Where the Rubber Meets the Road: Running your First Industrial Pilot
Running your first industrial pilot is a big deal for any climate tech startup. Pilots are real world experiments that can provide unparalleled value for your business but are also often complex undertakings with many pitfalls. They are also critical elements of demonstrating commercial viability to investors, and therefore a key piece of the overall fundraising strategy for a business.
To help you navigate this tricky but rewarding process, we sat down with Shilpi Kumar. Shilpi is a partner at Third Sphere where she works with early stage pre-seed and seed companies. She has worked with startups for over a decade, from conception through early commercial, and has specialized supporting teams with go-to-market. Her portfolio includes many companies focused on entering B2B pilots for both hardware and software solutions and she works closely with founders to provide coaching and templates to navigate these customer arrangements.
Experimenting in the real world
Industrial pilots are more than just early revenue and traction signals for investors; they are real world experiments where you can test how your product interacts with complex production, market, and customer dynamics. They can inform everything from your product requirements, sales approach, operational needs, and team composition to your cost model and how you capitalize. They can quickly make unknown unknowns visible in a way that systems mapping, interviews, surveys and other research cannot. They can demonstrate early signals of current demand, as well as shed light on how a future “scaled” operation might look. Approach pilots as proper experiments with clearly defined hypotheses, assumptions and tests. Done well, pilots test nearly every element of your business.
Qualify, qualify, qualify
It helps to have a model for your “ideal customer” going into early conversations with prospective customers. Common criteria include:
- Size of company
- Desired length of pilot
- Available budget
- Urgency of need
- Alignment of company needs with product offering
It might be hard to find multiple companies that fit your ideal criteria, but it is helpful to know where you are compromising and how that might impact the outcome of your pilot. Aim for putting resources, time and money into pilots that are illustrative and demonstrative of your target market and core value propositions.
Identify key stakeholders and agree on roles up front
The relationships you build with your customers, partners, and other stakeholders during the pilot process can have big effects on the success of your pilot. Make sure you clearly articulate everyone’s roles so that you can make the most of these relationships. This includes defining both technical and business roles (at the very least) early and on paper.
As part of this process, get really clear on what success looks like with your pilot customers, investors, and each individual stakeholder who is evaluating the pilot for future opportunities. Expectations on roles and responsibilities should be formulated in writing as part of a formal pilot agreement. Avoid misunderstandings and bad assumptions by putting ALL the details of the pilot down on paper in your proposal. This is the time to also schedule key milestones, check-ins (where you can ask for feedback and identify blockers during the pilot), etc. Keep in mind that successful pilots require all parties to play their part.
Start by producing a high-level proposal including information about the scope, deployment length, timing/urgency, product specifications, payment terms, etc. This is a time to be succinct and direct. Share the outline with your prospective partner, giving them the opportunity to provide specific feedback and call out any issues they might have missed during your initial conversations. Clearly communicating the goals and assumptions you want to test up front will help you make effective trade off decisions during upcoming negotiations. Plus, this initial back and forth surfaces discrepancies early, so there are no issues when the formal legal agreement is exchanged and legal costs need to be considered.
If you can avoid it, don’t do just one pilot with a single customer (a sample size of n=1 is NOT ideal). Depending on your technology, customer segment, use case, the difficulty of execution, etc you should aim to have 2-10 individual customers confirmed in a cohort. However, keep the experiment focused and try to constrain your variables. While it might be tempting to do the pilots in a variety of settings with a variety of customer types, this creates a lot of complexity and overhead. Instead prioritize demonstrating a repeatable model, which will in turn imply scalability to prospective investors (and your team will also thank you for the simplicity). In the end, your goal should be to take the learnings from the pilot and build repeatable/replicable models for deployment, integration support, operations, sales, etc..
In terms of investor signaling and product and hypothesis testing, pricing really matters for your pilot. Ideally, you would price using your post-pilot business model. It demonstrates not only product fit but product demand at a price point that can be scaled. Second best is to use this standard pricing but with a discount, given the early stage of your business. Third best is to charge a bulk fee for the pilot with some roughly sketched terms for pricing post-pilot. Fourth best is to charge enough to cover your costs (non-recurring engineering, operational expenses, etc). If you don’t cover these costs, it can be a negative signal to VCs that want you to demonstrate scalability and long-term viability. Finally, if you have to, you can do it for free, but be very careful how you message this decision to prospective investors.
Plan for failure
Last but not least, be humble and set realistic expectations for your pilot. You obviously want to articulate the value of your product and its transformative potential, but the point of a pilot is to test your business in the real world. If you only focus on the big vision and possible upside scenarios, without being cognizant of potential failure points, you are prone to missing the opportunities this powerful real world experiment can provide and you will likely fail to prepare adequately for all of the unknowns you’ll likely face.
Keep in mind that pilots that don’t convert to long-term customers can still be valuable in fundraising. While a successful pilot is always a strong signal, a misfire can still build rapport with investors if you can explain the impact on your product, strategic direction, and long term focus. A failed pilot should not spell the end for your company; rather help outline a new beginning.
Shilpi Kumar is a Partner with Third Sphere, an investment platform focused on early stage companies building climate solutions.hilpi has a background as an investor, focused on hardware, mobility, energy, IoT, and robotics. She specializes in supporting customer development and product strategy, with experience as both an independent consultant and early employee commercializing hardware and software solutions in commercial and industrial environments. She previously led go-to-market and early sales efforts at Filament, a startup focused on deploying secure wireless networks for connected physical assets. She is passionate about leveraging technology to decarbonize industry, upgrade cities, and fight climate change. Before Third Sphere, Shilpi worked with VTF, First Round Capital, and as a Network Leader for Village Global. Shilpi graduated from Duke University with a degree in Neuroscience and Economics and currently lives in Oakland, CA.