When starting a new company, one of the critical questions an owner, and eventually the investors, need to ask themselves is, “What makes this company defensible against the competition?” or “How will this company survive out there?” Of course, this is in addition to the questions, “What is our unique selling position?”, “What in the world are we doing?” and “Where did all of my money go?”
Glenn, who I have met, and really like, makes some great points, and he has some experience with start-ups.
Some of the things that stuck with me from Glenn’s post include,
“Worry first about building something meaningful for the customer”-
How great is that statement when starting a new company? That could actually be a great company’s mantra- BUILD SOMETHING MEANINGFUL FOR THE CUSTOMER. Any idea how many companies begin that way but end up being something completely different? Isn’t that what entrepreneurship is all about anyway? And isn’t that what Web2.0 is supposed to be about? Building something meaningful for the customer- transparency, better user-interface, quality of experience…?
“The [big] competitor you imagine sitting on a pile of money and a hundred engineers is sitting in a meeting right now, terrified of making a mistake…”
I’ve worked at a large corporation and I can say from personal experience that large companies take forever to get things done, and beginning a new, untested project is nearly impossible at many of them. By the time they decide to put any effort into an idea, it’s been done for years somewhere else. Realize that Re/Max just put other brokers listing on their website in the last couple months, years after other companies have been doing it- and that’s their big marketing campaign right now- “We have all broker listings” –
“Only a big corporation would be so out-of-the-loop to think that something that’s been done for years is somehow new and innovative. “
Guy Kawasaki, as many Mac users know, has gone from being a pro-Apple activist to the author of eight books and is currently the managing director of Garage Technology Ventures, an angel investment firm he started in the late 1990’s. Guy writes in his blog about what to say and not to say when a VC or investor asks, “What makes your company defensible?”
First he writes the three things you do not say (his post has explanations about each);
1 “Patents make our business defensible.”
2 “We’re the only guys who can do this.”
3 “[Big-name potential competitor] won’t compete with us; they’ll simply have to buy us out.”
And then gives us the top ten best ways to answer the question;
1 “We know that there are no ‘magic bullets’ that provide defensibility.”
2 “We have filed for patents, but we know that we cannot depend on patents as a major component of defensibility.”
3“We have an x month head start (mention “x month head start” only if x exceeds nine), and what we’re doing is hard. We know we have, at best, a temporary lead. It’s so hard that few established companies would defocus themselves by trying to do what we’re doing.”
4 “We’ve built similar businesses before.”
5 “We’ve amassed a ton of relevant domain expertise because our founders sold to these customers before.”
6 “We used to work at [insert big-name company], so we know it won’t be a competitor. In fact, we quit the company to start this because our management refused to address this lucrative market.”
7 “We don’t know if we’re the only people who can or are doing this, but we’ve already signed up key customers like [insert the biggest names that you truthfully can] to use our product. You’d think they’d know of better solutions if they existed.”
8 “We came to you because we believe that the backing of a firm like yours will dissuade other firms from investing in competitive companies. We also know that you have a world-class Rolodex as well as access to the best talent.”
9 “We expect that there will be competition because we’re not working on a get-rich-quick gimmick. This is a real business that we think is going to be big.”
10 “It’s a race, and we’re going to work like hell to reach escape velocity. That’s the bottom line.”
It’s interesting to hear the perspectives of people on each side of the VC table. My company, BlueRoof.com has not received any angel funding or venture capital, so I have not had to go through the rigors of trying to impress an investor so they’ll give me money.
Any new company is going to have it’s struggles and challenges, whether it’s keeping the investors or clients happy, adding new servers and storage to keep up with your website traffic, or trying to get your fax machines working again- there are some tough days. I’m right in the middle of these days and it’s interesting to hear the industry perspective and compare that with the client perspective.
Last night I went to a great Halloween party hosted by an agent with one the larger brokerages in town. Fun party, with a lot of agents from other brokerages (and some great costumes). It was interesting to hear some of my friends from the industry asking me about my company and what they have made of all the rumors. Some had a pretty good idea, and some had no clue what we are really doing. Everyone was very supportive and I had a lot of “congratulations” and “good for you” comments, but the differing opinions about our business model made me realize how important it is to remember what Glenn says;
“Don’t worry about your competitors”- just “build something meaningful for the customer”- and then get out there and give it to them.