Category Archives: Business Strategy

Persist, Pivot, or Swap: Startup Strategy

A classic problem for entrepreneurs: Persist, Pivot, or Swap.

There are arguments for each.

1) Persist: startups are never easy, so a slow start is to be expected.
e.g., It took 2 years from Google’s initial development in 1996 to receive its first investment of $100,000 in 1998. For most entrepreneurs, two years without an investor seems like a very long time, indeed!

Advantages: overcoming barriers to entry takes time and is to be expected. In the long run, high barriers to entry are a good thing!
Disadvantages: risk of running out of capital before the business becomes viable (either through profitability or ability to raise additional capital). Risk of pursuing a non-viable business model either because lack of market or lack of competitive product/service.

2) Pivot: use knowledge and experience to find a better niche that can support growth/profitability.
e.g., Starbucks operated for its first 13 years selling coffee beans and equipment, not brewed coffee. Only once it pivoted to the coffee shop model in 1984, it began its rapid expansion.

Advantages: after gaining startup experience, founders can pivot business version 2.0 to target market conditions or specific niches. Various methodologies such as “fast failing” or the OODA Loop all describe the concept of learning from experience and reacting accordingly.
Disadvantages: Switching strategies too rapidly may confuse cofounders/employees. All business take time to develop, so pivoting before devoting sufficient efforts to a concept will only lead to perpetual failure.
3) Swap: a new, exciting opportunity comes along, completely unrelated to the first. With limited time / capital, is it better to abandon the first, and work on building something new.
e.g., Before founding Slack, a startup that reached a valuation of $1.2 billion, Stewart Butterfield was working on a computer game called Glitch. The game was a flop, but while developing the game, they built the communication technology that they realized was a marketable product. They gave up on the game, and swapped to the messaging product.

Advantages: leveraging experience from one industry into another is a classic way of creating innovative and disruptive businesses. Some markets are highly competitive, while others seem frozen in the past.
Disadvantages: “the grass is always greener” applies particularly to areas where one has less familiarity. There is high risk of either being unable to overcome the new challenges in the new business, or even being unaware of critical factors necessary to succeed.

How to decide?

In my startup career, I have persisted for years, pivoted multiple times, and swapped a couple of times. Here is the approach I have taken:

a) I generally persist at a startup concept until I develop a viable product/service that has the possibility of generating revenue. Quitting earlier means the venture never had the possibility to succeed.

b) I like trying new things, so I try to either pivot the business or make a spinoff product/service each year. The disadvantage of this, is it takes energy away from improving the core business and after a number of years there is a lot to keep track of. The corollary of pivoting is the need to prune out the old, less successful businesses if not immediately, then over time.

c) I’ve swapped ventures after I’ve put in enough time (sometimes years), there is a viable business model in my mind, but the business is getting no traction in the market. When something new and better comes along, I jump at it.

 

 

Advertisements

Storytelling for Children and Executives

The Wall Street Journal tells how the CEO of Procter and Gamble is more interested in the storyteller than in the powerpoint slides. Therefore presentations should have powerful stories.

Mr. Atkinson suggests organizing your story into three acts and starting by establishing context. You want to let your audience know who the main characters are, what the background of the story is, and what you’d like to accomplish by telling it, he says. You might open, for example, by describing a department that’s consistently failed to meet sales goals.

Move on to how your main character—you or the company—fights to resolve the conflicts that create tension in the story, Mr. Atkinson says. Success may require the main character to make additional capital investments or take on new training. Provide real-world examples and detail that can anchor the narrative, he advises.

The ending should inspire a call to action, since you are allowing the audience to draw their own conclusions about your story versus just telling them what to do. Don’t be afraid to use your own failures in support of your main points, says Mr. Smith.

Whatever you do, don’t preface your story with an apology or ask permission to tell it. Be confident that your story has enough relevance to be told and just launch into it, says Mr. Smith. Confidence and authority, he says, help to sell the idea to your audience.

The idea here is not new. Humans are more receptive to stories than to data. The powerful message that was omitted, however, was that while people are more receptive to anecdotes than boring powerpoint presentations, good decisions are made based on information. A story backed up by data combines the power of human psychology with the power of knowledge.

India, an Underappreciated Superpower?

With a population of 1.2 billion, it’s hard to imagine that India is being overlooked as a global power. However, many people don’t realize that India’s population is projected to exceed China’s by 2030; nor do they realize that McKinsey estimated India’s middle class is 300 million, and expected to double by 2030. Furthermore, India’s industry & economy is already greater than most nations, apart from the EU, US and China. (As calculated by CIA World Fact Book GDP Purchasing Power Parity.) The business landscape in India has been difficult to track, but there are now detailed reports to research India’s industries in the low-tech manufacturing and services sectors.

 

How to Partner with a Large Corporation

Congratulations! Your startup is in the final negotiations with a large corporation for a joint venture. Except now they’re asking you to foot the (marketing) bill. It’s becoming less and less clear what they’re bringing to the table. But you’ve been pinning your hopes on this partnership, so it must be a good thing, right?

Here are some considerations.

Joint Marketing:

  1. Have company leverage existing resources/capacity (e.g., marketing people, graphic design) to reduce outside vendor costs
  2. Design the ramp-up period  (i.e., pilot) with testing/analytics to improve campaign efficiency.

Competition:

  1. The danger of working with a Goliath is that they often have the ability to squash you. Make sure your service maintains a competitive advantage so they won’t want to drop you in favor of another partner (or in-house solution)
  2. There are plenty of examples of large corporations considering partnerships, getting lots of inside information, and then deciding to do it themselves without the partner. Prevent this by focusing on the benefits / final outcome, rather than on the details of execution

How to Make a Bad Idea Good (or at least less bad)

I’ve been reading a lot of pitches lately, and many are obviously ill-fated. Here are some themes that would benefit most of them:

1) Cut the budget in half. Costs will be higher than expected, and returns will be lower than expected. Inflated numbers won’t fool anyone.

2) Plan the project in multiple phases. Then focus on phase 1 – it should make sense on its own.If it’s only value comes from the success of future phases, then that’s a problem.

3) If you can’t even explain it clearly, then what chance does it have of actually working? Simplify.

4) Money does not equal marketing does not equal success. There is often low correlation between each.

5) Time is not money. Spend the time, don’t spend the money. If your team doesn’t have the in-house capabilities, then it’s not the right team for the project.

6) Experience matters – but experience doesn’t matter. Past successes are great, but what’s even better is experience that will help with the current idea.

7) Think small – but be ready for success. How will the idea scale if it turns out to work?

8) How will it fail? How long will it take? How much will it cost? Will there be any salvageable value?

Inc Magazine: Best Industries for Starting a Business

Inc Magazine article highlighting 16 industries for starting a business. A few of the industries are a little goofy (e.g., selling homemade goods online and sperm banks), but others come from the just-released Top Industry data from AnythingResearch.com. Cool, huh? There are certainly a lot of other factors that go into identifying venture opportunities, but many of these  less well-known industries are worth looking at.

LinkedIn Privacy: now hiring managers can contact your former coworkers/managers behind your back

One of the *New* features that’s being tested on LinkedIn allows companies to connect with people who know job applicants and ask them to provide candid references.

On the wake of the Facebook privacy issues, LinkedIn is now opening up its network to employers in a way that individuals never anticipated and that violates the norms of the hiring process. Traditionally, employers ask for references and candidates provide names of people who they believe will speak favorably about them. LinkedIn now allows the employer to bypass the request for references and source references directly. This will produce a less biased (and less favorable) assessment of the candidate, giving even more control to the employer and less to the job seeker.