My Startup lessons learnt

After three years, burning through a pile of cash and God knows how many work hours, here is my startup story from:  (1) Finding an idea and sticking to it, (2) Getting a commercial product out the door (3) And  then iterate/pivot to a product-market-fit (a must have product).

This video was recorded during a ‘Opportunity recognition’ lecture at Nottingham University and kindly filmed by my good friends at Skeleton Productions. These video’s are nicely divided into six easily digestible sections. If you only watch one, see PART3 – ‘Finding the perfect new business idea..’

PART 1 – About Nick Barker, Opportunity recognition and a quiz on famous tech startups that pivoted

PART 2 – Overview the three Opportunity recognition and development challenges. About Aware Monitoring

PART3 – Finding the perfect new business idea, lack of time and search for customer value proposition

PART4 – Building out a product, funding and pivoting the service

PART 5 – Competitor differentiation, lean startups and getting to product-market-fit

PART 6 – Continuous process of iterating and pivoting a product. Learn more about Nick Barker

Loving the Underdog! PART1: The 800lb gorilla

I recently helped organise a startup competition in our City. There were five startups pitching.  Several of them are attempting to take on much, much larger entrenched competitors. It seems like madness! They’re competitors are stronger, have more resources and many more customers. But, sooner or later, a startup has no choice. They have to fight the 800 pound gorilla!! Despite the odds, startups can and do beat their massive competitors.

You’ve gotta Love the startup underdog’s sheer audaciousness and courage against the odds!

If a startup is lucky enough to find a gap in the market, they will attract copy-cats. Initially most of them will be other startups. Mostly there’s little point in startups competing with startups, as they both have nothing to loose. Startups are quick to change, nimble and have a low-cost base. It’s almost best to ignore other startups playing in the same field.

With traction and time other copy-cats will be big powerful competitors. With customers and revenue streams, larger companies have the luxury of time. They have power. Startups don’t! If startups persistently compete against big players they will either be acquired or squeezed out of the market. Of course, if funded, the VC’s love the ‘acquire now’ option.

Just today I see startup Slideshare is taking dominant Cisco and Citrix head in the on-line meetings market. At our startup competition the winner Go-Dine is competing against the very well established Opentable. And Annot8, one of the finalists,  is completing against Google!! My website performance monitoring startup is also increasing competing against our much larger competitors.

It seems like a no win situation!!

So how on earth can a startup win against the 800lb gorilla..?

1. Find their weak points – Often large dominate market leaders become bloated with the fat of large profits. They have not explored new channels or markets. This is when a nimble startup can attack!
2. Go niche – Much large competitors can be avoided by going deep into a niche market where the play is too small for a large company.
3. Attack their profits – There is probably a product or service where the 800lb gorilla is making their fattest profits. Attack this treasure chest and weaken their position.
4. Forget them – It’s easy to get obsessed by the competition. Focus on the customers and their needs, not what the competitors are doing.
5. Out innovate them – This is making the most of their weak points. Re-define the market! It’s a challenge without significant resources i.e. major funding but it can be done. And when it is, the profit are huge. VC’s love this approach.

Startups have little choice but to stand and flight using their limited resources.  The founders can’t just tuck tail and run when they they’re up against a large competitor. Startups can and do win against the 8o0lb gorilla’s. Just look at Mint v’s Intuit or Dyson v’s Hoover, the list goes on and on. This is the way of our evolutionary economics system. Startups change everything!!

Next post in ‘Loving the Underdog’ series: PART2 – City of creation

Here’s a few good posts on startups v’s bigger competitors:

• The big company vs a bootstrap – Bijan Sabet
• Startups play poker, big companies play chess – Don Dodge
• Understanding How The Innovator’s Dilemma Affects You – Mark Suste
• Telling the 800-lb Gorilla to Shove it up his Ass – Jason Cohen

 

“Running a start-up is like being punched in the face repeatedly”*

In my experience of working for a large global software manufacturer and now having my own software startup Paul Graham* is spot on. Paul said  “Running a start-up is like being punched in the face repeatedly… but working for a large company is like being waterboarded.” (Waterboarding is a form of torture involving simulated drowning.)

I’ve found the bigger the company the more market power you have  but the less freedom you have as an individual. However having startup’s freedom means getting  rejected   (‘punched’) continually as you have virtually no market power. Get used to it and come out fighting because startup and small companies are more fun.

The ultimate punch in Matrix Revolutions, 2003

During my career I’ve worked for several small and medium companies and one of the world greatest ever tech corporations, Novell Inc. People generally open doors warmly when you’re from a large corporate enterprise but in the startup they often don’t even give you the time of day.

The Big Corporate Enterprise

When I joined Novell they were enjoying a temporary revival with Eric Smidt at the helm. Interestingly Eric is now the CEO of Google.  Even during Novell’s decline I always remember the feeling of power when I meet customers and partners. They all took you seriously. Even prospective customers, partners and ex-customers would welcome you in.  Novell and other corporate enterprise’s have huge amounts of market power.

Market Power

By market power I’m referring to a company’s credibility. Being creditable reduces the customers perceived risks and often increases trust. From my experience market power is derived from having several of the following:

1. Customers – Referable large company and well known household name customers.
2. Partnerships – creditable partnerships with creditable leading companies.
3. International service/product – Effective provision of services across the globe.
4. Scalable service/product – The capacity to take on new large scale orders and customers without over-stretching.
5. significant assets – Whether is be customer base, IP, financial or contractual assets.

As an employee working for a large enterprise you are riding on this power. Unfortunately decisions and change happens very, very  slowly and painfully within the corporate enterprise. The large companies often rely on the status quo. There is certainty in the corporate world for the company and the employee.

To get on in the large company you have to be a good corporate citizen . This means towing the line, keeping you head down and doing as your told even if you don’t believe in it. It can become torture for many. What makes all of this worthwhile is the pay and the perks. However there is more to life than money…

The Small to Medium Size Company

This size of company sits somewhere between the giant corporate company and the startup. They’re often in partnership with the big companies, reselling or distributing their goods or services. The effect of having referable customers and being involved with a large stable enterprise company brings credibility. This increases the smaller companies market power.  However they often still lack market power because they’re not making an embedded product or service product.

The good thing about working as an employee for smaller companies is that you get paid and the decision making progress is shorter and therefore quicker. This means as an individual you have more freedom than within the corporate environment. However as a small company you have to fight alot harder to survive. Interestingly some larger companies like Virgin Group, Ltd and WL Gore & Associates, Inc have successfully divided into small units  to act  and feel more like smaller companies.

The Startup

You love your startup like nobody else. You believe  your product is a world beater but unfortunately very few will agree.  As a startup you have no market power unless you have a track record of previous startups. Again and again you will get “punched in the face” by people all around: customer’s,  partners and investors. Graham says “everyone has a problem with your product” .

As a founder you have to draw strength from somewhere. Graham says “uncertainty” abounds, “as well as a persistent fear that a single bad decision could doom the whole enterprise” and “the gut-wrenching period when you realize that success isn’t going to come quickly or easily”.

Your strength may be your family/partner, friends or an inner driver of your vision of the future. Something has to drive you. And it has to drive you hard to gain market power. However a startup is something very special. Many only dream of having one. A startup brings the idea of freedom. The freedom to create and grow something of your own.

It’s very interesting to see people from all three types of companies sharing public discussions. Now I look back on my career the differences are amazing. The corporate citizens often lack passion, individuality and an inner drive. From all my years of experience I enjoy working for startup and small companies the most. They give you a sence of purpose, belonging and fun. Unfortunately the pay sucks in a startup but then money is not everything 😉

5 reasons to pick a fight with your biggest competitors

It sounds like suicide picking a fight with a much larger and established competitor (niche or mainstream). How can you possibly expect to win when they’ve more resources, customers and a mature product? You can’t, easily or quickly!

Rocky IV up against a much bigger and stronger competitor

However there are some good reasons to be compared and associated with the market leaders:

1. Customer knowledge – Customers have a clear understanding of what an existing product does. They can therefore easily pigeon hole your product into the same or similar category. “oh, your like ACME’s product”. In this way a sale is easier because less explaining is  necessary.
2. Free-riding education – You can ride on the competitors market education. Educating customers is very, very, very expensive and time consuming. Why not take advantage of someone else’s hard work and cash..
3. Price comparison – Customers will always want a price comparison. Competition is a good thing. Its good for suppliers because it grows the overall market. It also reassures potential new customers. ‘If this supplier is no good I can always switch to another one.’
4. Defecting customers – Unhappy or dissatisfied customers will need an alternative. Put yourself in that position and you will catch them. The crumbs from the competitors table maybe healthy loaves to your startup.
5. Out innovate – Find the weaknesses in the competitors offering and improve it with your own. Many a market leader has been toppled by a much smaller innovative company. Startups are better at innovating than the big market leaders.

A word of warning this strategy may also get you a bloody nose. The competitor has the lions marketshare and so you have to make alot of noise to be heard.  If you do get noticed by the competitor move quickly to establish a position of strength because if they attack it may be a killer blow. You may also start a price war which is ultimately no good for anyone except the customer in the short run.

Competition is a good thing. It demonstrates there is a need in the market for a product or service. Rarely is there an new opportunity without competition. If there is no competitors you have to ask yourself is there really ‘a market in this gap?’ As a small startup you have to out-compete your much larger rivals.

Battling against competitors really requires the Art of War. Strong knowledge, great tactics and an outstanding strategy is needed. Its not easy. Often startups have no choice. The odds are not on your side but that does not mean you won’t be successful. Startups are more agile than established bigger suppliers.

Refocusing less on numbers and more on quality creation

Over the last few weeks I have been discussing, overheard and read about Enterprise 2.0 Return On Investment (ROI). I’m familiar with this term having used it in the past to justify and overcome financial objections when investing in IT technology. ROI is a cost saving measure with the argument being: you invest in this product or service now; you will pay off the initial investment by this date; and then you are left with a reduced operational cost.

Firms invest in IT to reduce costs through increased efficiency or invest to increase revenues by gaining long term competitive advantage. In the 1990’s investing in an email infrastructure was justified on early mover competitive advantage and today email has become so commoditised it is seen as a cost of doing business. Businesses and some suppliers are attempting to put an ROI on Enterprise2.0 tools but history shows ROI does not work with collaborative tools.

Our current management approach to business teamwork projects is woefully ineffective as highlighted by the research in Susan Scrupski excellent blog post. Enterprise2.0 has the potential to bring valuable business benefits through increased team collaboration, however cost saving ROI IT projects are often seen as a more attractive option because of the short term measurable gains.

A typical project to innovate a process or product can be challenging to measure and has a high possibility of failing, let alone delivering an ROI. The result is firms choose not to innovate because of the risk of failure.  Sucessful innovation projects often come from the people on the ground who understand customer problems and needs. Enterprise 2.0 can bring competitive advantage through the firms often most expensive and unique asset, their people.

But how far do we go? Pampering staff seems to be a trend in software development firms such as Google with their free cafe, games rooms and other generous benefits. Compelling benefits are also being used by small firm such as Carsonifeid in the UK offering a Macbook/iphone and 4 day working week for new employees and 37 Signals also on a 4 day week will even  pay for your hobbies.

People are not machines that produce at a constant fixed rate and ROI does not work with them or the tools they use. Making a knowledge worker work at a continual high rate or long hours does not increase the employers return. The focus needs to be on quality and not quantity output. The time management guru Tim Ferriss refers to attention currency and the innate human ability to only have so many quality attention hours. Googles benefits are not just trying to attract the best quality staff, they are also providing an environment where the people have the energy and time to create together.

Knowing the numbers is key to any organization, however if the focus shifts to working overly by the numbers we can lose sight of our people and unhappy staff effect future profits. Because of the perceived long term and unclear returns many firms are unwilling or unable to take a more quality approach on teamwork. This is the challenge in justifying an Enterprise 2.0 management approach and the associated technologies.