Category Archives: Strategy

The Difference Between Impossible and Really, Really Hard

Starting a company is very hard. You put every ounce of your energy into the new business, fighting for every new customer and struggling to make ends meet. In the midst of the chaos, it is very easy to lose track of whether you are making progress or just running in circles.

Every company runs into a wall right around their product launch, when the initial excitement of the start up wears off and the first version of their product makes contact with reality. Reality is a harsh place and even the brightest dreams never quite work the way you would expect. Success fails to come easily and you sit there wondering if your idea, which seemed brilliant a week ago, can really work at all.

At that point, many first time founders will start thinking of a pivot. The original idea isn’t working out exactly like you expected but you have another, equally brilliant idea that will be much better. This new idea has not had to survive contact with reality so it will always look more attractive. You start to think the original plan is impossible but this new path will definitely work.

But, is the original plan really impossible or is it just really, really hard?

Don’t get me wrong, pivots can be an important part of start up success as almost every successful company ends up doing something different than what they started out doing since they learn from the market. However, pivoting too early or often can actually hurt your chances of success. You should not pivot unless you are positive that it is the best thing for your company.

Here are some questions you should answer before deciding for or against a potential pivot in those early days.

Question 1: Have you followed through on your go to market plan?

It is easy to panic if you begin to test your concept in the market and things don’t go as you expect. Even if you were able to demonstrate demand with alpha customers, raise funding and recruit a team, there is no guarantee that customers will flock to you when you launch. If your launch doesn’t give you immediate benefits then you will feel panic setting in.

Making good decisions when emotions and stress are high is very difficult. That is why you laid out a plan for your go to market strategy (see Go To Market To Win) including specific milestones that you would aim for and how you would achieve them. Those milestones are important, because they give you a decision making framework that is above all of the emotions of the launch. Do not make decisions until you hit your next checkpoint to ensure that you have given it a chance to work.

Even if the early results don’t match all of your original expectations, look for promising signs and clear feedback from the market. Perhaps your pricing model is too aggressive or there are certain customer segments that are working well that you should lean into. Remember that whatever concept you might have started with, you will need to refine it as you learn from the market.

You should not continue trying to force a product that is clearly not working, but you need to be sure you have given your product a chance. Sticking to your go to market plan and avoiding panic are important parts of doing that.

Question 2: Do you have enough time for a pivot?

Pivoting your company is a lot like starting over again. While you might be able to use some of the assets you have accumulated along the way, you will be at a much earlier stage of development on the new idea than you were on the old one. You will need to start over again with your market planning, prototyping, customer development and strategizing. All of that will take time, just like it did the first time you did it.

The unfortunate truth is that when companies get the most desperate they start to favor pivoting as a solution to their problems. Often, this means they are trying to pivot when they have only months of runway left, which is not enough time to restart their go to market strategy. While it is true that your current business might not be working, if you only have a few months left then you likely don’t have enough time to make a new business work either. Be very practical about your existing runway and whether a pivot is really an option for you.

Question 3: Is your team on board?

At the end of the day, your company is made up of people. Maybe it is just you or maybe you have a team of dozens. Either way, pivoting is a traumatic event for everyone involved. You are, in essence, admitting that your previous plan which you used to recruit and motivate them, was flawed. The passion that drives early stage companies can quickly deflate.

You cannot change your team as quickly as you change your business so make sure that the team you would hire for your new idea and the team you have already are almost the same. If they are not, then you are faced with rebuilding your team at the same time you rebuild your business which is very hard.

Assuming your team is right, make sure they are on board. If you think a pivot is the right move but they are still committed to your old concept it is unlikely you can pull them along. Besides, if you can’t convince your team that it is a good idea then maybe it isn’t.

Impossible vs Really, Really Hard

All of this should make you realize that the difference between Impossible and Really, Really Hard is difficult to see when you are in the moment. Start up companies are at least really, really hard and often impossible so it is easy to confuse the two. While you don’t want to waste your time on something impossible, all the value and benefits of starting a company come when you overcome things that are really, really hard.

Whatever you choose, be sure not to waver. If you pivot and then swing back again you aren’t pivoting, you are waffling. Choose a direction and stick with it.

Go To Market To Win

There are only four kinds of events in the life of your company that are likely to get covered by the press:

  1. Acquisition
  2. New Funding
  3. Product Launch
  4. Partnership

Incidentally, those are also in the order of the likelihood of the press covering the event. These events are newsworthy because they are also the most important points of your company history.

Of the four, the one you have the most control over is the Product Launch. This is the point where your new product will be unveiled to the world and is your best chance to spread the word. A product is, of course, new only once.

Many companies will put together a launch plan, complete with a blow out launch party. Fewer will put together a comprehensive Go-To-Market strategy that includes the launch as part of the plan. While a good launch plan may make a splash, a good go-to-market strategy can position you to be successful.

So, what makes a good go-to-market strategy?

1. Plan for the Future

A good go-to-market strategy will start well before the launch and end at the first milestone after your launch. An example of the Go-to-market timeline for a company is below:

Go-To-Market

In this diagram the grey boxes are company milestones and the green circles are activities to help reach those milestones. The phases of the Go-To-Market timeline are broken down into three parts:

  • Pre-launch. Leading up to the launch, these are activities designed to help make the launch a success. The Alpha test is a small number of potential customers who help you refine your product. The Beta test is a larger number of potential customers who help you refine your business model. Coming out of the pre-launch phase you should feel confident in your product, first time experience and marketing strategy.
  • Launch. This is when your product is available to the general public. You will kick off your marketing strategy (see Marketing for Engineers) and hopefully get press coverage. You should have a party to celebrate this milestone with your team, but don’t count on your party to help your business.
  • Post-Launch. After the launch, you are now operating your business. At the least you want to maintain whatever momentum was provided by your launch, but ideally you begin growing and operating your business. This is where measuring your LTV and CAC become critical (see The Most Important Equation for Your Business).

By mapping out your full go-to-market timeline you will be able to think of the launch as a part of your strategy, not an end in itself.

2. Use the Launch to your Advantage

Since the launch is only part of your strategy, it is important that it helps you achieve your goals and is not a goal itself. Depending on the milestone you are trying to achieve, your launch may take on different forms:

  • Customer Growth. If your goal is customer growth, you want to reach as many potential customers as possible and let them know your product exists (raising awareness). This will vary depending on your business but remember that very few customers will read industry press (unless they are in your industry). Getting covered in TechCrunch might make you feel great but if you are offering a new service to kindergarden teachers you will not find many customers that way.
  • Fundraising. If your goal is to raise more funding, then your launch should expose you to as many potential investors as possible. This can mean speaking at conferences, participating in launch competitions or being covered in industry press (this is where TechCrunch can help). However, fundraising is rarely a goal on its own so don’t lose this opportunity to grow your customers as well.
  • Recruiting. If your goal is recruiting, you should try to reach as many potential employees as possible and make it clear why your company is a great place to work. This usually means talking about what and how you do things in detail. For example, you might open source software, publish design plans and give tours of your production facilities. Industry press can help here as well.

You might have more than one of these as goals and if so, your launch will have many different dimensions. The more you try to achieve with your launch, the longer you will need to prepare so begin the planning early.

To ensure that you can measure success after the launch, be sure to set some quantitative goals for the launch. How many customers do you want to have one week after launch? How many articles do you want written? How many inbound job requests? Having numeric goals makes it much easier for you to prioritize and measure success later.

Whatever your goal, make sure your launch helps move you towards it. You only get to launch once and it is a powerful weapon so get the most out of it.

3. Have booster rockets ready

Many companies execute well in the Pre-launch phase, execute their launch well but fail to plan for the post-launch. When that happens the business will stall and the company will scramble trying to regain its momentum.

To avoid that, you should have your booster rockets ready before you launch. Booster rockets are activities and plans that will help you continue to grow after your launch.

Examples of common booster rockets are:

  • Paid Marketing Campaigns. These are part of your marketing strategy already and will allow you to continue to acquire customers even after the free marketing from the press coverage of your launch ends.
  • Partnerships. Partnerships with other companies can open up new customer acquisition channels and help validate your business.
  • Product Updates. Improvements to your product, including new features, keep the product fresh and attract new customers. For example, mobile applications may plan out updates every few weeks after the launch so that the app continuously improves (and increase the chances that users tell their friends).

Just like your launch is not a goal, you should not fire all of your booster rockets at the same time. Ideally you can pace them out so that they fuel sustainable and ongoing growth instead of a single spike.

Getting To Market is Hard

It might seem like this is more effort than most companies put into their launch strategy. You read about companies launching every day who seem to just open up their product to the world and sit back as customers flock to them. If that were the case then many more start up companies would survive.

Most of the successful start up companies you read about today have struggled during the go-to-market phase including AirBnB, Dropbox and even WhatsApp. When you struggle, you will be in good company.

If struggling is part of the journey, then the best thing you can do is plan ahead to give yourself every advantage possible. Your go-to-market strategy can’t guarantee success but it can help you increase the chances of success.

Besides, if you’re going to play why not play to win?

Competition: Only the Paranoid Survive

“Just because you’re paranoid doesn’t mean they aren’t after you” 
― Joseph HellerCatch-22

Your competitors are out to get you. They do not want to compete with you any more than you want to compete with them, and they will look to steal your customers at every opportunity. You should treat them with respect, caution and a large helping of paranoia.

There are three keys to effectively competing and ensuring that your competitors do not dominate your business.

1. Know Everything About Your Competitors

As with any situation, the more you know the better the decisions you can make. You should study your competitors as closely as possible and know them and their products as well as you know your own.

This is easier if you follow a simple and structured format for collecting and tracking information on your competitors. I’ve made the template that I use available as a Google Spreadsheet that you are welcome to use here:

Competition Tracking Worksheet Template

Note that the template includes every aspect of your competitor’s business. Many first time entrepreneurs focus entirely on feature comparisons between products which can be very misleading. For example, if you have more features than your closest competitor but they have raised more capital, then they have more resources and will likely close the gap soon.

As an example, I filled out a version of the template for my app Wine Fog below.

Example: Wine Fog Competition Tracking Worksheet

2. Focus on Your Differences

Since you are competitors, by definition you will have a lot in common. You are in the same market, with products solving the same problems. It should not be surprising, then, that when you study your competitors the differences stand out the most. Understanding those differences, and why they exist, tell you a lot about your competitor’s strategy and market opportunity.

Specifically, you want to identify a few important things about each competitor:

  • What are their competitive advantages?
  • Why are customers choosing them over you?
  • What moves are they likely to make in the near future?

Considering these questions can help you think about the future of your company. If customers are choosing your competitors because of a certain feature, you might move that up on your roadmap. If they are going to be raising more money in the near future, you should consider how that might affect your ability to raise capital.

When focusing on these differences, be careful not to let them dominate your thinking. It is tempting to get into feature wars where you constantly try to add all of the features offered by your competitors. This is a never ending cycle because your competitors will continue changing and you will constantly be playing catch up. Instead, accept that you will always differ from your competitors in some ways and invest in areas that differentiate you even further.

3. Always Assume The Worst

One of the lessons of Game Theory is that you should always assume your opponent will make the best possible move. To assume otherwise is too risky and if you prepare for it you will be ready no matter what they do. You should do the same for your competitors and assume they will make the best possible moves for their business.

This is a difficult thing to do and it is easy to fall back into bad habits. You might assume you are smarter than your competition or that since they don’t know of your top secret project that you will catch them by surprise. Even if these were true they are not long term sustainable advantages so you should avoid the temptation.

Try to assume that your competition knows all of your plans and is in the process of hiring some brilliant people. Then focus on  your core competitive advantages (see Never Play Fair) and use them to beat your competition in areas where they are weak. If you do that you can win even if they know what you are planning, no matter who is on their team.

Live Your Own Life

While focusing on competition is a good thing, it should never dominate your thinking. Companies that obsess about their competition do not innovate because they spend too much time reacting to their competitors. You want your competitors reacting to you while you choose your own path.

Your competition does affect your market but they should not define your business.

The Entrepreneur’s Creed

“My product is great. My vision is sound. My team is amazing.”
– The Entrepreneur’s Creed

Reality is a harsh place. Almost everything that is worthwhile doing is very hard and, despite what  you might learn in school, there is no credit for hard work. There is very little recognition for your success and plenty of recognition for your failures. To be frank, the world is out to get you.

The good news is that there are no rules. You can do whatever it is you like, pursue whatever goals you desire and set your own definition of success. Other people will try to do this for you but there is nothing forcing you to listen to them. You set your own rules and choose your own path.

Starting a business is a great case study of these two characteristics of life. Anyone can start any kind of business whenever they want, setting whatever goal they desire. Unfortunately, most people who start a business run out of money, fail to acquire customers or simply not be able to get started in the first place. Reality kicks in and shows you that starting is easier than finishing and money does not come as easily as your dreams. Being an entrepreneur is a lonely pursuit because, in many ways, it is you against the world.

When you are starting a business you will inevitably talk to other people, most of whom will tell you that you will not succeed. They are almost always correct because  it is very unlikely you will succeed. However, success cannot be impossible or else there would be no companies in business today. So the question is not if you can succeed, but will you succeed or will it be the next person. Everyone will tell you it’s the next person.

The best defense against the harshness of reality is perseverance. Since the world is telling you that you will not succeed, you have to believe in your heart that you will. This is not denial because the belief in your heart is based in facts. You don’t just believe, you know. You have done your homework and designed a great product. You have studied your market and have a clear vision for the future. You have surrounded yourself with a great team that works well together.

Does that guarantee success? Of course not, but it ensures that you play the game as best you can. Even the best baseball players will only get a hit at 1 out of every 3 at bats but they approach the plate every time convinced that they can get a hit. That inner strength, born from perseverance and knowledge, is what gives you a chance to succeed. That chance is the most life will offer, so take it and use it as best you can.

So every morning, with complete conviction, repeat after me:

My product is great. My vision is sound. My team is amazing. 

———–

Note: This post was originally on my personal blog

Are You Sure You Are Solving a Problem?

“So, what’s your idea?”

If you’ve ever talked about starting a company, that is the first question you always hear. It’s a simple question, but implies that companies are built from ideas – moments of inspiration where you see something no one else has seen. In reality, that is almost never true. Almost every kind of business model has been tried at some point in history. With 7 billion people on Earth, chances are that there are a few people with the same ideas that you have.

What, then, are great companies built on? There are billion-dollar companies being started right now, somewhere, by someone who is most definitely not a billionaire yet. What is their secret?

Great businesses are built by solving problems. A problem is the difference between what a person wants/needs and what they can get today. Some example problems and the companies that were built to solve them:

  • I can’t find anything on the internet. Google
  • I don’t have time to stay in touch with my friends. Facebook
  • I can’t figure out how to file my taxes by myself. Intuit

Even video game companies are solving a problem – they help you avoid being bored and make you happy. Some of these might not seem like problems because they have been solved so well by these companies, but if that company disappeared the problem would reappear. Not all problems are created equal, as problems can range from minor inconvenience to life threatening. You can often tell the difference by understanding how much a person is willing to pay to make the problem go away. For example, someone might be willing to pay $0.99 for a mobile game to entertain them for a few hours, but they would pay thousands of dollars for a new chair that relieves their back pain.

Almost all problems have solutions that already  exist but can be improved. For example, in the early days of the internet the biggest problem was how to find anything. Yahoo solved this problem with their directory. Then Alta Vista, et al, solved the problem more effectively with search engines. Then Google solved the problem even more effectively with a more advanced search engine. I expect sometime soon that there will be an even better solution, continuing the cycle of solution improvement and company creation.

If you can solve a difficult problem in a way that is cheaper, easier or better than existing solutions then you create value and can make money. The more acute the problem and the more valuable the solution the more money you can make in solving the problem.

But wait, you say, what about Snapchat and Facebook? They were started by teenagers and solve no obvious problems, yet have become huge! Well, the irony of life is that you don’t need to be aware of a problem (or how big it is) in order to solve it. In many cases, companies that are overnight successes hit upon problems that no one else was aware were problems (or that could be solved). No one understood a huge problem with existing social networks until Snapchat provided an alternative, surprising even the Snapchat team themselves. You can get lucky in this way, but it’s rare.

Starting from a problem provides a very useful framework for focusing your business as you grow. By always starting from the problem:

  • It is easier to formulate your marketing messages and sales pitch. Instead of trying to explain what your company does, you can explain the problem and how you solve it.
  • It is easier to identify your key customer segments by ranking potential customers by how much they suffer from the problem. You can avoid a lot of wasted time in exploring various customer segments.
  • It is easier to measure your performance by choosing metrics that indicate how well you are solving the problem. If you are trying to save people money on buying cars but the average customer only saves $5, then you are not effective in your business.

After you choose your problem, I suggest posting it somewhere prominently in your office. Reminding everyone on your team, day in and day out, what problem you are solving will bring focus to everything you do.

So, what problem are you solving?

Set Your Goal Before You Begin

If you decided to build a house the first thing you would do is hire an architect to design the house. From the blueprints provided by the architect you would know what the house will look like, how it will be built and what materials you will need even before work begins. The blueprints of the house is your goal, and then your process of building the house is focused on achieving that goal.

That sounds obvious, right? Would you build a house without blueprints? Probably not. Surprisingly, many people spend significantly longer (and more money) building companies but do not set a goal before they start. When starting a company, it is common for founders to plan for the next few days, weeks or months and postpone any further planning until later. They never sit down and think about what their business would look like years into the future and if that business is worth all the effort. In some cases they have an amorphous vision or strong feeling of what the goal will look like, in other cases they simply focus on the first few steps with faith they can figure out the rest later.

The problem with not having a goal when you get started is that you don’t know what success will look like. Yes, you can still build a house without a plan but you can’t be sure it will be a house where you want to live. You won’t know how much the house will cost to build or how long it might take. Having a goal gives you the confidence that all the hard work will lead to something you think is worthwhile.

When starting a new company, take some time to lay out your goal. The elements of a good goal plan would include:

  • Number of customers. How many customers would you have if you were a success? Are there 100, 1K, 1M or 10M people who would use your product? You want to be sure that even in your most aggressive models there are enough customers to build a profitable business.
  • Total revenue. How much money would you be making? Could you make $1M, $10M or $1B per year if you were wildly successful? The last thing you want is to build a huge company that cannot make enough money to support itself.
  • Cost of operations. How many employees do you need? How much does it cost to provide your product? You need to understand how much it will cost to operate your business to understand how much investment you will need and how profitable you can be.

The simplest goal assumes everything goes perfectly and all of your assumptions are true. In that perfect world, is your company as big as you want it to be? Could you raise investment if you need it? Would anyone want to buy the company from you? By answering those questions now you can save yourself some hard decisions later.

These goals should be easily measurable as well, providing a head start in setting up key indicators for your business. If you know that success looks like X customers, Y revenue and Z costs you can track your daily, weekly and monthly progress against that goal to tell how close or far away you might be getting. You won’t hold yourself to the goals you set, as those goals will change, but it does help you know the direction you are going.

I have been told that this flies in the face of the Lean Startup movement that is so popular today. I disagree, the Lean approach is designed to quickly answer if your assumptions are correct. Before even launching into a lean effort to verify your assumptions you should spend a little time deciding if it is worthwhile. Otherwise, you are pursuing a random walk which is not a good way to find an optimal outcome.

Your goals will change as you build your company, they always do. However, by setting out a goal when you got started you will know that the hard work you put in is driving in a direction that makes you feel that effort is well spent. There is nothing worse than working very hard and regretting the destination that you reach in the end.

Never Play Fair

When you are starting a new company you are, by definition, the underdog. Your market may have established competitors with massive resources, or maybe the market is new and unproven. As the underdog you are at a disadvantage in the game of business and if you play the game by the rules you will lose.

So, in order to win you have to cheat.

Cheating in business means having an unfair competitive advantage, something that competitors (and the market) can’t easily replicate. There are many kinds of competitive advantages and I’ve listed a few of them below.

  • Technology. A technology advantage allows you to do something no one else can do. The technology could be some new kind of software, new production process or new mathematical model. Any technology advantage is really a head start because someone else will find a way to replicate your technology in 6-9 months. Yes, even if you have a patent. However, that 6-9 month head start is a lot of time to make use of your technology to build other advantages, or continue to improve the technology to extend the head start. Examples: Google, New Relic.
  • Cost Structure. A cost structure advantage means that it costs you less to provide the same or better service than existing competitors (sometimes this is called a “new business model”). Maybe you outsource labor overseas, have volume discounts or have a better process that requires fewer people. Cost structure advantages can last longer than technology since established competitors often have trouble making fundamental changes to their business. New entrants won’t have that problem so you can expect other start up companies to copy your model quickly if it works. Example companies: Amazon, Walmart.
  • Happy Customers. An existing base of happy customers is a huge advantage. Customer acquisition is one of the biggest costs for any business (especially marketplaces) so if you have already acquired customers it becomes that much more expensive for competitors to take them from you. However, they need to be HAPPY customers so you need to continue to invest in customer satisfaction to maintain this advantage. If your customers become unhappy then this becomes a liability quickly. Example companies: Uber, Etsy, Airbnb.
  • Data. If you know something that no one else knows you have an advantage. The trend of Big Data is really just a translation of the data companies already had into a competitive advantage. This is the most maintainable of the competitive advantages since it is a lot like a trade secret – managed correctly your competitors will never know what you know. However, it’s also the hardest advantage to translate into revenue since you need to use it to create new technology, make your customers happy or improve your cost structure. In the best case scenario you can get customers to pay you for your data. Example companies: Facebook, Twitter.

There are, of course, many more possible advantages. The best companies have more than one of these and the struggling companies might not have any. I recommend picking out some companies you respect and thinking deeply about their competitive advantage; it is not always what you think.

When you are getting started it is important to know what your competitive advantage is or what you want it to be. Everything you do should make use of your advantage or help strengthen it. That is how you cheat, you use your advantage to compete and win.

This makes prioritization for your company easier because you stop asking the questions “What can we create?” and “What can we sell?” to “Where do we know we can win?“. Playing an unfair game is how you win and you make the game unfair by maximizing your advantage.