AVOIDING THE MISTAKES OF THE PAST: LESSONS FROM THE STARTUP WORLD

Failure is a wonderful teacher. The new-economy revolution had many of the trappings of a genuine economic revolt: vast fortune forged in a fortnight, dashing young heroes and heroines, rotten institutions brought to their knees. It held such great promise, yet today even the dreams feel thoroughly eviscerated. What to learn from the revolution that never was? What lessons can be applied to new ventures?

There is no better place to look for historical clues than the business plan presented by aspiring business managers.  They serve as the revolutionary documents of record, holding within their prepositions the seeds of ultimate success or failure. We will reassess these pillars of revolutionary wisdom.

THE LESSONS TO LEARN

We will Establish First-Mover Advantage

The problem with this mantra is that first mover by itself means little; what matters instead is the power of your strategy. The first team to execute a dumb idea has accomplished nothing. In some cases, when you have an exceptional new technology, being first brings power. In other cases – say, when your strategy is nothing more than another way to sell books – being first has little effect. Post revolution, you can safely ignore the first-mover boasts. Instead, worry about the inherent strength or weakness of the business strategy.

Amazon was concerned with being the first big player selling books on the Web. However, Amazon’s profit struggle showed that being first made little difference. If you have an invention, for example, the xerographic copy process, being first, was wonderful. But note the difference: Xerox got a patent for its process, thereby making it not only the first, but only the company to offer a plain-paper copies.  Since no one could duplicate its service, it was able to charge a premium. Amazon was never the only seller of books and its margins were always subjected to pressure. First-mover is fine when defensible, but meaningless without a way to stop companies entering the market.

Our Strategy Will Be To Grow Quickly

Wrong: Growth isn’t a strategy, it’s a goal. But the hard part isn’t making goals. Rather, it’s developing a way to make those dreams come true.  Getting big is the goal of most companies. In some business models, however, it’s a requirement: eBay had to get big fast because it needed lots of both buyers and sellers to be the auction site of choice. How to do this? – eBay did it by buzz, by having a willing stock market, by being in the right place at the right time, and by sheer luck. Make your business plan rely on something other than perfect timing.

We Will Be the Technology Leader

Venture Capitalists (VCs) are at their best when making carefully calibrated bets on technology companies. They had mostly ignored the rough-and –tumble world of retail business on their way to investments in computer memory chips, software codes, medical devices, pharmaceuticals, genomics, magnetic storage media, telecom satellites, optical bandwidth, and truly new technologies.  In each case, tech-company founders had to produce something new and wonderful that worked as promised, would be in great demand, and could be protected via patents, trade secrets, or switching costs. Internet retailers may claim to have some bits of technology in a one-click purchase screen or real-time chat lists, but these are hardly protectable. As such, e-retailing cannot be the basis of a technology strategy.

Claims of new technology that cannot be protected are not worth much. Instead, strategies may center on building a brand, however, this is expensive to construct and requires constant maintenance to remain viable.

We Will Create a Powerful Image

Instead of worrying about technology that cannot be protected, retailers concentrate on the precise construction of a tailored image to appeal to a consistently fickle public. Grant Advertising discovered how expensive it is to spend for a national audience and capture just a tiny slice. The overreach inherent in most mass-media advertising makes it a very dull tool for carving a start-up’s image. So how will the image be created? Post-revolution business plans need to find a more efficient way than simply throwing money at the problem. Your marketing plan must also develop a carefully conceived media approach to allow for your image to be built in an economically efficient manner.

We Will Attract the Best VCs – With Their Reputations We Can’t Fail

As long as VCs can sell the idea to Wall Street, they’ll build the company. When they cannot, they do their best to be long gone. Post- revolution, VCs who dabbled in e-commerce look just like other Wall Street pawns, appearing to be infallibly brilliant when the market goes up and hapless fools when the market collapses. 

The final customer for your product rarely cares who was behind the financing. It’s better to have a brilliant idea funded by people no one has ever heard of them than a specious idea promoted by a well-known VC shop. 

We Plan a Full-Scale National Roll-Out to Leverage Our First-Mover Advantage and Insure Our Ability to Grow

An accurate market share is your best insurance against a giant belly flop, but don’t think you’ll impress anyone by faking it.  For example, a pacemaker distributor gauged demand for a new product by displaying it to its current customers. Even though the doctors involved in the test showed overwhelming approval of the new device, it didn’t meet sales projections once launched. In looking at why the test failed, the distributor noticed that the new device sold almost exclusively to existing customers. The distributor failed to realize the extent to which doctors are brand-sensitive.  Make it a real test or don’t border. 

We Will Form Alliances with Key Players

This is a fine idea, except that in the early days no one knows who will win.  In times of rapid change, even an alliance with a leading company may not deliver the promised advantages. The underlying business strategy, not just its alliances, must be more carefully understood.  Very few partnerships in which the giving and taking aren’t balanced will survive.  

Conclusion

The basic roles of business strategy remain intact and do indeed apply to the Internet. Like selling things in a store, selling products in a computer screen isn’t about technology. A technology business develops something new that cannot be easily imitated.  This is the great lessons of the Internet failures. New businesses can be understood by looking at success and failure patterns of the past. A careful review of the strategy you propose can help.

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TCB & ASSOCIATES

We are professionals in book publishing, editing of manuscripts, books and magazines, transcription of messages from tapes, audio and video CDs into texts for preachers, teachers and ministers, public speakers, politicians, etc. Organizing educational seminars and training programmes. ...Your trust, Our strength.

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