If you're running a start-up, it must grow. But where will the growth come from? You can create an entirely new market or you can go after a big market in a new way. In other words, you’ll have to eat your competitor’s lunch.
You better be sure it’s not easy for your competitor to copy what you’re doing and wipe you out. One way to do that is a growth strategy that slashes the profits of a competitor if it copies your approach.
I uncovered many such strategies through the 160 plus interviews I did with start-up CEOs for my new book, Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision, coming out in November.
Here are four that I found particularly clever.
1. Take a piece of the revenue you create for customers.
If your product adds to a customer’s revenues, you can easily charge that customer for a piece of the additional value you create. And if that product is hard for competitors to copy, you can dominate the market.
An example of this is ASSIA. Started by a former Stanford professor, ASSIA’s service keeps track of how your Internet service provider is doing when it comes to network performance. If it’s taking you too long to, say, download information to your computer, ASSIA’s software will add more bandwidth so you don’t get fed up and switch to a new supplier.
ASSIA charges a fraction of the $100 million in lost revenue it saves for its Digital Subscriber Line customers and enjoys 90% of the U.S. market since its service works so much better than the competition’s.
2. Give customers the same performance at a much lower price.
One of the most popular ways for start-ups to take market share from big competitors is to develop a product that delivers what customers want at a much lower price. Thanks to their lower cost structures and the big company’s reluctance to cut price, this strategy can help a start-up take a bite out of a big company’s lunch.
John Osher, an entrepreneur had started a company that made a popular battery-operated lollipop. He sold that company and in 1999 invested $1.5 million in Dr. John Spinbrush--later selling it in 2001 for $475 million to Procter & Gamble.
Dr. John Spinbrush made a $5 electric toothbrush that used technology from his battery-operated lollipop. Companies that made $80 models could not match that price without losing all their profit. P&G was trying to make a product like Osher’s but couldn’t so it bought the company.
3. Simplify customers’ operations with a product that pays itself back fast.
If you want to gain market share at your competitor’s expense--look for a customer that’s suffering from too much complexity and simplify it. If that simplicity saves the customer time and money, you can charge a decent price for your product and grow very rapidly at the expense of the competitor who makes that complex product.
Consider Xsigo, a data networking company that Oracle acquired in August. It was taking market share from the likes of Cisco Systems and was growing at over 100% a year because it helped customers save money by simplifying the way they store and retrieve data.
It had an 80% win rate, according to its CEO Lloyd Carney, because it cut the waste in part of a company’s computing infrastructure by 50% to 60%. For example, Salesforce.com paid under $200,000 for its first Xsigo product and saved over $1 million in capital expenditures in the bargain.
4. Help your customers get their job done faster.
Workers these days may be lucky to have jobs, but they’re usually doing the work of the people who got canned. Naturally, management is putting more pressure on those who are left to get their jobs done faster.
If your start-up helps them do that, demand for your product will be through the roof.
One example is Appcelerator. According to CEO Jeff Haynie, its platform “allows developers and enterprises to get their mobile apps to market 70% faster.” The product is popular--Haynie notes that Appcelerator’s 300,000 developers have created 40,000 mobile apps deployed on 80 million devices. Appcelerator has almost 200 employees and has raised “well over $50 million in financing.”
And Appcelerator’s customer base is huge. It has 1,200 customers include NBCUniversal, Cisco, Zipcar, and Safeguard Scientifics.
One thing these four strategies all have in common is that they all make the lives of customers better in measurable ways. If that means less revenue for competitors, these start-up winners are not complaining.