You know a business has made it when it becomes an analogy by entrepreneurs to pitch new ideas in other categories. Soon after Keurig grew to over $4 billion, entrepreneurs were pitching themselves as the Keurig of smoothies, soups or even cannabis. Not all of them survived of course, which makes it important to use ideas like my 20/20/20 rule to pick an area with sustainable demand and to make sure you choose wisely to be cheaper, better or different to ensure success.
What's amazing to me is how few fully realize the power of analogy as a strategy. To make analogies work, I find three conditions must be met. I will juxtapose Keurig's own challenges with its Kold Machine (single serve carbonated soft drinks) and the success of Cvent, an 18 year old company that created enterprise software for conference planners and was sold for $1.65 billion.
Don't overlook medium frustration moments.
These are situations where you are so frustrated in the moment, but it isn't disruptive enough in your broader life to follow through, take action and do something about it. But if you realize that many more people also have these medium frustration moments and you can anticipate when they occur, they can be billion dollar opportunities.
Reggie Aggarwal, the founder and CEO of Cvent, experienced one of these medium frustration moments. He was a lawyer by training and was trying to network with other Indian business executives in the Virginia area. His events grew to the point where he needed a better solution than Excel to help him manage the logistics.
Reggie saw there were enterprise software solutions to solve for mission critical data needs. But he also saw billion dollar businesses existed for more medium sized problems, like how PeopleSoft automated human resources. So he thought, why couldn't there be enterprise software for event planning? He was so convinced about the upside, he endured massive debt, near bankruptcy and even moving in with his parents to create Cvent to solve it himself.
In contrast, Keurig saw an analogous opportunity with its success in single serve with carbonated soft drinks. The problem was that unlike coffee, no such medium frustration moment for soda. There are thousands of different ways people want their coffee. This does not exist for soda. Keurig started out solving the medium frustration moment that office coffee sucked. But getting the same quality soda is not a problem nearly anywhere in the world. There was no medium frustration moment for soda to really solve.
Ensure the middle of the market has a big gap.
The wider the gap in the middle of the market, the better. Reggie knew that many business people attend multiple conferences a year and that planning for conferences was a big deal. After some research, he realized that planners for corporate meetings and conferences were relying on overtaxed Excel spreadsheets just like him. He estimated the addressable market for this to be $7 billion, with no solution other than Excel which you could get for a few hundred dollars.
Keurig saw there was a huge range of price premium and quality of coffee, so the middle opportunity was big. But the middle for soda didn't really exist. There was cheap soda, but no premium soda or Starbucks of soda of any significant size.
Make the fun to chore ratio better for all stakeholders.
Cvent improved the fun to chore ratio for four stakeholders-conference planners, exhibitors, attendees and speakers.
Conference planners saw improved check ins and optimized scheduling for higher satisfaction and repeat. Exhibitors and speakers got data-driven, warmer leads by figuring out who their potential superconsumers might be by seeing those who attended multiple sessions and downloaded their presentations, respectively. Attendees are able to network easier through the Cvent app experience and let exhibitors and speakers know they want to follow up.
On the other hand, Keurig Kold had promise for it one of its major investors (Coca-Cola), but did not really improve the fun to chore ratio for anyone else. A soda superconsumer (we all know someone) can go through over a dozen sodas in a day. Paying a dollar for an 8 ounce soda that you had to wait a few minutes to 'brew' that tasted no different than a 12 ounce soda you could drink instantly for a fraction of price was not going to fly. Grocers, many of whom use soda as a trip driver, faced uncertainty since Kold pods are much easier to e-commerce than traditional soda.
Analogies can be powerful and are a great way to quickly build strategy for your startup. Just make sure you follow the three conditions so that your analogy aha really sings.