Are you wondering if you are on the right path with your startup? Are you seeing a sudden uprise of competition?
These are the kind of challenges that an entrepreneur faces all the time. It gets even more challenging in an environment where everyone is advising to reduce burn.
I have been wondering if there is a way by which entrepreneurs can predict what to expect in future. Anticipation can help plan better. I do realise that it is impossible to make accurate predictions, but after meeting more than 250 entrepreneurs in the last nine months (as entrepreneur-turned-VC), I see a few patterns emerge.
Thinking through this framework would either force you to think deeper about your business and create a defensible strategy or allow yourself to fail fast at a low cost. It starts by asking a basic question -
What are you building?
I find startups building roughly one of three types of products – Business, Product or Hack. Let’s see how to identify which bucket you belong to and what to do about it.
Business
If you are building a business, then at some point of time you need to be able to sustain as a standalone business with revenue and profits. Any successful business has to be able to withstand pressure of economic cycles. In today’s technology world, I see a few key characteristics of a good business.
- Is your business defensible? This is one thing that is most underrated in entrepreneurial setups. Any guy trying to replicate your business must be forced to spend either 10X more money or 10X more time than what you have spent. This is why network effect is the most beautiful way to build defensible business today. If this is not true, then you would always find yourself fighting with a strong competitor.
- Are you building a faster horse to compete with a car? Every few years a new paradigm emerges and creates new winners in an otherwise already existing market. People who get stuck with past baggage and don’t move to a new paradigm generally become redundant. For example, businesses that are trying to build SMS solutions in 2009 by arguing that the world is still largely on feature phones are no longer alive.
- Are you over dependent on another organisation for sales/distribution? Quite often I meet entrepreneurs who win one large partnership (often with an established company) and assume that this partnership will make them big. Only later do they find out that they are either not big enough for this partner or this partner starts treating them as competition. Most new-age lending companies are trying to partner with our four e-commerce platforms. And I can’t imagine a reason why e-commerce giants would allow any lending company to become big on their shoulders.
- Do you have unique insight into how the market/customer or technology works? While competitors can copy the front-end and visible product, they can’t copy the deep insight that’s driving the product. Best example for this was redBus. Everyone used to think, redBus was an OTA, but internally we always worked to solve the pain of eliminating the unpredictability of a bus traveler. Such businesses get clean runways to execute before competitors become aware.
- Do you have a concentrated set of suppliers? If you do, then sooner or later you will be fighting for margins with those suppliers. The moment you attain a bit of success, these suppliers will come hunting for you. Good example of this was the music streaming service Dhingana. The service itself was compelling, but labels weren’t happy seeing someone become big.
- Are you 10X better than replacement? Just because you launched a new product doesn’t mean consumers will move from current behaviour to your product. For example, quite a few laundry service companies cropped up recently. They all cited that they have a huge unorganised market to capture. However, the proposed solution didn’t seem any better than the current alternative of giving laundry to your local dhobi.
- Is there another large company that has the right to win against you? If that company launches your proposition as a new feature, you will become redundant. This is not a breaker, as long as you can build defensibility.
It’s impossible to get favourable answers to all the above questions for your startup. But by asking these questions, you can probably tweak your strategy to solve for as many variables as possible.
If your startup doesn’t qualify as business then it might be in category of product or hack.
Product
If you find that another large company has a right to win against you, then please think hard on how you could build defensibility. Please don’t assume that a larger company will find it hard to execute. There are many ways to build defensibility. If you can’t figure out defensibility then it is probably best to get acquired by the large company by making yourself as attractive as possible.
In case you are not able to figure out your own distribution and are too dependent on another company for distribution then also, it is probably best to get acquired.
Hack
If you are neither a business nor a product, you are probably a candidate for this bucket. In such cases, instead of trying to claim yourself as a business, showcase your skills to a larger company and get an attractive job.
So many things are ambiguous in the startup world that you may not be able to find the right answers all the time. But in my view asking these questions is better than ignoring them.
Read next, from the same author: ‘Don’t get lured by the sexiness or glamour associated with entrepreneurship’
Disclaimer:
- Read my personal views on various things related to the world of startups at alokg.com.
- I’ve written this as an individual and the article has no connection to any of organizations that I am engaged with or have been in the past.