Steve Blank’s definition of a startup is “a temporary organization in the search of a repeatable business model”. Temporary, because as soon as you have built a machine where you pour $10 into the top of it, and $11 falls out of the bottom, you’re no longer a startup. Or, if you run out of cash, and the whole thing collapses like a poorly-built house of cards, well, that’s the end of your company as well. But few people talk about what you’re actually building as a startup.
New founders often believe that they are building a product, a marketing machine or a well-oiled operations machine. That may all be true, but it isn’t enough. The world is full of examples where the second-best product wins. HD-DVD was objectively better than Blu-ray, but the former was brutally ground to dust by Sony. There are a thousand solutions that are better than Jira, but hordes of product managers are using it through gritted teeth. And the annals of startup history are litered with companies that built supremely efficient machines that were ready for incredible scale, only for the demand to never materialize. One great example of that is WebVan, which built millions of dollars’ worth of logistics and operations, only to never quite get the customers it needed — for a great analysis of that particular disaster, read “eBoys”, the story of Benchmark capital.
As a startup CEO, you have three jobs: Don’t run out of money, set the direction and culture of the company and — most importantly — hire the right team. The latter is the crux of everything you do, because it is what enables you to pivot.
Stewart Butterfield is a good example of a founder who does this particularly well. He has attempted to start a games company several times, and “failed” every time. The first time he built a game, his company wanted a mechanism for sharing pictures and screenshots. The second time he built a game, he discovered that it was hard to communicate with his teammates and keep everyone in the loop on what they needed to know. They built tools to solve both of these problems and spun those tools out as separate businesses. You may have heard of them — Flickr for photo sharing, and Slack for internal communication. Both turned out to be supremely successful companies. And both were possible because the founding team didn’t hold on too tightly to their original idea; they spotted an idea, validated that it might be a good idea and then pivoted the company.
The important thing about hiring is to hire folks who are inspired, inspiring and curious. You need team members who are willing to develop deep domain expertise. If you are building a HIPAA-compliant SaaS solution for electronic patient records, you’re not just hiring a team that can solve those specific problems. Yes, that is what you need in the now, but the magic of startups is that you don’t quite know what comes next. You’re not building a specialist team at first — that can wait until you hit a growth stage in earnest, when you need true, deep specialists who can solve these problems in a best-in-class way.
At the earliest stages of founding a company, you are collecting a gang of humans who care about patient confidentiality, data safety, compliance and user experience, and who can apply those skills to different problems. Startups need to be nimble; if an unbeatable competitor shows up out of the blue, side-step the challenge by redefining what you are doing. Don’t fight in the red, blood-soaked ocean against behemoth competitors that can out-spend you at every turn; find that blue-ocean strategy where you are choosing a slice of the market that nobody is interested in just now.
With one of my recent companies, we were building a virtual events platform. That was exciting because we launched within weeks of a certain pandemic that caused a bunch of lockdowns — and we saw incredible growth as a result. It was also exciting because out of the blue, our biggest competitor was the fastest-growing startup of all time. We had an amazing team, and were able to pivot into a niche that nobody else was serving at scale: white-label events for companies that deeply care about the branded experience of their events. Sure, it was a very small slice of the market, but it was a blue-ocean strategy with extremely high-value customers who paid orders of magnitude more for highly customized events.
Over the years, I’ve worked as an advisor to a few hundred startups, both in my role as director of Portfolio at a venture firm, and as an independent advisor. Without fail, the strongest startup teams are the ones that are versatile, hungry and knowledgeable. The startups launch minimum viable products (a misnomer, because they aren’t minimal, they aren’t viable and they aren’t products) — often defined as “the smallest amount of work you can do to validate a hypothesis”. In the process of running these experiments, the companies learn a tremendous amount about what the customers want. They learn about pricing, about the problems they are solving, about the buying dynamics of the customers, about the competitive landscape and the different business models that are available to them.
A lot of the time, a company gets six-nine months down a path and realizes that their original assumptions weren’t completely accurate. At that point, they have a choice: double down and pig-headedly continue down the path — and some startup founders are able to will their companies into being and find tremendous success that way. The other option is to pivot; take the hard-earned knowledge you picked up along the way, and leverage the flexible team you’ve built to pick a different direction. Abandon that game you were building in favor of building a communications tool. Give up on the generalist virtual events platform and build a specialist, niche product that can give you a foothold in the market. Or turn to your team and say “hey; this isn’t going to work, but we learned a lot about this industry over the past year. What other problems have you guys spotted, that we can start looking at?”
Over-specialization too early means you build a sniper rifle of a company, perfectly designed to solve a very specific problem in a tightly defined way. If you’re lucky, that may work — but what you really need to maximize your chances of success is a shotgun and as many shells as you can carry. Hire accordingly.
Comment