Insanity & start-ups

VCs are looking for start-ups who outperform their competitors not by a ten-fold, but at least a hundred- or a thousand-fold.

It is hard to predict which companies will evolve in this way, but one thing is well-known: your company will have to be fundamentally different than everyone else’s in order to reach such ratios.

Key differences in succesful start-ups

“Don’t spend time beating on a wall, hoping to transform it into a door.”

Coco Chanel

In order to outperform your competitors by such numbers, your company will need at least one of the following things:

First-mover advantage

The first-mover advantage (a.k.a. technological leadership) is a well known concept that can be applied to almost everything:

When you are the first one to do something, you have a monopoly-like status on the market, which comes with all the advantages a monopoly gives (i.e. huge profite margins, exclusivity, effortlessly growing user base…).

As others notice your new market, they try to enter it, but usually as a first-mover you have already built a well-known brand and a huge technological lead over future competitors, which makes it hard for them to enter the market.

Typical examples of these companies:

  • Railroads
  • Energy providers
  • Facebook
  • Twitter

Vastly better implementation than everyone else

Sometimes markets exists, and a lot of people try to monetize the market, but nobody seems to do this exceptionally well.

All of a sudden an organisation emerges that does the same other organisations do, but better by at least a ten-fold, if not a hundred- or a thousand-fold.

You succeed when you are mentioned as a noun or a verb in the (urban) dictionary to describe the concept. (Referred to in Latin as “pars pro toto”.)

Typical examples of these companies:

  • Google
  • Dropbox

Marketing and branding

A lot - if not most - of the B2C products have better odds of success based on the size of market share they have.

Once your user base outgrows the competition’s user base by a ten-fold or more, the odds of you surviving and becoming succesfull grow big-time.

Sometimes people refer to this as “growth hacking”.

This is one of the more popular things in start-up-consultancy, as the knowledge for these techniques is easy to productize.

In my opinion this is one of the more dangerous investements for a VC to make, because growth is not fundamental. It might be similar to and M.D. taking away the symptoms, but not the cause of the symptoms.

As this is artifical growth, market share usually drops vastly the minute a better alternative arrives.

IMO A lot of VC money gets burned by land-grabbing.

Examples of successful companies:

  • Coca-cola
  • Pampers

Extremely different resource allocation

This currently the bee’s knees in start-up land: organisations that find or allocate resources in such a different way, that they manage to do the same thing as their competitors, but for a fraction of the cost.

The most popular examples even manage to allocate other peoples’ assets or time as their own.

Examples:

  • Uber
  • AirBnB
  • WhatsApp

How is this related to start-ups & insanity?

A lot of the successful start-ups have at least one of these advantages, and the most succesful have all of them.

But, the way they became like that, is by doing their own thing, and not by listening to others.

In order for a start-up to be successful, it has to be different from the other 99% of start-ups. That’s where insanity comes in:

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein

If you want to succeed, you need to be different.

“Don’t believe the hype” - Public Enemy

In times of gold-digger madness, the organisations that have the best profit/risk ratio are the ones that provide shovels and tools, not the ones who actually dig for gold.

I had the same ethical question as a software-/product consultant as well: “if I know so well how to build a product, than why am I not building a product myself?”.

So I decided to put my money where my mouth was, and I did.

Correlation does not imply causation

The thing is: just because someone else was (moderately) successful with a strategy, does not imply that it might work for you. Different contexts might result in different results, and two contexts are never the same.

This is why in DDD newsgroups (or during our DDDBE meetings), when the question comes “how do I do this”, the answer is usually: “Well, it depends”.

Just because things work in one context, does not imply that they will work in yours. You don’t get better than others by doing the same thing they do.

So what is your point exactly?

I love the fact that a start-up scene is sharing their experiences with everyone, and I am a big believer of the sharing economy.

After all, knowledge has become a commodity, and we should take the full advantage of that.

However, I would be wary of any “this is the way you should do it” advice, as in most cases you will not outperform your competitors by doing the same thing others do.

Don’t copy their stories, but use them as a source for inspiration.

EDIT

Or, as Yves put it:

In conclusion

The start-up scene is there, and it’s alive and kicking.

However, I wouldn’t get to much involved, as you might end up investing all your time in yak-shaving as opposed to building your product and market share.

While you can spend a lot of time in start-up scene, don’t forget why you are there: to build a product.

And now, back to building my product!

Signing off,

T.

comments powered by Disqus