Tim Stone, Venture Partner, at IoT specialist investor, Breed Reply, looks at how cities can better tap the creative power of start-ups.
Innovative early-stage businesses need to play a critical role if we want smart cities which genuinely deliver solutions to improve quality of life.
More and more cities are turning to technology, like the Internet of Things, to address issues such as congestion and pollution, or delivering better public services like healthcare, in a time of squeezed budgets. Who they work with is going to be vital to determine whether they are successful.
Currently, delivery of smart cities is dominated by the large, traditional technology and telecom companies, who over the years have almost had a monopoly on big public-sector contracts.
However, some of the most exciting innovation, with the potential to fundamentally change how cities work, is found in early-stage businesses.
There are still often barriers preventing these early-stage businesses working with local authorities and governments, which means cities are missing out on innovative technology.
These barriers are not insurmountable but require a change of approach and mindset in the cities as well as better governance in the start-ups.
When you consider the ecosystem of a smart city, the issues are apparent. The smart city begins with data collection and analysis to generate insight. In many cases, this data will be sensitive, especially in areas like health. The public needs confidence that information is secure before it can be opened up to new technology that can, for example, like AppyParking’s solution to improve congestion or enModus which can turn any building smart using existing power lines.
Concerns over security can make cities tend towards bigger companies, who can demonstrate much longer track records of trust when it comes to data handling than a business of a few years old.
The other aspect is smart cities need high-quality digital infrastructure. Large telecommunications and technology companies are best placed to deliver this, which puts them in prime position, to offer other solutions such as IoT.
Don’t misunderstand me; they have a role to play in delivering the backbone of services and networks that IoT in particular needs but a successful market requires disruption.
These companies often have competing corporate priorities or set products and like any market that is dominated by a few big players, what is needed is a vibrant start-up market that challenges their wisdom.
Making the change
Rather than defaulting to these big companies, it is essential that cities can develop a mindset and culture that also fosters collaboration with smaller technology companies.
They need to build governance in areas like data that don’t stifle innovation. Most cities have developed ways of working with local SMEs such as cleaning companies or delivery businesses.
Early-stage tech businesses are similar. Cities need to be able to move quickly to put contracts in place as start-ups may lack the capital to wait. They need a procurement strategy which doesn’t tie them up in the red tape and drain their limited resources. Invoices must be paid promptly to ensure they have good cash flow.
But start-ups also need to adjust to ready themselves to do business with the public sector, including negotiating contracts, improving sales process to meet the needs of cities, and making sure they deliver what they say they will on time.
Innovation from the front room
If all these things happen, cities can quickly access new innovation.
Innovation is coming from the front room, not from corporate tech, and from entrepreneurs who think differently. To benefit means cities need to do business with early-stage companies.
They can’t wait for them to become large. In fact, a relationship with a big city that successfully implements their technology can set these companies on the way to becoming unicorns and in some cases, creating new local business champions.