Tag: entrepreneurship strategy

05
Nov

Playing for the Tie

Like Playing to Lose, Playing for the Tie is a strategy that doesn’t lead to winning. The difference is that people inadvertently playing to lose think they’re aiming their boat at the far shore, instead they’re heading for an iceberg. Playing for a tie means you’re more scared of losing than winning.

Why is not losing (but not winning) a bad strategy for a startup? Because:

  • Opportunity cost – What aren’t you doing while you’re not succeeding? What next great startup idea are you not working on while your current one treads water?
  • Survival is not (necessarily) a milestone – Survival is a huge achievement for any startup, but it’s not the goal. You have to be able to tell the difference.

Many startups have a strategy to win at the beginning but this gets diluted to a strategy for a tie when things get operational. Here are some telltale signs:

  • You’re afraid to say that you are or will be a world leader in your category (ask yourself why)
  • You never hear your team talk about being the best
  • You gravitate towards any type of validation (“they like me!”) even if it’s too scattered to truly prove your business value
  • You’re risk averse. I’m a firm believer that many risks, like operational risks, can be mitigated in a startup. But you just can’t avoid the fundamental leaps of faith that will be required in proving your business. If you’re afraid of leaping ask yourself what you’re preserving by avoiding risk. If you’re still proving out your business then you really don’t have anything to protect (yet).

Caveat: I’m not saying swing for the fences every time. Be iterative, i.e. get out there and see what sticks. But don’t forget that getting a little traction reduces some risk (a few people like me) and sets you up for new risks (how do I get everyone to like me). See Crossing the Chasm.

Next up: Playing to Win

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

15
Mar
Yporá: Amor y guerra bajo el sol guaraní

A method for finding out if you have a painkiller or a vitamin

The more pitches I hear from startups the more I realize that entrepreneurs have a hard time figuring out if their startup is a painkiller or a vitamin. I mentioned this briefly in a previous idea screening post but I’d like to propose a method to help.

I’ve come up with five measures so far:

  1. Do you have a problem or a feature? – “Mobile access” is a feature, not a problem. E.g. I don’t really want mobile access to my tax return. A lot of startups have a feature idea at their core, not a pain point, mostly because the initial idea was created by an engineer.
  2. Do you have a specific target market? – A telltale sign of a feature looking for a problem is to target “everyone” or “small business”. Saying everyone needs your product doesn’t mean a trillion dollar opportunity. It just means you don’t understand the problem.
  3. Can you describe the person who will use your product? – How, where and when do they work? What are they doing exactly that causes them ‘pain’? What alternatives do they look for? Can you draw a picture before they use your app and after?
  4. Is the pain measurable? – Any convincing CEO can make you believe that bad UI is as painful as a root canal. But how do you measure it? Extra clicks? Time lost? Money lost due to errors? If you can’t measure the pain you have two problems: 1) you might be wrong and 2) you can’t tell if your solution is an improvement.
  5. Is it verifiable? – Sure, you may find some way to quantify pain but how do you verify with the people who matter, i.e. users? Have you identified ways to double check, like surveys, focus groups or one on one interviews?

So let’s look at an example:

Bad Better
Problem or Feature? We create social networking tools for non-profits We help non-profits engage more volunteers and raise more money from funders, using social networking tools
Clear market segment? Non-profits Geographically-distributed non-profits with less than 10 staff whose target volunteer base is 18-35
Detailed description of user? People who work at non-profits 3 user types: 1) the Volunteer Coordinator & Fundraiser (who regularly communicates with volunteers and funders), 2) volunteers who network with the non-profit staff and other volunteers, 3) funders who don’t want to network but enjoy the profile they receive on the network
Measurable? All non-profits wish they reached more people We measure the # of volunteers needed each year to deliver programs minus turnover to calculate the total annual volunteer hours needed. There is often a deficit. We measure the annual budget deficit that needs to be covered by outside funding. We measure the opportunity cost of programs not delivered due to insufficient funding. If we’re successful, the # of volunteers, funders and programs goes up.
Verifiable? We talked to a local non-profit and they loved our product We have identified a list of 25 non-profits in our target market. Within 30 days we could contact each one, ask them to complete a survey, and give us feedback on some screenshots of our product. If feedback is negative we will try other segments until we find the right one

Of course, having answers to the five questions doesn’t guarantee that you have a painkiller. It just makes it more obvious whether the pain you think you solve is really all that painful. Stated one way, the lack of a social network is no big deal for a non-profit. Stated another way, helping find volunteers and funders is a life-or-death part of how non-profits operate.

The main benefit of this process? Forcing you to spend more time digging into the problem. You may abandon your original problem but you may also find some legitimate pain points that are a lot more interesting to tackle.

Next time I’ll post a few more examples and analyses. Feel free to send me some examples from your startup.