arise because of above issues, i.e. the long and mutually blocking political cycles and largely unproven smart city business models.
The window between first sales contact and actual sales can be years. Anything below 12 months is a miracle; 2 years is typical; and 4 years not unheard of. Running an innovative small company with these sales cycles becomes very problematic, very fast: you need to pay your workers, so they can provide for their families. Entrepreneurs have the choice of closing the company or scaling very quickly to a medium-sized company through other sales or VC funds. In other words, there is very little space for startups and small companies – often the most innovative ones – simply because of poor chances of survival in the smart cities market which is governed by long sales cycles.
Finally, for those who make it to public procurement for their smart cities technologies to be installed in urban spaces, a harsh reality will settle in very quickly: Procurement today, by its very essence, chooses the set of technologies which fulfils the minimum requirements and then chooses the cheapest one. This is of course recipe for failure and certainly does not allow for sustainable growth and implementation of smart technologies.
For the smart city market to really take off, three things have to happen: i) we have to wait until at least a subset of business models is proven; ii) we need innovative smart city companies to survive until that happens; and iii) we need to have mechanisms in place which allow them to compete fairly, and not only on price. The first is happening as we speak since a lot of smart city technologies are currently being trialed. The second will happen if the company has secondary incomes, or large funds available from banks/VCs, or is under the auspices of a larger company which acts as a sales cycle buffer between the small company and the real market. The third requires a fundamental shift in how town halls operate and procure, possibly requiring independent views on which technology is smart and future proof and which only cheap. We thus need to shift from a cost-driven approach to a longterm-purpose driven procurement approach.