Don't fall prey to these common misconceptions about what makes a start-up work. (Hint: Forget about apps.)
Building a business that will last is not an easy task. You need to be ready to run a marathon instead of a quick sprint. Your company’s growth should be your number one focus.
It’s harder than it sounds. That’s why companies seem to implode as quickly as they start. In my time as both an investor and an entrepreneur, I’ve noticed some themes among the businesses that do make it--practices that often fly in the face of conventional wisdom. Each company and each market is different, but no matter what your business is, here are three common mistakes that entrepreneurs often make.
Don’t go niche.
There’s plenty of talk about how smaller, niche markets provide endless opportunities. And while that might be true for certain sectors, it’s almost always better to focus your attention on large markets if you’re looking to build a company that will last. There are plenty of examples of companies that took off in niche markets and then collapsed because the market couldn’t support their success. We’re watching Groupon become a prime example of this. The daily deals market mayhave been an exciting new space at first, but Groupon’s single-digit stock price attests to the fact that, in the end, flash deals aren’t a large enough draw to support the hype.
It’s actually much better to be a smaller player in a big, complicated market than it is to be the biggest player in a small, simple one. If you want to grow aggressively, you’re going to need room. There are plenty of examples of companies that successfully moved into larger markets (don’t forget that HP started in calculators and Intel started in memory chips before moving into processors), but launching in a large market gives you the best chance for big success.
If customers are talking directly to you and buying from you, you have a solution. If a partner is embedding you into their platform or infrastructure (à la Apple’s App Store), you’re a widget or an app. It is critical to own the customer: Even if the conversation starts small, it will eventually allow you to expand and grab market share from the larger players.
Being part of a platform isn’t automatically a bad decision, but if you are totally reliant on that platform to bring in your business, you may want to think twice. Just look at how Zynga has had to struggle to separate itself from its Facebook dependence. Even the battle between Google and Apple over Google Maps serves as a prime example. Apple completely controls the players on its platform, so they can decide whether Google’s maps stay or go. That may be okay for a giant like Google, but it’s not so great if you’re a start-up with nowhere else to go.
On the other hand, Amazon Web Services is an example of a platform that still allows developing companies to own the customer relationship (it just provides the necessary APIs). Companies building on AWS still have the opportunity to reach their customers, independent of Amazon.
Sure, you can create a successful company by building an app on someone else’s platform, but it is more difficult to be a lasting player. Ideally, you want to build a company that becomes the platform, and have an impact through your direct relationship with customers.
Face it: You’re not as great as you think.
If you are operating in the open market world of Silicon Valley, the rules of survival are fairly simple. You have to scale, and scale fast, in order to survive. All start-up founders can wax poetic about what makes their idea unique, but admiring your plumage isn’t going to get you anywhere. If you are as unique and valuable as you think you are, and if you know how to communicate and sell your value, then you will grow. If you’re not growing, then your solution isn’t as valuable as it needs to be, or your market strategy is flawed.
Take a good hard look at what is holding you back. If you’re not growing, there are a handful of things that could be to blame: your product, your market, your team. Very often, you’ll realize that your original product isn’t sustainable. That’s okay. A great team can build anything. You can still pull everyone together and quickly move on to the next (better) idea. Most people don’t know that Intel was an early failure. They had the wrong product for the wrong market: memory chips. But, they had a great team, so they focused on another product and became one of the Valley’s original success stories.
On the other hand, if your team is what is holding you back, you’re going to have a hard time. Even a brilliant idea in the right market is going to fail if you don’t have the right team in place. Don’t be afraid to shuffle the deck in order to kick start the company’s chemistry and growth.
MEHDI MAGHSOODNIA is the CEO of Rafter, which provides a cloud-based platform designed to help colleges make educational content more affordable and effective. He was previously SVP at CafePress and Intellisync. @mmaghsoodnia