When single-minded focus can hurt a startup
Who doesn’t love the story of the single-minded entrepreneur toiling away on their idea come hell or high water, ignoring the pundits and…
Who doesn’t love the story of the single-minded entrepreneur toiling away on their idea come hell or high water, ignoring the pundits and the naysayers and finally vindicated by their unicorn status? This is the idealized image of an entrepreneur in our society today.
In my view, such a single-minded focus is a great asset but only if it is combined with a periodic reality check on whether such a focus is still on the right target at that point in time.
In particular, venture-backed startups that have shipped their first product and succeeded in generating some meaningful revenue — perhaps even a million or two — feel compelled to double down on their “strategy”. Doing so is fine as long as that is what the founders believe is the right thing to do in order to maximize the returns on their effort, time, and resources. However, there are exceptions.
Here are a few scenarios that have justified expanding one’s initial focus.
When the initial offering was only one part of a grander plan
Many startups, particularly those that enter large existing markets, cannot come up with a whole product right off the bat. As a result, they will typically find a wedge — one that is narrow enough for them to fly under the radar of incumbents yet powerful enough for them to pry the market open with.
However, the opportunities unlocked by that initial wedge will need to be followed up with powerful new products that can further broaden the market opportunities available to the startup. Not doing the follow-on execution in a timely manner has left several startups stuck addressing a much smaller version of the original opportunity they had hoped for.
I was once at a startup that aspired to become a platform that supported multiple different applications in a certain industry. The startup succeeded in building a good amount of traction (a few million dollars in revenue) with the first application but did not make the serious investments that were required in order to quickly move into newer applications and become a true platform. They had built too much of everything (engineering, sales, and marketing) around the initial category and suffered from the inertia that resulted from the initial success. Many such zombie “startups” exist in the valley today.
The way to avoid this, of course, is to time new products or categories in a way that would capitalize on the initial wedge and use it to keep propelling forward with new products or categories — as in a blitzkrieg. AWS is a shining example of this frenetic execution — they literally went from 0 to 1 in as far as building out a complete software company and in doing so, left the likes of IBM and Oracle biting the dust.
When a fundamental market or technology shift threatens the original offering
Much has been written about how Netflix killed Blockbuster or how AWS killed data centers. But we often forget that these bad things happen to startups too!
Several VC darlings of the recent decade had grossly miscalculated the swiftness by which cloud adoption would grow and were caught flat-footed by the unabashed ways of the cloud vendors who took their open-source creations but monetized it like never before. I have seen some of these companies up close.
The fact of the matter is that running a startup, especially one that hasn’t yet achieved the venerable product-market fit, is insanely hard and is an all-consuming life experience. As a result, it is all too natural to lose sight of dramatic shifts in the industry that seemingly happen overnight. In reality, the events that lead to these dramatic shifts had been developing when you had your heads-down executing your plan. Therein lies the danger for the hyper-focused startup.
Even though Facebook had done really well in the initial years, they actually struggled with growth right around 2007 when the world was being taken over by mobile, particularly with the introduction of iPhones. By making a quick switch from a desktop-centered experience to a mobile-first experience, Facebook roared back into the social media juggernaut that it is today.
When a new opportunity arises — one that is much better than the original one
When you do stumble upon an opportunity or strategy that seems to be more attractive than the one you have been working on, the choices are not easy. Regardless of the nature of new opportunities, the larger the startup, the harder it becomes to make changes. Especially if the startup has raised venture funding, there is a certain expectation of what that money will be used for.
I saw this happen at a startup recently. They were originally selling to SMBs. In accidentally selling to a few mid-market customers, they realized that their product and value proposition was tailormade for mid-market. Not only that but they also saw a real possibility for their key metrics such as LTV/CAC and net revenue retention to improve significantly. They decided to sacrifice near-term growth from SMBs and instead shifted their sales and marketing focus to mid-market. This was a very hard decision for the team. However, from all the information available at that time, it was the right step for the company — long term.
In conclusion, the easy short-term choice might potentially be the most perilous in the long term. And, there may be no obvious right answer. What will matter the most is the objectivity of the decision-making approach and the long-term mindset from which decisions are made.