04
Nov

Playing to Lose

I heard a bunch of different pitches from startups this week that made me think: too few startups are playing to win. Most people have a strategy for moving from point A to point B but I’m hearing more and more strategies for getting “better” not becoming the “best”. I think it’s a problem.

Here are some strategies that I consider Playing to Lose:

  • You don’t have a strategy. No further explanation necessary.
  • You only have one strategy. A good sign that you are playing to lose is that you can’t describe several alternative strategies in detail. A strategy is only as good as the ones you considered, but rejected. Be a skeptic.
  • You don’t understand the cost of success. When people plan to scale a business they often forget that revenues don’t scale by themselves without a some kind of scaling of expenses. Take headcount. Double headcount and I bet you’ll more than double HR expenses. Double the feature set of your product and I bet it doesn’t maintain itself anymore. These ‘diseconomies’ of scale better be built into your strategy.
  • Your winning strategy is your losing strategy in disguise. Sometimes I hear a strategy for winning that sounds a lot like a strategy for losing. Here’s an example: Your platform is so feature-rich and versatile that it can be used by anyone. Your strategy is to sell it to anyone. But soon you’ll realize that all of your customers are different and all your recurring license revenues are replaced by low-margin service fees for customization. Yep, that’s your winning strategy.

I think you can avoid Playing to Lose by spending more time understanding your winning scenario and making sure it holds up to scrutiny. Why do you think your cost structure will be leaner than other comparable companies? Why will acquisition costs go down, not up? What things get more difficult, not easier, the more you achieve success?

Are you sure your idea of winning is actually winning?

Next up: Playing for the tie

Comments ( 8 )
  • Jason says:

    As the Founder of a start-up I generally agree with your points here. It is important to have a “be the best” vision that sets the path for your growth and lays the foundation for the company’s culture. However, the key to “winning” is to execute in a very focused manner paying attention to getting from Point A to Point B and then on to Point C, etc. In fact, I would suggest that a strategy of hitting singles and doubles rather than swinging for the fences every day is far better advice for founders today.

  • raymond says:

    Hi Jason,

    I’m a big believer in singles and doubles and also of focused execution. That said, one problem of heads-down execution is that going from Point A to Point B doesn’t necessarily mean you’ll get to Point C. I think people need to more carefully understand what Point C looks like then, as you say, be very focused in getting there.

    RL

  • Jason says:

    Ray, I’m going to disagree with you on this one. I will bet you dollars to donuts that 9/10 start-up companies don’t know and probably shouldn’t know what Point C looks like. If they say they do they’re either BS’ing you or have too naive view of the dynamics of the market they’re operating in.

    When it comes to web services based companies the key is to iterate quickly through new releases, measure and monitor user feedback, adoption rate, cost of acquisition, etc. and then iterate again. It is almost a certainty that if you go into this with a very clear view of what Point C looks like and drive your product and organizational strategy blindly towards getting to Point C, you will fail. The dynamics of the market are such that Point C is like an iceberg. It’s big and appears to be visible but it keeps shifting and floating away..often never to be reached.

    Being flexible, iterative and willing to accept that you don’t know where Point C is or what it looks like is a key determinant of success. Trust me on this one. I’ve seen too many Point C icebergs melt into the sea before I could reach them.

  • raymond says:

    Hey Jason, love the iceberg metaphor. I’m going to steal it…

    I agree that most startups don’t know what the endgame looks like but I disagree that they shouldn’t try to know. I think the evolutionary/iterative approach works best for consumer Web apps. No argument there. But for b2b or vertical apps or products that have more complicated distribution channels, I think there are plenty of models that startups can study. Sure things are dynamic but that’s true of every industry and that’s not a reason not to plan.

    The point of the post was that the iceberg you’re aiming for might actually sink your boat. Startups should take the time to understand this. Your point (new post?) then applies: your new improved strategy probably still won’t survive the battlefield and will be subject to change.

    RL

  • Playing for the Tie | FLOW Ventures says:

    […] Jobs Previous article Nov […]

  • Austin Hill says:

    To step into the discussion with Jason & Raymond, I have to take my seat on alongside Raymond.

    So often I see startups I invest in, or have run myself (trust me I’ve made this mistake many times myself) avoid the hard learning experiences of failure by casting their strategies so wide that everything & anything can fall within their path of validation to an imagined state of sucess.

    One of the painful lessons I had to learn as an entrepreneur was that my success was almost always based on what I chose NOT TO DO VS. WHAT IS CHOSE TO DO.

    When the playing field of opportunity is so wide & open, it becomes impossible to decide if you have won, lost or even what game you are playing & rules apply. Too many entrepreneurs start with a technology or feature & build their business strategy around a myopic view of how broad the potential for their creation is.

    By not having to choose a specific business model that holds up in the face of business metrics like cost of customer acquisition, lifetime value of a customer or the sales cycle required to get adoption (just to name a few) – they avoid the benefits of having reality hit them in the face & learning. When you can consistently move from 1st base, to 2nd base, to short stop & outfield without ever having to face the fact that you have lost a game – you never benefit from realizing your mistakes & whether you should have been in a particular position in the first place.

    -Austin

  • raymond says:

    Hey Austin,

    I think you nailed it when you said the lack of a focused strategy for winning means you can’t tell whether you’ve won, lost, what game your playing or what the rules are. Bad strategy is an impediment to learning and I think we all agree that learning is the key to iterating a successful business. Be forewarned: I may steal what you said and turn it into a new post…

    R

  • Brad says:

    Great post, Raymond.

    You’re right about these mistakes. Both with startups and with any other company.

    I’m wary about singling out startups however. My experience lately is that there is a deeper problem (particularly with Canadian startups), which is the classic root cause of false starts: under-capitalization.

    The unfortunate reality though is that you’re 100% right: startups cannot afford to make all the mistakes that everyone else makes.

    Very recent experience as a founder is that startup leaders are actually the best at moving forward within lean budgets almost flawlessly. Unfortunately, “almost” often doesn’t cut it!

    Thanks for your continued insistence to hold startups up to the highest standards possible.

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