The technology life cycle describes the profit and cost of a particular technology throughout its useful life, including its initial development stage, and its eventual economic return during its “commercial life”. It is important to keep this in perspective because, as a technology grows, its cost can grow and its utility cost can increase. In fact, the ultimate goal of any entrepreneur, from the earliest investor seeking capital for research and development to the largest corporation seeking a lucrative niche, is to make technology “pay for itself” over time. More importantly, the life-cycle of a technology should be considered an investment in the long-term success of any business or organization.
There are four stages in the technology life cycle, each of which is defined by the technology’s “investment” in the enterprise or the company. These investments include the costs of creating the technology in the first place, and those costs are only discounted over the course of three stages. These three stages are the testing, demonstration, and deployment stages. There are also four primary venture capitalists in the market who play a key role in each of these three stages.
The testing stage is the most significant of the stages because it provides the company with real-time data regarding the performance of their new product or technology. Venture capitalists like to see tangible results from their investments, which is why this phase is often called the proof of the pudding experiment. The testing phase provides a sense of confidence in the abilities of the company to proceed with their planned activities. However, this confidence will fade as the companies’ implementation continues and the product or technology begins to lose market share to more established competitors. Venture capitalists may begin to decline a technology if the market share gains are not substantial enough to justify the venture capital investment.
This is the stage where the potential for revenue becomes evident and it becomes necessary for the company to determine whether the potential exists to justify further development. During this stage investors should stay updated on the products progress and its impact on the overall marketplace. The early adopters become the early majority, which drives the future growth of the market. A technology that fails to attract an early majority of early adopters will not be successful in the long run. In addition, technology that attracts a large percentage of early adopters can typically enjoy rapid and sustainable growth, which serves to reduce the risk of a venture bankruptcy in these markets.
The next two periods, the demonstration and deployment phases, allow for a more tangible outcome of the technology. The presentation and demonstration phase to allow for a demonstration of the usefulness of the technology to a third party. Ventures can provide a demonstration of their technology to a third party by deploying the technology in a setting or situation where the technology can be readily demonstrated to a third party. Venture capitalists like to see prototypes and real-world usage examples so they can properly evaluate whether the technology as a whole will be profitable as well as useful to potential customers. Venture capitalists may also review financial metrics such as gross and net worth as part of their evaluation during this stage of the venture capital investment.
Finally at the substitution stage, which is the final stage, a new technology developed has been deployed into the market and is in a position to compete with other technology. This competitive setting provides a better place for the technology to be tried on various market segments. The end result of the investment in the substitution stage is the most promising scenario for long term profitability and growth.