Many companies are started to ‘attack’ a sector than is ‘held’ by another company. This sector is usually very valuable, which is the reason why start-ups try to capture these sectors.
The problem is, you don’t capture sectors, you capture markets. And when you have no customer focus, you probably won’t capture customers and as a consequence, you won’t capture the sector.
My thinking here goes as follows. Very successful companies come to dominate or create a sector because they were able to provide a unique (at least when they started) service that was (and probably is) of great value to customers. Subsequent generations of start-ups then try to ‘take that business away’ from the incumbents. This can work. However, it can only work when you manage to win over the customers. You can only win over customers, when you have a value proposition that is significantly better than that of the incumbents and that is actually valuable to the customers. If you don’t, then you can’t win the market. And if you can’t win the market, you won’t be able to win the sector.
The company that people seem to target a lot these days is Google. The reason is obvious, Google makes a lot of money and people want that money.
The latest start-up that seems to try overturning Google is called Cuil. I have probably read some 10 articles about them yesterday. Great press coverage. Indeed, it was so good, people commented on it. However, all that the press coverage seems to focus on is that Cuil wants to ‘kill’ Google. Hardly anybody seems to be raving about the features of the site. I haven’t read once an expression along the lines of: “Gosh, now this is how search should be!” Not once. Read what TechCrunch, GigaOm, and ReadWriteWeb wrote.
Cuil actually has some very interesting technology that allows it to operate its search engine at a faction of the cost that it takes Google to run its operations. This is very interesting and it is actually useful. However, it is in no way useful to the users or the customers of a search engine. Unless Cuil can find a way to translate that advantage into something that actually means users have a significantly better search experience, why should they care?
Cuil’s natural target market is the people who have a pain that they can make go away: search engines. If Cuil can significantly lower operational costs of search engines (and maybe even other companies, who knows), then these search engines would probably be very interested in talking to Cuil.
Cuil has decided to, at least according to the press, ‘kill’ Google. What a shame. There is no unique service there that I can see right now that is of great value to the customer. They could have helped Google and all other search engines to become even more successful by lowering their costs. There is some real pain there and some real customers.
Don’t kill. Make pain go away. Make happy.
UPDATE: Funnily enough, I am not the only person going through this thought process. Just saw a post by Jason Calacanis here and by Fred Wilson here.
All of these discussed various aspects of ‘how’ to run a start-up or a start-up business. Arrington says that the two most important aspects of a company are hiring the right people and managing your cash extremely well. I think these two aspects are important, but they are not everything.
For what it is worth, I believe there are three fundamental aspects that will determine the success of a company. They are what the company does, how it does it, and who actually does the work. The diagram below shows what I mean with this.
In my view, the founders of a company, and at a later stage the hired senior managers as well as the board, will determine the strategy of a company, its operational structures and processes as well as some of the tactical details on how things are done. They will also hire new staff into the company.
Let’s have a brief look at these three aspects.
Strategy -“The next bounce of the ball”
There are obviously many aspects of strategy, but this is a short blog post. If I had to pick one thought on strategy, it would be “the next bounce of the ball”.
I have borrowed this phrase from Ronald Cohen and his book: “The second bounce of the ball”. The concept behind this thought is very simple. Cohen explains this phrase using his personal history of founding Apax Partners, the private equity firm. He started out doing corporate finance work, managed to transition into venture capital when that became ‘hot’, then transitioned into buy-ins and then into leveraged buy-outs. Basically, Apax rode the subsequent waves of the European private equity industry and managed to grow very substantially with each of them. The point here is this: you need to be able to ride markets as they appear and expand; it is the easiest and fastest way to achieve substantial business growth. For Apax, that was the transitioning through the various phases of the private equity industry. For example, let’s say you create the best video-sharing site in the US right now, you would have a hard time to grow to a substantial size: you would be too late. If you set up the same company six years ago, you wouldn’t have been able to achieve growth either, Internet access was probably too slow and digital cameras not widely enough spread by then.
So, if you can predict the next bounce of the ball in a significant market and focus your company on that bounce, you will probably do well, provided you can execute.
Operations & Tactics – Execution: How to get it done
With operations, I mean both organizational design and the processes that flow along that design. For example, you will create different operational divisions in your company. These divisions will have different objectives and there will be ways in which they communicate with each other.
It is very easy to get this wrong. For example, should the marketing function be aligned with product management? Or with sales? Who manages customer support? How do does the sales staff interact with engineers? How do engineers interact with customers?
I have embedded a good podcast (audio only) where Andrew Frame, founder of Ooma describes, amongst other things, his thoughts on organizational design.
Overall, I find that there is very little good literature on organizational design out there. Each company will have different requirements, too. In my mind there are two important aspects here: Think it through and keep it very simple. As a start-up, don’t do the fancy stuff like matrix structures. They will slow you down and add little value at an early stage.
When Jason Calacanis talks about buying cheap tables and expensive chairs, he is describing tactical elements of how to run a company. Other such examples are going staff flexible working hours, buying them free coffee, etc. you could call these the tricks of the trade. Tactics essentially describe how small groups of people interact with each other and use their resource to achieve very specific goals. These tactics are useful for those ones that will make it happen, the people in your organization.
People – “Making it happen”
I fully agree with both Arrington and Calacanis on this point. People are the ones who will make it happen. Taken from Arrington’s post:
“The most important part of hiring correctly is to not hire the wrong people. The second most important part of hiring correctly is to hire the right people. What that means is that it is better to not hire anyone at all if you can’t find the right person. And if your startup fails, all the perks, time off and general coddling that many outraged commentators called for isn’t all that useful.
So who are the right people and who are the wrong people? It’s not that hard to tell. The right people are the ones that really, really want to work with you. You can tell they’re excited to be a part of the team. They actively look for problems to solve, and then solve them. This is a personality type that is very easy to spot once you know what to look for – they have fire in their eyes. They’re warriors.
I’ll take the fired up warrior any day over the more experienced but otherwise meek alternative. Skills can be learned quickly on the job (excluding certain specialized skills, which mostly means developers for a young [software] startup). But if you aren’t already the kind of person who’ll just get the job done no matter what, you’ll likely never be.”
A former boss and mentor of mine said to me that the people you want to hire in a start-up are the ones you would have wanted to have next to you in the trenches in Word War I. The ones you just trust to help you through this. I think that sums it up.