Startup Strategy Roundtable: Don’t get blindsided by a large competitor

Recap of the roundtable June 10, 2010

Today’s roundtable was a difficult one, as I had to tell an entrepreneur not to proceed with his business that is ready to launch. Shamoon Siddiqui presented MetroFlats.com, a vacation rental marketplace he plans to launch next month. He says that all the vacation rental sites out there including Vacationrentals.com and FlipKey are directory services, and you cannot actually book the rental through them.I immediately asked what would keep the big vacation-listing players from quickly expanding their services to include this functionality? Nothing. I hate to discourage any entrepreneur ever, but this is a very precarious position from which to start a business. I recommend that Shamoon take a look at the FlipKey case study on my blog to understand what FlipKey does, how and why. And how easy it would be to just insert the booking function if they had any indication from their customer base that the functionality is desired. I hope Shamoon will continue to look for another opportunity to put his time, money and talent into.

Jonathan Weinberg started off by introducing AutoSlash.com, a site to help consumers save money on car rentals. His system finds and systematically crunches all the various discounts and coupon codes out there to give the consumer the best rate. They are not searching the rack rates like others in this space. AutoSlash also tracks fluctuations in price and continues to offer the customer the lowest rate up until they pick up the car. Since launching 30 days ago, their traffic has risen from 50-100 visitors per day to 1,000 per day over the last week or so following a story about them in Budget Travel. His target audience of consumers and small business travelers as well as business travelers at mid-sized companies is way too broad at this stage. Focusing sharply on the budget traveler is really the way to go since that is where there is a lot of traction. He’ll have the bad economy on his side! Armed with the Budget Travel coverage, I suggest he does systematic outreach to all the budget travel blogs to help keep the buzz going from week to week. He can also look at SEO and developing a blog with keyword rich content to bring in the natural search traffic. Then he can look at PPC, but that is somewhat more expensive. He should leave the small business traveler for later, stay focused on the budget traveler for now as he continues to build up momentum. And oh, by the way, financing is not an option at this stage.

Indrajit was up next to present eNrate, an algorithm to find the most credible news sources, taking criticism of sources into account. He aims to catalog and rate all the journalists worldwide, based on this algorithm, and create a destination site where consumers would come for high quality news.  He is presenting a reasonable and valuable service, but the problem is monetization. Especially when it comes to local news and international news, news agencies and newspaper companies have slashed so much of their staff that their coverage has become weak. As a destination site, however, it will be very expensive for Indrajit to acquire customers or monetize the service. More importantly, news is simply not commerce related, so his idea of doing keyword-based advertising simply doesn’t work here. Someone looking to find out about a terrorist attack in Malaysia is not looking to shop simultaneously. The PPC value of what he is proposing is very low. The model for such a consumer site is a freemium one which is also very difficult to bootstrap. My suggestion is for Indrajit to explore brokering relationships with news services and media companies. Find out how his service can serve as a solution to some of their problems in the domain of local and international news, and then follow the B-to-B model to monetization. I hope he will read the Finisar case study, a great example of a bootstrapped company using services around their core competency to finance their business for the long term.

Then Lionel Binnie presented Diginamic. He is looking to sell, install and service a touch-screen hardware and software solution at point of sale. Lionel has been exploring several different verticals looking for customers ranging from retail to hotels to airports. He wants to charge a portion of the co-op dollars that large brands give retailers for local and in-store marketing. The kind of content he offers will need to be rich and comprehensive and the goal should be to replicate the personal shopper experience in the software. And this would really only work for complex products where the need for information is high. Lionel knows a software vendor who has already created the content for wine. He is wondering if wine stores may be an interesting segment. Well, if placed in a wine store, you don’t want a customer to type in a wine and only get back a bunch of ads from a set of vendors. That won’t work. He needs to provide a full solution for this segment. A comprehensive database of thousands of wines. With that caveat in mind, if he can work with the vendor to build a comprehensive software for wine, combine it with his point of sale product, then I suggest he targets wine stores, specialty food stores, and large stores with wine departments. After that rolls out, then he can look for a software provider who has the content for cheese perhaps, and then sell to cheese retailers. Go segment by segment, but be sure you are providing a full solution for each segment before you approach them. Otherwise, none will convert into business.

Up last was Ben Cheng discussing PandaForm, a just launched form builder application to help customers create and process forms, especially those that require a lot of processing and human attention. He is targeting small businesses, they can sign up and use this system right away. As he is speaking I am searching online, confirming that the web based form/form builder space is indeed very crowded. And since this business does not show up in my search means they are not SEO optimized for the U.S. If he wants customers in the US, that needs to be done. But since the horizontal form market is so crowded, I suggest he focuses on selling solutions to a specific class of customers—educational institutions, for example, who have significant application form building and processing needs, rather than selling just a horizontal form builder. If he has a specific application for a specific vertical, he can create a solution. Then all of their SEO, PPC, email marketing, etc., needs to be laser focused on acquiring educational institutions as customers. Ben is concerned about operating out of Hong Kong and selling to the US, but so many people do that successfully. The concern should be building up those early customers who will provide references and testimonials. That is the best way to build credibility. Find three customers to work with and really solve their problem. As you reach out to these potential customers, also do a thorough competitive analysis to see who is already providing similar solutions. Avoid going back into another overly crowded space. Whether it is in Hong Kong or Timbuktu, you have to do this thorough homework before you launch yourself into a space. You need to understand the competition. Don’t get blindsided.

Early stage entrepreneurs usually have very few resources, so they need to be very targeted in the most efficient way possible. For those just starting out, before writing a line of code or investing any money of your own (or investors), please validate your value proposition. Speak to many potential customers and confirm that you have something they are willing to pay for. Ask the right questions and you will be steered to the right answers. I have compiled a list of such questions for entrepreneurs here. I ask that you please use this to get to a more thorough analysis of your business, and not end up in places with too much competition where you have to differentiate and have no defensibility.

Trust me, it is a very bad place to be.

I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ Methodology which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to, investors and customers through our substantial channels. We recently launched our 1M/1M Incubation Radar series, and you can also read about several other 1M/1M entrepreneurs in my recent Forbes columns, These Companies Are Built To Enjoy and Calling All Angel Investors.

Recordings of previous roundtables are all available here. You can register for the next roundtable here.

Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy. She has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Her Entrepreneur Journeys book series, Entrepreneur Journeys, Bootstrapping: Weapon Of Mass Reconstruction, Positioning: How To Test, Validate, and Bring Your Idea To Market and her latest volume Innovation: Need Of The Hour, as well as Vision India 2020, are all available from Amazon. Mitra is also a columnist for Forbes and runs the 1M/1M initiative.

- by Sramana Mitra