Creating something that's completely new is difficult. Let's explore how to make it easier.
Starting something new is really difficult, mostly because we don’t know what we don’t know, and so there is a whole process of discovery around starting a new business.
This is especially true when you are doing something that could be classified as innovative.
It doesn’t matter if you have a completely new product or service to offer the market, or you’re offering an existing product or service but with a new methodology, you’re going to have to figure out a lot as you go.
It’s tempting to look at established businesses and think that you need to copy them, but the problem is that you are looking at an organization that is at a different part of their lifecycle than you are.
Sure, you want to be the AirBnB of your industry, but are you willing to sell cereal in the meantime while you figure things out?
Most of what you see large companies doing are not the kind of things that you want to be doing as a startup. Large companies have essentially unlimited funds to ensure their projects are complete. So they can put together sizable teams, give them lots of resources, and manage for results.
If you’re starting out, you don’t have that luxury, you need to be significantly more
resourceful than any large organization, probably by a factor of 10 or 20.
Perfection will often be the enemy of progress when you are starting out, because it will be frustrating that you cannot quite reach the quality that you are striving for, or do things as well as you think they could be done.
This is actually a good sign. If you’re frustrated with the status quo, this means that things will improve, slowly but surely. When you’re a small organization, it is easy to forget that you have some really significant and tangible benefits in your operations compared to a large organization.
The first thing to note is that communication is much, much easier.
Communication overhead does not scale in a linear fashion as team size increase, but actually increases exponentially. As teams grow in size and number, this then means that there is less alignment, and that you need more management, more communication, and it takes longer for information and decisions
to filter down to everyone.
If you’re a five person startup, communication is instant, and you don’t need too many formal protocols about it either.
Smaller organizations can run circles around their larger competitors if managed well, and you should always be suspicious if the answer to all problems is to hire yet another person.
Does the work really need to get done? Can it be automated? Can it be given to an existing team member or one of your existing suppliers?
Should you be doing this extra work at all?
Being small also brings about another really huge benefit: you are much much closer to your customers.
The CEO of Apple could not call every single new customer of Apple, even if if he wanted to. He would simply not have enough time!
But perhaps you can?
Imagine how a customer feels if they buy something from your company, especially if it a transactional low-ouch purchase, and you as the founder call them to thank them.
That almost never happens, but now it has, and that customer has been given a level of service and experience that is impossible for a large company to replicate.
The absolute worst thing you can do is be a small company but try to act or appear to be like a large company, because you then get the worst of both worlds.
You throw away the very thing that is making you special, and you start to look like everyone else.
Again, starting something new is extremely difficult, so do not put artificial hurdles in your own way. Instead, think of least amount that you need to do to have something that is good enough for someone, somewhere, to buy.
Often, there will be niches that are too small for large competitors to worry about, and so they are under served. This offers you a great opportunity for a small, but meaningful monopoly.
This niche or advantage can be geography (i.e. you are closer to your customers and can actually visit them!) or price, or just the fact that you have a simpler and easier to use product compared to the incumbents, but people actually appreciate that!
So the key thing is to identify this niche, sell into it, and gather as much feedback as possible, iterate, and finally monopolize.
This will have been a small but meaningful victory, and then it is time to look at
monopolizing an adjacent market.
This can be done be changing geographic or vertical, and using some of those key learnings from your first monopoly to build a slightly larger monopoly.
Over time, you’ll have a better product or service than the incumbents, likely at a lower price point and something that is a better fit for customers.
This methodology is highly counterintuitive, because the normal way of thinking is:
Well, there is a $100B market, and if we can just gain 1%, we will have a $1B opportunity.
The problem with an existing large market is that someone is already servicing it, and competition is fierce. Getting 1% of something large is actually significantly more difficult than gaining 30% or 50% of something much much smaller.
Peter Thiel put it nicely when he said:
Competition is for losers.
What he meant by this statement is that you do not want to tackle an existing $100B market and get 1%, but you want to create a completely new market where there is no apples to apples comparison between you and any possible competition.
This concept of differentiation is truly important, and it's one of the key elements that we focus and hone in when we brand companies. We draw up a competitive chart based on key value propositions such as price, customer service, and then map out where we think all the competitors are, and then position the company that we are branding away from everyone else.
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