Startup Delta Force…

I’ve been mulling over a new series* of posts that I’ve been wanting to create for sometime.  Lately I find myself now very crisply focusing on the issue of STRATEGY.  I love strategy – not in the McKinsey sort of way (all though I have tons of respect for those guys), but in a real-time iterative way.  To me, strategy is the art/science of analysis, decision-making and leadership.  Now that I’ve been through several startup cycles I’m of the opinion that strategy – meaning the decisions that are considered, how they are analyzed and how they are implemented – is a huge success/failure driver.

The first thing I’ve been thinking about I call the Startup Delta Force.  Given the current state of the economy and technology sectors, I’ve been thinking about the basic premise of ‘getting started’ and the associated Delta Force that is naturally working against you.  That spurred me to create this simple visual (I like KISS):

delta-force-2

(sidenote:  I love The Back of the Napkin by Dan Roam)

So, lets talk about the StartupDelta Force.

From a competitive perspective (e.g. all the other folks out there that will try to enter the same market) the barriers have been dropping over the last few years.

  • Customer Acquisition – social media, SEO, SEM, etc
  • Economies of Scale – not as big a barrier in web world
  • Investment – little to none required to get started
  • Pricing – free or freemium makes trial simple
  • Distribution – syndication and APIs make partnering easier
  • IP – in general the battle has been over users and less on IP
  • many more (please comment below)

On one hand, it is nice that all of these appear to be lowering, but remember that all of these make it more difficult to compete once you are in the market.  How’s that for duality.

Now, given our current economic crisis and VC ‘challenges’, the barriers to funding have gone up significantly as well.

  • Team – higher requirements for caliber of team members
  • Product – focus on truly differentiated and not me-too
  • Market – is it really big enough to provide investor returns**
  • Traction – need more users, partners, patents, etc
  • Timing – are you building for yesterday or 2 yrs from now?
  • Business – how are you actually going to make money?
  • many more (please comment below)

These all make it more difficult to raise capital by traditional means.  But again that is not all a bad thing from a competitive perspective given this will throttle the number of entrants that can battle to scale in a given market.

The most important thing in my mind is that this view makes it clear that you have to assess your barriers in totality.  The lower barriers of entry and the higher barriers of funding create a competitive delta you must consider – hence the name Delta Force.  This to me directly impacts the likelihood that you will have a chance to succeed.  I’m not accounting for how great you are  or how great your idea is.  I’m simply laying out a framework for you to assess your opportunity.  IF you can’t see yourself working around many of these challenges, you might want to reconsider your options.  So, what are the implications of said Delta Force?

ENTRY implications:

  • Some quick growth explosion companies  – architect the hell out of your GTM strategy (think viral, networks, piggyback, etc)
  • Longer time lines for success for many companies – figure out your services model so you survive (consulting, custom software dev, etc)
  • Lots more of failures – be ready to drop projects and move on (but don’t give up too early)
  • many more (please comment below)

FUNDING implications:

  • Choking the innovation engine – not enough support of the new entrepreneurs
  • Forces out weak ideas & teams – natural selection happens much faster
  • New funding models should emerge – if today’s model is broken (which many say it is), enterprising entrepreneurs and investors have to find new ones.
  • many more (please comment below)

I am a firm believer that INNOVATION is one of the things that makes the US a great place to live/work/create and is CRITICAL to our ability to be competitive in the global economy!

GO START SOMETHING (maybe)!

Footnotes:

*  This series is not intended to convince you to spend tons of money on market research and 12 months ‘thinking about it’ (thats not a good idea in my POV) – it is intended to share what I’ve learned as a startup guy and as a strategy guy (through direct experience and/or conversation with successful entrepreneurs and investors around the world).  I’m also structuring this as a dialogue as one of the most powerful lessons I learned from two early mentors – the best strategy is crafted from a dialogue – so, please add your comments and experiences so I can include them (and attribute them accordingly) in future iterations (and I do plan to iterate).

**  Remember, what is good for the entrepreneur is not the same as what is good for the investor

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Comments
5 Responses to “Startup Delta Force…”
  1. As always, well said, Chris. I had to re-read a few times and mull over the (great) points delivered here prior to contributing my two sense. Although I certainly do not have the experience or knowledge that you manage (not yet at least 😉 ) , I’d like to add and/or re-iterate your point regarding “Lots more of failures – be ready to drop projects and move on (but don’t give up too early)” because I personally struggle with giving up/quitting on projects and, more importantly, knowing when it is time to give up on said projects. Whether pride or just plain ignorance, I think this may be one of the hardest things for founders/entrepreneurs to face. In fact, I recall reading an article about a year ago (by Mark Seremet, founder of repliqua, wallhogs, etc etc) on the exact subject of knowing when to throw in the towel and give up on projects/ideas and I had the same thoughts regarding how hard it truly is to know when to give up and to actually give up. It seems like when you begin questioning giving up, it may then be time. And, asking friends is often misleading b/c, well, friends tend to be kind rather than frank so, it may be best to ask a group of total outsiders and/or un-bias persons for their opinions/thoughts.

    So, with that said, I’ll end my long-winded-ness here and congratulate you on yet another thought provoking post (great title if I might add as well). Rock on, Chris, certainly looking forward to reading what you make of the drafts you’ve got stored up!

  2. gammill says:

    Thanks Scott. You make great points about that very challenge. I’d argue it is one of the hardest skills to develop as an entrepreneur. I have a nose for BS and over the last few years I’ve honed my sense of when its time to throw in the towel and when people do it too early. An important thing for people to understand, is almost all good things I’ve seen take years to get anywhere. The promise of web2.0 quick success for everyone is BS. Building real business takes time, patience, energy, etc.

    Here is a great post over at Mixergy on ‘when to quit’ from Ted R. at Dogster/Catster

    http://grf.me/Gy8a

    Thanks again Scott.

  3. Hey Chris,

    Very well thought out and insightful post. Some thoughts that popped into my mind while reading:

    When you speak of dropping barriers from a competitive perspective, this is true, however, as you point out – it’s also true for all of your competition, which in my view is actually a bigger disadvantage than having the barriers in place to begin with. At least with barriers in place it’s the fittest who actually survive.

    While I agree with your view on funding implications, it’s true less innovation will happen, clearly we expect VCs and private equity providers to voluntarily and knowingly fund innovation for innovation’s sake with no hope of returns. That’s what things like government grants and endowments are for. I think it brings up a good point, there needs to be more funding and resources in place so that innovation can continue at a steady pace.

    I do think, however that the past two years and the next two going forward could turn out to be a perfect storm for the next phase of technology development and innovation. I think over the past two years or so many investments were made into “shiny new toy” web 2.0 companies that didn’t necessarily have business models. But out of these companies came the technological innovations which, though they may not have been monetized in their previous incarnations, laid a framework for new and exciting ways in which people interact with the web. I think there may have been enough “innovation for innovations sake” – intentional or not – to set the stage for the next evolution. It’s sad in a way that some of next year’s successes will be built on the backs of this years failures, but I think that was a necessary stage in the development of the ecosystem.

  4. Denton B. says:

    This is really great information, and at just the right time.

    Thanks also for the link to the Ted R. video re: when to throw in the proverbial towel.

    Ideas are everywhere. Building a prototype is a necessary precursor to gauging the consumer need for your product.

    I wonder if there good networks where entrepreneurial-minded product developers, marketers and web developers can unite to try to bootstrap some products in order to see if the webiverse bites on their concept? Maybe LinkedIn is the answer…

    (Goes googling…)

    Thanks again, great post!

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