Keep Your Start-up Ahead of the Competition
You've probably heard by now that Dell has announced it will go private with CEO Michael Dell maintaining a majority interest with minority shareholders including Silver Lake Partners and Microsoft.
To better understand the news (and most importantly, what you can learn), you have to understand a bit about the company's history.
In the 1990s, businesses were buying PCs. Dell was competing with companies such as Compaq that sold PCs through retailers. But Dell sold directly to companies using its website. This meant that Dell did not have to include the cost of the retail channel in its prices, according to the Harvard Business School case, Matching Dell, that I used to teach. This was just one of the many advantages the company during this time, which enabled Dell to charge higher prices and make PCs at a lower than industry-average cost.
But the collapse of the dot-com bubble meant that companies stopped buying so many PCs. In the 2000s, the biggest PC consumers were individuals who wanted to see machines operating in retail stores before buying them.
While Dell is taking measures to move the company forward, it's a good reminder that start-ups need to keep a competitive edge. Here's how:
1. Maintain a healthy paranoia. If you want to keep your company growing, you must maintain a healthy paranoia. This means that you should maintain fear that forces outside your control could sink your company. It should not be that hard for you to stay scared--because all your employees, investors, and customers are depending on you to keep the company growing.
Sorry to say, maintaining that healthy paranoia must be something you must live with and show to your people every day. If you stay scared, you must share that fear with your staff and make sure that they are always on the lookout for ways to change the company so it can sustain its growth.
2. View your company from the customer’s perspective. One way to do that is to look at your company from the customer’s perspective. This means that you should pretend you are a customer and shop from your company and your competitors. Knowing what customers want when they buy your industry’s product, you should take careful note of whether your company is not winning the battle for value creation.
And if you are falling behind, change your company so it gets back in the lead. That means stripping out annoying processes that make the customer want to fire you. And if your product does not have the features that customers want or your price is too high--find a way to fix those problems.
3. Imagine that the board fired you and brought in a new CEO. If you have a strong board, it should be asking whether you are still the right person to run the company.
In 1984, Intel’s CEO, Andy Grove, was losing ground to Japanese memory chip makers. He thought about what a new CEO would do if the board fired him and put in someone new. The answer was to get out of the memory business and start making central processing units.
Rather than quit, Grove changed strategy - thus Intel got the benefit of new thinking without losing Grove’s managerial talent. And Intel went from nearly perishing to decades of CPU industry leadership.
4. Change everything to stay ahead of the pack. If the customer changes, your company must reinvent itself to keep up with the changing customer’s needs. You must be able to track how customers are changing and what competitors are offering those customers.
If you can give customers a new offering that puts your company ahead of the value curve, you will be able to sustain your leadership.
Strategy consultant, startup investor, teacher, corporate speaker, pundit, and author PETER COHAN has invested in six startups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael Porter.
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