The Startup Strategy Matrix

I’m currently writing an “extended essay” – a core part of the International Baccalaureate Diploma, which I’m in my last year of. The essay can be on any official subject that the IB offers, and I’m doing mine in business and management. Specifically, I’m writing on scenarios where lean startup methods should and should not be used – trying to discover set cases where it would make more sense to use “fat startup” methods.

The essay requires that I write about “commonly accepted business and management theorists and their theories”. In researching for relevant business theories I came across Ansoff’s Growth Matrix. It’s a simple grid showing the actions that companies should take when trying to grow by entering new or existing markets with new or existing products.

It looks like this:

In terms of startups, the matrix is pretty useless. The vast majority of Internet startups are in the bottom right-hand corner – they are entering new markets with new products. Ansoff’s Matrix tells them that they should “diversify”. Diversification isn’t a term I associate with startups, and it doesn’t actually give us a great deal of information about what precisely the company should be doing.

However, I do think the fundamentals of the matrix (the axes) could be usefully applied to a startup-specific context.

In my research I’ve found out about a lot of startups that have used lean startup strategies (because everyone’s talking about them and they’re meant to be best for startups), only to fail by missing out on an opportunity or spreading themselves too thin. From looking at them more, these startups that failed in such a manner were either entering a new market with an existing product, or entering an existing market with a new product. I don’t believe that lean startup methods are appropriate for startups in these categories.

I believe that only startups in the bottom-right corner should utilize lean startup methods. They know absolutely nothing about their market and therefore should use the strategies to learn about their market (along with Steve Blank’s Customer Development model). Startups that are in the top-right or bottom-left corners should use “fat startup” methods. They will likely need to raise a lot and spend fast, as if they are entering a new market with an existing product they simply need to be there first, and if they are entering an existing market with a new product they need to carry out traditional product development with marketing on top to attract new customers.

Startups entering existing markets with existing products are not startups at all. There is no uncertainty – they can just get a bank loan to fund everything as there is such a high degree of certainty.

I did this up quickly, and think it should be called the Startup Strategy Matrix.

It’s very simple, but if a few startups that I’ve been looking at had taken a look at this before they began, they might have dodged failure and be doing millions in revenues. Think of Groupon clones as an example – a local Groupon clone that I saw here in Wellington began using lean startup methods, even though they were entering a new market with an existing product. They didn’t need to learn a thing about their market – they just needed to get to the market first. Nevertheless, they spent frugally and spent a lot of time testing aspects of the website. Missed opportunity and an epic failure – stupid.

What do you guys think?

Respect for the Motor of the World

I ordered some clothes online on Tuesday from a British retailer. They arrived in the mail this afternoon (Friday). I haven’t thought about mail companies or courier services in the past – they’ve always seemed a bit boring and unimpressive. But for some reason today I started thinking about how it all works and became amazed by it.

For a little parcel to be sent from a warehouse in Maidstone in the UK to my home in Wellington in just three days is just incredible. It was sent by DHL, and I could track it every step of the way. From Maidstone, it was sent to London Heathrow, then to Leipzig, then to Singapore, then to Auckland, then to Wellington where my house is.

Think about it. At each of those places it had to be transported on the ground as well, and scanned so that they could track its progress and update it online for me. It likely passed through at least six ground transport vehicles and was presumably handled by a similar number of individual humans on the way. That’s on top of the five flights it made (two long-haul).

DHL probably has tens, if not hundreds, of thousands of parcels being sent simultaneously across the globe to an almost equal number of individual destinations. And DHL is just one of the courier companies in the world (albeit one of the biggest).

Companies like DHL literally make the world go around. Without them we wouldn’t have economies or really be considered a globe. It’s a huge feat to deliver a product from one building on the top of the world to another building at the bottom of the world in three days. For fifteen pounds. This happens every single day, with millions of items (and people) and I’m embarrassed to say that I’ve never felt in awe of this machine before. In it’s broadest sense, that’s what the collection of global companies is – it’s a machine, or a motor, that makes the world function as we expect it to.

I’ll admit that I take most of the modern world for granted. Computers, mobile phones, skyscrapers, airplanes, supercars, and, yes, the ability to buy things from the other side of the world and receive it within three days. I’ve expected it without thinking about it in the past. Recently, however, I’ve been noticing how complex so many of these systems are and how great a feat they are.

There’s a couple of ways to look at all of these incredible things that the modern world gives us, in my opinion. The first is we can look at it all and say “It’s such an incredible world and individual humans are such a small part of it”. Or, the way I look at it, is we can say “It’s such an incredible world, and all of this incredible stuff was created by human beings”. Yes, it’s a machine that makes the world go around. But the machine was created, and is maintained, by humans. We’re pretty impressive creatures.

I’m gaining a healthy respect for most of the things I’ve previously taken for granted. If you take them for granted too – I hope you’re thinking about them in a slightly different way, like I now am.

Chronic Unemployment

Structural unemployment is a form of unemployment that occurs because worker’s skills are outdated, or not desired by employers. Technological unemployment is in some ways a type of structural unemployment caused specifically by advances in technology – as technology automates jobs, workers become unemployed with no skills to gain other employment.

Both of these types of unemployment are traditionally fixed through supply-side policies such as training and educating workers so that they have skills desired by employers. This fix is costly to taxpayers as it is not cheap to provide education. However, in most cases, it is a fix – workers will be able to find employment after being trained and educated. Structural and technological unemployment are in most cases temporary because of the government’s supply-side efforts.

But what if technology advances so much that employers simply don’t need as many workers, no matter what their skills?

I’m not just talking about manual labour here. Obviously manual jobs are being replaced by robots and others forms of technology. But again, these people can be up-skilled and subsequently find re-employment. I’m talking about when technology becomes so advanced that people cannot up-skill to a point above the capacity of the technology so as to become desirable to an employer.

Technology is starting to cause people with university degrees to become unemployed. Law firms don’t need as many lawyers because much of the research can be done in one-hundredth the time it previously took. R&D departments need less engineers and managers because the processes have been automated. Teachers are becoming irrelevant as we learn online. I’m talking to friends of mine who have masters degrees and cannot find a job. It’s a global problem that most people are blaming on the economic downturn. I don’t fully believe that. It may be a part of it, yes – but I believe the main cause of this unemployment is simply advances in technology.

It’s only going to get worse because technology will never stop advancing. We’re going to see technology continue to progress at faster rates every single year than it ever has previously. And the technology is going to become (already is becoming) so advanced that it will render people with masters degrees “unskilled”. No company will hire an individual whose skills can be done by a form of technology at a tenth of the cost. Technology also doesn’t require healthcare and stock options.

Where is this going to lead? If people simply are not needed and therefore cannot gain a form of income, what happens? How do they live?

In the short-term, governments won’t realize that the problem is advances in technology. They’ll keep paying benefits to more and more people, while funding supply-side efforts to train workers. They will subsidize university. They’ll focus on education to begin with. They also might try demand-side policies – by increasing government spending, they can fund more jobs. So we’ll see governments employing more people. But none of these solutions are long-term. They’ll simply lead to a waste of resources in every country.

And when governments do realize that the problem is advances in technology? Well, stopping advances in technology to save jobs is ludicrous. I hope that no government ever considers that.

I think this is a massive problem that will start to show just how serious it is in a couple of decades. This will be one of the major problems facing economies (excluding, ironically, developing economies) in this century. And I don’t have an answer to the problem.

Personally, I want to be at the forefront of developing these technologies. I guess it’s a kind of “If you can’t beat ‘em, join ‘em” mentality. I also think that entrepreneurship is going to explode in societies as a result of this problem. People who can’t find jobs will simply create one for themselves. In this sense, this may be a blessing to modern societies.

After I began thinking about this issue, I tried to find more writing on the topic. I couldn’t find much, other than a book by one Martin Ford, called The Lights in the Tunnel. I’m reading it now, and will likely write another post once I’ve finished it. If you know of any other writing done on this topic, please share it with me – I want to find out as much as I can.

Don’t change the world. Improve it.

“How are you going to change the world”? This big question gets thrown around a lot. It seems as though everyone who wants to achieve something in their life is obsessed with trying to “change the world”. From Steve Jobs quotes to discussions about what you want to do in life, we hear a lot of talk about how we are going to, or should, change the world.

I don’t think anyone should ever grow up being focussed on changing the world.

If the system isn’t broken, don’t try to fix it. Not all change is good change. Indeed, some change is very harmful.

We see executives being brought into new companies and government departments who are focussed on “changing the company/department”. They subsequently screw it up. It happens all too often in too many industries and areas of life.

We should never focus on changing the world, or anything for that matter.

We should focus on improving it.

This distinction is critical.

If people believe that changing the world is the most virtuous thing they can do, they will likely achieve this quite easily. And they’ll stop at that, being satisfied that they’ve “changed the world”, regardless of the nature or consequences of the change they’ve made.

If people believe that improving the world is the highest goal they can aspire to, they’ll likely spend their whole life working towards achieving it. It’s harder to improve something than it is to merely change it. Anyone can change something. It takes a great mind to improve it. But the results of improvement are, by nature, positive. It’s not just a change for change’s sake.

Let’s stop talking about changing the world. Let’s demand that people improve it.

Selling Lifestyles

To use Jim Collins’ phrase, I believe that these days the difference between “good and great” companies is how they manage to sell the idea of a lifestyle. I’ll explain why I think this using two companies in two different industries.

Firstly, Abercrombie & Fitch. They died as a company two times before becoming the phenomenon that they are now. They’ve always been known to sell incredibly high-quality products made from good materials. But that didn’t stop them from filing for bankruptcy once and then being bought out. Abercrombie then brought in a new CEO, Mike Jeffries, who created the new concept for A&F. He wanted this new concept to allow people to think that they’re in a movie. He also wanted the brand to “sizzle with sex”. Abercrombie sells the lifestyle of sexy college students.

Look at the difference in approach. When the brand failed, it focussed on product first and foremost. It made a great product, but with no image or lifestyle, people didn’t buy it. After Jeffries came in, A&F put their lifestyle image first, backed up by a super high quality product. And now they’re smiling all the way to the bank (they’re a multi-billion dollar company).

Look at Apple, too. Apple has always made high-quality products. But it almost failed years ago, because it didn’t have a lifestyle with which people could buy into. Then Jobs came back, and created the “think different” lifestyle that creative people could buy their products to become a part of. I don’t need to explain their success since then.

The point is, you can’t be a great company with just a great product. There are thousands of companies with high-quality, functional products, that are on the verge of failing because no one will buy the product. To be a great company, you need to have a lifestyle that people want to buy into by buying your product. The more compelling the lifestyle that you sell, the more you can charge for your product and the more people will want it. Abercrombie raises its prices every single year, and yet demand for their products rises faster every single year – the Abercrombie lifestyle is so strong that it even makes the law of demand invalid (in economics, it’s called a Veblen Good). This is the situation you want to be in as a company. Think about it – you raise your prices and even more people want to buy your products!

I don’t think that selling a lifestyle is something that only physical-good companies can do. I believe that web apps can do it as well, and indeed many should think about it more seriously. One app that I believe should really focus on creating a lifestyle to sell is Path. The new version of their app is fantastic, and they’re seeing huge numbers of people begin to use it. But Path, to me, is about sharing my life with the people who are close to me. Path’s job, then, is to make me want to share more of my life. And I think the best way for them to do that is to create a broad lifestyle image for people to want to buy into. They should create an image that means when someone sees me using Path, it says something about me and my lifestyle – “I’m tech savvy, value my close friends and family, and want to share my life with them as well as see their lives”.

Every web app can sell a lifestyle of some sort. It might not be as elaborate as Abercrombie’s, as you don’t have a physical store for people to walk around in, but you can create it through your app and website.

I’ll repeat the key point I’m trying to make in this post – that it’s not enough to make a fantastic product. To make your company great, I believe you need to sell a lifestyle through a high-quality product.

The Unfairness of Tech Startup Coverage

Here at LeWeb Andrey Andreev, the founder of a company called Badoo, was just interviewed by Loic LeMeur on stage. I follow the vast majority of all tech news in the week, and for some reason Badoo has just escaped my radar. Either it was just a weird accident that I’ve never read anything about Badoo, or there’s something else going on.

If Badoo was a brand new company with hardly any users, it may be more easy to believe that I just missed news about them. However, Andrey announced on stage that they have 150million users and are doing over US$100million in revenues. That’s hard to miss. That’s pretty monumental.

For those of you who don’t know, Badoo is a social network that lets you “meet people around you”. In other words, it’s an app to let you meet people and flirt. Not quite a dating site, but close to one.

The issue I want to tackle here is why I hadn’t heard about Badoo, when they’re one of the top European company success stories of the past year or so.

It seems as though we hear in great detail all the news about every tech startup in Silicon Valley, but don’t hear much about startups elsewhere. There are probably a few reasons for this. Firstly, Silicon Valley itself IS the tech industry. For that reason, there’s a huge amount of media there that solely focusses on reporting on new startups. This means that we are sure to hear about Silicon Valley startups. On the other hand, cities in Europe or Asia aren’t solely tech focussed. Therefore there isn’t the same amount of media that cover new tech startups, and many hot new startups get missed by the international media.

Secondly, I believe that other cultures idolize tech startups less. In the US, especially after Facebook and The Social Network movie, it’s “cool” to be a tech startup. This means that the media there actively look out hot new startups so that they can get a scoop. But in other countries its not cool to the same extent, and again we see less coverage of tech startups.

There’s a huge list of tech startups in Asia and Europe that we just haven’t heard about. Many of them are far more successful than startups receiving extensive coverage on TechCrunch or any of the other Silicon Valley news sources. But because no local media is that interested in them, they don’t get covered as often or to the same extent, and the international media never hears about them. I’m by no means just talking about Badoo here.

TechCrunch has writers on the ground in many different cities, but they aren’t in all of them. We can’t just expect coverage of international startups. And unless there is more interest in local cities in Asia and Europe in the tech industry, we can’t expect more coverage from local media. So what’s the answer?

I don’t really believe there is one. I think that the reason Silicon Valley startups receive so much press is because that’s what makes Silicon Valley great. It’s part of the reason why startups go to Silicon Valley – so that they can receive press coverage and interest that they simply wouldn’t receive elsewhere.

Therefore perhaps the only way to increase local media coverage of startups elsewhere in the world is to turn those cities into tech hubs. That’s a huge task, and I’ve written a post with my thoughts on it before. I don’t actually see any cities being turned into a tech hub anytime soon. The media coverage is part and parcel of Silicon Valley, and if you want that type of coverage you’re just going to have to go there.

This got me thinking at the very least. Interested in everyone’s thoughts!

My Kindle experience so far leaves something to be desired

I’ve been trying to decide recently whether to stick with physical books, or go to e-readers. It wasn’t that hard to make that decision – I’ve been trying to make my life paperless, and have done quite well so far, so I figured an e-reader would help even more with that goal. Then the harder decision was which e-reader. Kindle, Kobo, Sony…? Each had their advantages and disadvantages, especially to people in New Zealand (Kobo is linked more directly with New Zealand booksellers). But I eventually decided on the Kindle because they have a larger range of books and lower prices, and I liked their design better.

The next decision was which Kindle to get. Amazon had just brought out the new Kindle Touch and normal Kindle. I figured I’d go with the Kindle Touch, but then saw that people were frustrated with the touchscreen, and it wasn’t shipping to New Zealand yet. But I wanted a keyboard to be able to annotate what I read (I annotate a lot), and the normal Kindle didn’t have that. So, that left me with the Kindle keyboard.

But that’s not all. I then had to decide between the WiFi only version and the WiFi plus 3G. I read up on it, and found out that the 3G could be very useful as I could use it as emergency Internet access if I was traveling and couldn’t get WiFi anywhere. Amazon made it seem as though I could access the Internet (Facebook, emails, in basic form) through the experimental browser in any country in the world for free. So, it seemed like that made sense considering it was just less than $100 more for the 3G access.

Finally. Decided on the 3G Kindle Keyboard, and went and got it. But that wasn’t the end of my frustration.

I’m writing this post to say two things. Firstly, to explain my experience. And secondly, to suggest to Amazon that they make the Kindle experience better for international buyers.

So I fired up the Kindle as soon as I got home, and immediately opened up the Kindle Store to search for some books. I’m reading The Godfather, by Mario Puzo, at the moment to take my mind off of studying when I need a break (it does it very successfully). I searched for that – nope, not available on my Kindle. I then searched for The Fountainhead, by Ayn Rand, which I’ve been wanting to read ever since reading Atlas Shrugged. Not available. I searched for The Gatekeepers, a book about the US college admission process – not available.

All three of these books were ones that I had searched for on the Amazon website prior to getting the Kindle. They all said they had Kindle versions. But once I get my Kindle, it turns out I can’t get them. Why? Because I live in New Zealand. For whatever reason, they aren’t available on Kindle when you live down here.

Secondly, I found a couple of books that were available. I had seen on the Amazon website that they were either free, or 99cents each. But on my Kindle, they were $2 to $3. Not sure why that is, but I’m guessing it’s because I live down here.

In this whole process of searching for a Kindle and getting it, Amazon never made me aware that some books would not be available to me in New Zealand, or that they would be more expensive. There was specific information they showed me about using Kindle in New Zealand, which said that I would have access to hundreds of thousands of books. I figured it was the same number of books that customers in the US got access to.

One more thing. While I had been made to believe through the Kindle product page on Amazon’s website that I could use the 3G access anywhere in the world, that isn’t the case. I can use the 3G anywhere to search the Kindle Store, but not to use the experimental browser – “Access not available in your country”. Therefore one of the key reasons I opted to get the 3G version doesn’t actually exist anymore.

So, two suggestions to Amazon:

1. Simplify the process of choosing a Kindle. Take lessons from Apple about making customer choice an easy thing. Many potential customers might have given up on getting a Kindle because they couldn’t decide on which model to get.

2. Be open and honest about the experience that international customers are going to have with the Kindle. While you don’t specifically state that international customers will have access to the same books at the same prices (and 3G) as US customers get, it was implied. I felt cheated because you didn’t tell me that before I purchased. If you’d told me, I would have still purchased, but felt better about the whole experience.