Steve Blank’s definition of a startup is “a temporary organization in search of a repeatable business model”. Temporary, because once you build a machine where you pour $10 at the top and $11 falls from the bottom, you are no longer a startup. Or, if you run out of money and everything falls apart like a poorly constructed house of cards, well, that’s the end of your business, too. But few people talk about what you’re actually building as a startup.
New founders often believe they are building a well-oiled product, marketing machine, or operations machine. This may all be true, but it is not enough. The world is full of examples where the second best product wins. HD-DVD was objectively better than Blu-ray, but the former was brutally crushed to dust by Sony. There are thousands of solutions that are better than Jira, but hordes of product managers are using it with clenched teeth. And the annals of startup history are littered with companies that built extremely efficient machines that were ripe for incredible scale, only for the demand never to materialize. A great example of this is WebVan, who built millions of dollars in logistics and operations, only to never get the customers they needed – for a great analysis of this particular disaster, read “eBoys”, the history of Benchmark capital.
As a startup CEO, you have three tasks: not running out of money, defining the company’s direction and culture, and – most importantly – hiring the right team. The latter is at the heart of everything you do, because it’s what allows you to spin.
Stewart Butterfield is a good example of a founder who does this particularly well. He tried to start a game company several times and “failed” each time. The first time he built a game, his company wanted a mechanism to share photos and screenshots. The second time he built a game, he found it difficult to communicate with his teammates and keep everyone informed of what they needed to know. They built tools to solve these two problems and turned those tools into separate businesses. You may have heard of them – Flickr for photo sharing and Slack for internal communication. Both became extremely successful companies. And both were possible because the founding team didn’t really stick to the original idea; they identified an idea, validated that it might be a good idea, and then changed the company.
The important thing in hiring is to hire people who are inspired, inspiring and curious. You need team members willing to develop deep domain knowledge. If you’re building a HIPAA-compliant SaaS solution for electronic patient records, you’re not just hiring a team that can solve these specific issues. Yes, that’s what you need in the now, but the magic of startups is that you don’t really know what’s next. You’re not building a team of experts at the start – that can wait until you reach a serious growth stage, when you need true, in-depth experts who can best solve these problems.
In the early stages of founding a company, you are assembling a gang of humans who care about patient confidentiality, data security, compliance, and user experience, and who can apply these skills to different issues. Startups need to be agile; if an unbeatable competitor appears out of nowhere, avoid the challenge by redefining what you’re doing. Don’t fight in the red, blood-soaked ocean against giant competitors who might outspend you at every turn; find that blue ocean strategy where you’re taking a slice of the market that no one is interested in right now.
With one of my recent companies, we were building a virtual event platform. This was exciting because we launched weeks after a certain pandemic that caused multiple lockdowns – and we saw incredible growth as a result. It was also exciting because out of nowhere our biggest competitor was the fastest growing startup of all time. We had an amazing team and were able to focus on a niche that no one else was serving at scale: white label events for companies that care deeply about the brand experience of their events. Sure, it was a very small slice of the market, but it was a blue ocean strategy with extremely high-value customers paying a lot more for highly personalized events.
Over the years, I’ve worked as a consultant for a few hundred startups, both as a portfolio director at a venture company and as an independent consultant. Without fail, the strongest startup teams are those that are versatile, hungry, and knowledgeable. Startups release minimum viable products (a misnomer, because they are not minimums, are not viable, and are not products) – often defined as “the smallest amount of work you can do to validate a hypothesis”. In the process of running these experiments, companies learn a lot about what customers want. They learn about pricing, the problems they are solving, customer buying dynamics, the competitive landscape and the different business models that are available to them.
Most of the time, a company takes six or nine months down the road and realizes that its original assumptions weren’t completely accurate. At that point, they have a choice: to bend over and stubbornly continue down the path — and some startup founders are able to force their companies into existence and find tremendous success that way. The other option is pivoting; take the hard-earned knowledge you’ve gained along the way and leverage the flexible team you’ve built to choose a different direction. Abandon that game you were building in favor of building a communication tool. Give up the generalist virtual event platform and build a specialized, niche product that can give you a foothold in the market. Or go back to your team and say “hey; this won’t work, but we’ve learned a lot about this industry in the past year. What other problems have you identified that we can start looking at?”
Excessive specialization too early means you build a company sniper rifle, perfectly designed to solve a very specific problem in a well-defined way. If you’re lucky, this might work – but what you really need to maximize your chances of success is a shotgun and as many ammo as you can carry. Hire accordingly.