Due to technological advancements, especially, in communication and computing technologies, many disruptive opportunities have emerged and many more are emerging. Some of those opportunities are in cloud computing, mobile apps, the social media, e-commerce, amongst others.
Compared to the earlier opportunities, the new ones differ mainly on 2 aspects. The entry barrier continues to come down and the size of the opportunities have grown by multiple folds. In addition to these developments, the entrepreneurship ecosystem has already attained critical mass and is getting better. More over, the society's attitude towards entrepreneurs is changing. In addition, thanks to IT and ITES booms, younger entrepreneurs are emerging, as they have sufficient funds and better risk appetite for start-ups.
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Based on the observations of many spectacular start-ups, the following common characteristics are observed. A framework has been developed to help the start-ups to navigate their way into success. Recently (Q1CY2011), I read Innovator's Dilemma, Innovator's Solution, Seeing What's Next by Clayton Christensen. I could find lot of insights, which find resonance with P20 here. I am adding those points in italics here. As the entrepreneurs ride on the Strategic Inflection Points (SIPs); it will be helpful for the entrepreneurs if they are realistic about the chances & extent of success.
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Popular media claims that 'winner takes it all' opportunities have increased, which is true for many outliers. Even more opportunities are available, where smart entrepreneurs are thriving on complementary and supplementary opportunities created by these 'winners'. Most of the entrepreneurs do not succeed to achieve the 'outlier' success attained by the winners,- Google, Facebook, Groupon, twitter,... But, many of them can continue to thrive on the ecosystems created by such outliers. The same entrepreneurs, while sustaining on their 'not so' successful enterprises are getting ready to ride on the next SIP for spectacular successes.
At this point, it may be noted that, many firms are directly getting acquired by biggies like Google, Cisco, Intel amongst others. This is in contrast to earlier typical start-up's funding stages, based on life cycle of Bootstrapping - FFF (ie. Friends, Family and Friends' friends) Investment - Angel Investment - VC (Venture Capital) Investment - PE (Private Equity) and IPO (Initial Public Offering). So, entrepreneurs need to keep the reasonable success criteria for their ventures rather than expect angel investment and venture capital investment to happen at the beginning itself.
When employees become entrepreneurs, they quit the rat race to pursue their dreams. Congratulations to the entrepreneurs, for getting out of the rat race. It just got more exciting for the entrepreneurs. Welcome to fashion parades! To make it big amongst the start-ups, the entrepreneurs need to enter into fashion parades. The following 20 characteristics (called P20) determine the success. Those P20 are discussed below;
P1 - Passion: The passion for the idea or the problem solved is the single most powerful factor for the creation of the start-up. The same passion also provides fuel & energy to fend off many challenges on the way. Whereas, the passion nurtures the idea from embryonic stage and also becomes the soul of the venture; the passion alone does not ensure the success. The passion drives the venture to grow into large enterprise and thus leads to spectacular success of the venture. Passion is something which drives the people to achieve the pinnacle of success without any external motivation!
On larger context, a start-up is immensely effective organization at bootstrap budget. Hence, it is very much necessary to follow the guidelines suggested for highly effective organizations as mentioned in 'Elements of High Performance Business Initiatives'. Highly resonant ideas need to be relentlessly executed leveraging all favorable ground realities at the least budget to turn the ideas into spectacularly successful start-ups. No wonder, passion plays critical role!
Passion helps the entrepreneurs to conquer the fear of failure. Rather, passion helps go develop equanimity towards the outcomes of the pursuit. Since, the fear of failure is the greatest factor dissuading the entrepreneurs; passion drives entrepreneurs to take the plunge into entrepreneurship & pursue their calling.
In a way, an entrepreneur, destined to create spectacularly successful start-up, will be pursuing disruptive innovations and most of the times new markets are created. The new markets created through disruptive innovations are 'unknown' & 'unknowable', as mentioned in Innovator's Dilemma. Only the person with tremendous passion can take the challenge with great pleasure in pursuing such markets irrespective of the results.
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P2 - Person/s (Promoter/s or entrepreneur/s or founder/s): The Person/s' capabilities, background, her/his/their brand equity within the venture's ecosystem plays a critical role in success. Her/His/Their business leadership skills determine the venture's success. For relatively new sectors, it may seem that the person's background may not matter. (Probably, this thinking is due to the fact that the emerging sector was not articulated, though it was evolving.) But, according to a study done by Malcolm Gladwell in 'The Outliers', at least 10 years' persistent exposure has helped the earlier billionaires like Bill Gates, Steve Jobs...
The entrepreneur needs to be highly ambitious to achieve the greatest success in her/his chosen field. Additionally, s/he needs to be highly resourceful to leverage his talent, skills, network ... to her/his advantage to thrive on the realities, both the existing & the emerging, around him/her.
A person with world class execution capabilities can lead the disruptive innovations to create new markets. The new markets, in their infancy, evolve based on the contributions of the pioneers limited only by the capabilities of the people leading & the realities around. The person also needs to sense the emerging realities around and steer his venture for global dominance to shape the market. In my view, it is well proven beyond doubt by the likes of Andy Grove of Intel, Bill Gates of Microsoft, Steve Jobs of Apple, John Chambers of Cisco,....
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P3 - People (Team): For a start-up to grow & attain critical mass, there is a need for complementary team members. The team members need to share the hunger for growth and similar/complementing understanding of the market. They need to bring cohesiveness to the team to withstand the challenges within and without (ie. posed from outside) to hold the team together to chart the growth of the venture. Since, the venture goes through chaotic times before attaining predictable dramatic growth, there is a need for the team to stay together in the rough times. This is one of the reasons, smart investors ensure that the team members' knowledge of each other for reasonably long period.
The disruptive innovations leading to creation of new markets demand a cohesive team having exhaustive world class capabilities to pioneer the market. A team of high caliber leaders with complementary skills can only take on the challenge of creating the start-up to achieve global dominance.
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P4 - Profile of the Market (TAM, Competition, ...): Even though many entrepreneurs may not like it, when formal investors even Angel Investors (and friends too!), in India, insist that the start-up entrepreneurs know about the Total Addressable Market Size. This is referred to as Tyranny of Total Addressable Market (TAM) by many start-up entrepreneurs. It will be a great help for a start-up to be well aware of the Profile of the Market, market terrain, for a start-up through classical Porter's Five Forces framework of the market as follows;
But, for early stage entrants in the market, there may not be well defined forces and the contours of the terrains are ambiguous, to say the least. This is where the entrepreneurs' passion & gut feelings play a critical role. The rational individuals (non-believers, those friends, Angel Investors and VCs) may not buy into your idea. Your passion, gut feelings, your capability to go against the world's thinking will help you to chart into unknown territories.
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This is something that you, your team and your mentor/s have to take call. As explained earlier, you may not hit the jackpot; but you may end up as sustainable venture & grow. Once the success is on your way, the VCs may chase you. At this point, you may be having enough money to afford to wait. The immediate successful examples, which come to mind are Mr. Sridhar Vembu's Zoho.com, Mr. Pallav Nadhani's Fusioncharts and Sunil Maheshwari's Mango Technologies. While these examples are about Spectacularly Successful Start-ups, I am sure, there are many firms, where the entrepreneurs have harvested great returns and still are below the media glare!
The start-ups can identify the market segments which are small enough so that the big players are not interested. At the same time, the same segments may be ready to take off due to disruptive innovations. These markets are unknown & and the future of the segments is unknowable, at least by traditional methods. The only way to find out is to experiment. These are the segments which are not on the radars of most of the players. Start-ups have the benefit of experimenting through out the growth trajectories to get the mega returns. Hence, the start-ups who chose the market segments with right profile will thrive on the disruptive innovations. Zoho, tweeter, are some of the examples.
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P5 - Projections (Business Model): After assessing the market, the entrepreneur will have an idea about how to scale up the business. Considering all the dynamics of the market, looking at he strengths, capabilities, emerging market scenarios, and many other relevant factors the projections can be built. The projections reveal the understanding of the ground realities, self knowledge, aspirations, in addition to other relevant factors. In short, it gives an idea about the perceived business model's projection into future, based on the current performance (which is better measure) or/and understanding.
One of the seasoned Angel Investor commented that, he had come across entrepreneurs, who are the Ambition Challenged, -who don't think sufficiently BIG!, whom generally he drops. So, the higher the ambition, the better it is, if you want to seek VC funds. It is always better to be honest to oneself. At the same time it is necessary to see, whether all the growth avenues are exhausted before approaching VCs. The point is about pragmatically exhaustive understanding. The other entrepreneurs he drops from his list are the 'Improvisation Challenged' (Earlier had used the term 'Resourcefulness/Agility/Flexibility Challenged'. Hope, the new term does better justice, including what was conveyed in the earlier term.), who can not improvise enough to implement smart solutions even though many avenues are available! Improvising helps he entrepreneur to smartly & tactically win the battles in ever-changing ground realities. This has the bearing in the next P, Period (Timing)
P6 - Period (Timing): The period ('Timing' is more appropriate) plays an important role in a start-up's success. A start-up lacks resources, people, support, market access (amongst many other ingredients) compared to well established behemoths. This is where Spectacularly Successful Start-ups make the difference. They clearly follow the dictum of Sun Tzu's Art of War, that Timing and Momentum are important aspects of strategy execution and planning. The smart start-ups, enter early in formative period of the sector and build stealthily momentum by bootstrapping. This specific trait needs ample passion & tremendous tactical and strategic understanding of the terrain by the founder and her/his team.
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P7 - Perseverance: As mentioned above in P6 (Period or Timing), it is absolutely necessary and critical to build enough momentum stealthily. As this is being done stealthily, getting funds through formal channels becomes more challenging. Additionally, the time pressure forces the founder & her/his team to have tremendous belief in themselves & their team. This is where, the team's passion for the venture is tested. Once the team goes through the Valley of Death and emerges victorious, the kudos follow. But, the Valley of Death puts great test on passion, person and people! Perseverance gets the start-up through the valley of death into the mountains of prosperity!
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P8 - Purpose: The purpose of the venture has to be sufficiently well defined to attract the talent and mobilize the team and money. As the time lapses, the market/sector around us may go through dramatic changes as the market itself is in formative period. So, the purpose of the venture should be broad and flexible enough to take care of the upheavals in the market/sector. Here, Zuckerberg's Facebook venture is a good pointer. The purpose was to give the feel of the elite student clubs on the web.
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P9 - Paraphrase: Paraphrasing is the articulation of the Purpose (P8) by the founder/leader/entrepreneur. As the team and venture experience the chaotic upheavals of the market/sector, the leader needs to articulate (paraphrase) the purpose repeatedly to navigate the venture through unpredictable rough terrains into meadows of prosperity! The venture may go through near-death experiences, if the leader/founder doesn't paraphrase the purpose (if needed, change it based on the evolution of the sector and venture). If it is not navigated well at this juncture, the venture may as well cease to exist!
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P10 - Proof of Concept (PoC): Soon after the idea's (concept's) inception, the next logical step is to quickly go through the Proof of Concept. Proof of concept needs to be as realistic as possible. On one side, it allows for all the team members to appreciate the concept. It also helps for lot of improvisation; thus leading to bring better offer to the market. It also helps in understanding the glitches involved and address them. In a way, today, most of the web based and software firms can afford to continue to fix the offering through out the life cycle. Thus the Proof of Concept gives quick reality check for the start-up and helps in defining the way forward.
P11 - Product/Platform/Service/Offering: The offering (either Product or Platform or Service) has to offer minimum '10X' factor of value to the target market to make a spectacularly successful start-up. In a way, the product offering has to be, in itself, a Strategic Inflection Point (SIP), which is defined by Andy Grove of Intel, who coined the term in Only the Paranoid Survive, has to be causing minimum 10X change. A 5% or 50% improvement can be easily taken care of by one of the behemoths already in a leading position. The chances are, already, a 5% or 50% improved offering is in the pipeline (either in RnD or PoC) in the market leader's organization. The 10X value delivery could be achieved by the same value at the tenth of the price or less.
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Roughly speaking, in this context, brand equity (bE) or Cumulative Value (cV) of an offering is directly proportional to the value delivered (Vd) multiplied by the number of units sold (U), where, value delivered is the difference between offering's value (V) and the cost incurred by the client (C). cV or bE = f(Vd*U)
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P12 - Place (Accessibility): The place (accessibility) plays a highly important role for physical (virtual) products. The regulatory restrictions play critical role for value delivery for both physical & virtual products. For the products, the issue of place or location is not just about delivery or consumption point. This is also about the acceptability of the product, culturally and socially also; amongst other aspects which are specific to the products or offerings. It is always beneficial to try with the easiest market to access and operate, as the start up can address easily adapt & improvise to grow spectacularly without incurring huge costs. Once the initial location is won, the start-up can devise ways to capture markets where in relatively larger market shares can be won at the least cost. The guiding principle here is optimization within bootstrapping budgets, while prioritizing growth & expansion options.
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P13 - Promotion: In the socially networked economy we are working in, the promotion is extremely important and critical. An effective promotion, optimally leveraging social network, decides the winners today. Whereas, conventionally, Public Relation entities did the job; for a bootstrapping start-up viral campaigning, social media marketing make the difference. The pinnacle of success, for a start-up, could be getting mentioned in TechCrunch! and similar industry specific publications.
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P14 - Pricing: A useful template widely used in the market is, Free, Essential and Premium; often termed as FreeMium strategy. FreeMium strategy is the way to go in the present scenario. For completely revolutionary offerings, it makes sense to start with 'Absolutely No Ads' (no monetization) to enable users (mavens) to enjoy unbridled benefits of the offering and induce them to invite their network to the offering. To be spectacularly successful, a start-up should deliver minimum value of 10X, the higher the better, at the lowest price!
P15 - Positioning: For a start-up, positioning of the offering becomes very critical, many times it becomes more difficult than the offering itself. Additionally, if completely new market or segment is being created it becomes very complicated. The spectacularly successful start-ups have positioned their offerings as the best solutions in the niche segment, which is contiguous to larger markets. And then they grew the niche market into much larger market than the contiguous markets, this led to spectacular growth of the start-ups in turn! i-pad and facebook are the most recent examples of this kind of positioning. In a way, the start-up is creating a Blue Ocean opportunity of 'here & there'. Positioning also entails choosing & implementing the appropriate channel.
P16 - Packaging: Packaging involves mainly 3Fs, those are Features, Facilities & Flavors. Based on the target market segments, the features, which provide the best value, can be included optimally. The facilities within the features have to be judiciously included. A facility which matters the most for the user may not be so helpful for his superior; vice-versa also may be true. Based on the demographics, the flavor can be decided. Where as for a casual or fun user, flavor may be vibrant; for a professional or business user the flavor may be business like. It is always beneficial to package the offering in multiple manners to satisfy as wide market as possible.
The packaging & pricing can be independent or interdependent. A call needs to be taken based on the market conditions, strategy & tactics amongst others. Eg.: The packaging may follow FreeMium strategy; packs the bare minimum for Free throws in some essentials for the Essential and the Premium package will come with lots of bells & whistles.
P17 - Paying Clients/Customers: Paying clients/customers are the ultimate proof of the success of any business model. The sooner the paying customers are attracted, the better it is. It is essential for a start-up to start generating the revenues. The monetization need not necessarily happen through the end users. The monetization in consumer arena may happen through the advertisers or e-commerce. The monetization in business arena may happen through the purchase of the offering. The solid, well established or well proven monetization model of the start-up will start attracting the Angel Investors.
P18 - Profits: The start-up based on the revenue generation can move into profits' zone pretty fast. The trends in increasing revenue generation & decreasing expenses are great news for any start-up. Once the start-up starts making profits, the VCs start taking interest in the venture.
P19 - Pace of Growth: The start-up needs to scale up faster while generating profits. The pace of growth determines the potential of the venture. If the pace of growth is faster than the market by multiples; the start-up becomes the prize catch for the VCs.
A word about difference between Projections (P5) & Pace of Growth (P19). Whereas, Projections (P5) shows the vision and aspirations of the venture; Pace of Growth (P19), which shows the delivery of results!
P20 - Patience: Patience is one of the greatest virtues of every entrepreneur. Nobody is sure, when things will turn better or when the time is right! After all the ingredients are in place, to achieve success one needs to wait. It can be compared to the process of pickling, after the cook puts all the ingredients, flavours need sometime before they emerge in pickling. This was recently nicely brought forward by one of the successful entrepreneurs, Mr. Manish Sharma of Printo.
So, the entrepreneur needs to keep on working continuously with the strong optimistic belief that everything contribute for spectacular success shortly. But at the same time the entrepreneur should be ready for no great success, worse still failure too. This is more in line with Krishna's 'Karmanye Vaadhikarastey...' quote, which means that 'one has the duty to act but he does not have the right to the fruit!' If one has such an attitude towards his action he or the human kind will be immensely rewarded. It may seem to be too difficult to swallow, the realities around us teach this lesson. It helps to start with this lesson!
As seasoned business leaders may note the above 20P's framework is an aggregation of multiple essential and desired characteristics of any high performance & high growth business entity. P1 to P3 (Passion, Person and People) define the idea, founder and the core team characteristics. P4, P5 and P6 (Profile, Projections and Period) define the market realities. P7 through P10 (Perseverance, Purpose, Paraphrase, Proof of Concept) define the execution capabilities of the firm. P11 through P14 (Product/Platform/Service/Offering, Place, Promotion, Pricing) are essentially classic 4Ps of marketing mix. P15 and P16 (Positioning & Packaging) address Go to Market (G2M) issues for the start-ups. Ultimately, P17 through P19 (Paying Clients/Customers, Profits and Pace of Growth) represent the start-ups results and future potential and P20 (Patience) prepares the entrepreneur for the life's greatest challenges.
Efforts are made here to make the characteristics (20P's) in the framework Mutually Exclusive and Cumulatively Exhaustive (MECE). Your inputs will be always helpful to strengthen the framework and help the start-ups.
This is an effort to provide guiding light (however, feeble it is) to Spectacularly Successful future for the start-ups. It will be great if it helps at least a few ventures navigate successfully rather than faltering at the beginning itself!
At embryoFund, we help you through the journey to become Spectacularly Successful Start-up by helping you thorough the 20P's framework.
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