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If you build it, they won’t come, unless…



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This is Part 5 of the 5-part series: 5 lessons from 150 startup pitches.

Ask a technical founder about his startup, and he’ll proudly describe his stunning software — simple, compelling, useful, fun. Then he’ll describe his cutting-edge platform — cloud-based, scalable, distributed version control, continuous integration, one-click-deploy. Maybe you’ll even get a wobbly demo.

“Great,” I always exclaim, sharing the thrill of modern software development, “so how will people find out about this brilliant website?”

Cue sound of cicadas buzzing.
(Or “crickets chirping” but in Texas the cicadas are louder.)

Four uncomfortable seconds later, a smile breaks across the founder’s face. “Here it comes,” I think, “there is a strategy after all!”

Except the “strategy” is a tirade of drivel I’ve heard so many times I can lip-sync as the words spew out the founder’s mouth:

  • “We’re going to A/B-test AdWords campaigns until we discover our hook.”
  • “We’re going to A/B-test our landing pages until the right message appears.”
  • “We’re better than everyone else at SEO.”
  • “A friend of mine knows how to get popular on Twitter.”
  • “We’re going to get reviews on blogs.”
  • “We’re going to start with our own network and grow it from there.”
  • “We’re going to use an affiliate program so our customers sell it for us.”
  • “We’re putting a ‘Retweet’ button inside the product to encourage viral growth.”

The obvious problem is that every new startup on Earth says exactly these things. Nowadays the “strategy” above sounds the same as:

  • “We’ll have a website so people can read about us.”
  • “We’ll have an email address so people can communicate with us without picking up the phone.”

Yes, you’re going to do those things, but since millions of other people are doing that too, you’re still invisible. Visibility-fail. Anyone-gives-a-crap-fail.

OK, so what can you do to rise above the cacophony that is the Internet? Here come a few ideas; leave more and discuss in the comments!

Infection built-in, not bolt-on

WhenBusy is a bootstrapped startup that lets people schedule meetings with you in currently-available time-slots without you having to share your calendar [disclosure: I’m an advisor]. For example, here’s what the founder’s (Josh Baer) availability looks like:

whenbusy schedule

Instead of trading emails with lists of available time-slots, Josh just sends the link to this page and the other person uses the product to schedule a meeting. This is the viral step: Having trialed the tool, the stranger might use it herself, then more people find out about it, and so forth.

Note that at no point did I say “a button lets people ‘like’ this on Facebook.” I know of no companies who have “gone viral” because of buttons. Buttons are good — why not use them? — but they don’t make your product intrinsically viral like WhenBusy.

Which is OK — not all products need to be viral! But if it’s not viral you still need a killer method of finding customers, and if it is supposed to be viral it better be encoded in the DNA of the application, not bolted on as an afterthought.

Frightening honesty

Balsamiq Mockups is a ludicrously popular wire-framing tool. The software is good — don’t get me wrong — but what sets Peldi (the founder) apart isn’t prescient feature selection or bug-free releases, it’s his startling transparency. He published revenue figures even when they were still pathetic, he pledged loudly and eagerly to give away lots of free copies to non-profits, and he revealed all his (remarkably effective) marketing strategies (updated here) even though it meant competitors would learn them too.

He didn’t just have an “authentic voice,” he made public promises. That’s compelling.

He didn’t just “tell it like it is,” he gave up his marketing secrets and opened his company books. That’s newsworthy.

This isn’t merely “being human” and all that claptrap, it’s almost too much honesty, like when you ask someone how it’s going and they tell you about a weird pustule on their middle toe that’s been oozing since last Wednesday.

In a world where everyone and their brother is “joining the conversation” (oops, I use that phrase constantly!), you have to truly bare your soul if you want to compete on the transparency front. It’s not for everyone, and I’m not suggesting it ought to be, but there’s no sense in half-assing it.

Making Oprah cry

The number one mistake founders make when trying to generate press is talking about what the company does rather than telling a compelling story.

Does Twitter get press when it helps Iranians fight an illegitimate government or when it creates a new internal IT process to increase up-time? Does Apple win the hearts (yes, hearts) of millions because of their obsession with design or because of their development APIs? Does 37signals have over three million users because their software is “better” than the competition, or is it because they motivate designers and entrepreneurs through their writing and philosophy?

Without a powerful narrative, your chances of getting big press and enthusiastic users who spread the word for you approach zero as a limit.

It took me years to figure this out at Smart Bear. At first when someone asked what the Smart Bear tool suite was, I would say:

Smart Bear makes data-mining tools for version control systems.

It’s a description so esoteric that, although accurate, not even a hardcore geek would have any idea what it is, much less why it’s useful.

Years later, when it was clear that code review software became our sole focus, I got better at describing it:

You know how Word has “track changes” where you can make modifications and comments and show them to someone else? We do that for software developers, integrating with their tools instead of Word and working within their standard practices.

Better, yes, and for a while I thought I nailed it, but still no press. Eventually (thanks to helpful journalists) I realized that I was still just describing what it is rather than why anyone cares. I left it up to the reader to figure out why she should get excited.

Eventually I developed stories like the following, each tuned to a certain category of listener. Here’s the one for the journalists:

It’s always fun to tell a journalist like you that we enable software developers to review each other’s code because your reaction is always: “Wait a minute, you’re seriously telling me they don’t do this already?” The idea of editing and review is so embedded in your industry you can’t imagine life without it, and you’re right! You know better than anyone how another set of eyeballs finds important problems.

Of course two heads are better than one, but developers traditionally work in isolation, mainly because there’s a dearth of tools which help teams bridge the social gap of an ocean, integrate with incumbent tools, and are lightweight enough to still be fun and relevant.

That’s what we do: Bring the benefits of peer review to software development.

Now the reason for excitement is clear: We’re transforming how software is created, applying the age-old techniques of peer review to an industry that needs it but where it’s traditionally too hard to do. That’s a story.

It took me five years to figure out (a) I needed a story and (b) what the story was. It’s hard. But one story beats a pile of AdWords A/B tests.

Advertising → [transmogrification] → Revenue

Yeah yeah, nowadays marketing is about “relationships” and “authority” and other things which cost time but not money. It’s all I hear about anymore.

But don’t be so quick to throw out the idea of spending money to make money. Advertising isn’t dead; you can still buy eyeballs. I’m not talking about “triage” strategies like buying AdWords linking to a page of ads, I’m just pointing out that most companies on Earth don’t depend on “joining the conversation” to acquire customers.

It sounds simple: The average cost of acquiring a customer is $C (advertising, sales, support, doing demos) and the lifetime revenue you get from that customer is $R, so if C < R you have a business. C can be driven down with cheaper ads, better lead quality, a more efficient conversion rate, and straightforward trials with minimal tech support.

Of course it’s not that simple, and many business plans I’ve seen (unintentionally) omit many of the true costs of acquisition. Read this great interview with Sean Ellis at VentureHacks for a great discussion of how to seek a repeatable, profitable model where C < R, and then optimize and grow. It’s a little heavy on the “huge VC-style company” strategy for my style, but you’ll come away with a strong perspective on how to build a machine that turns advertising dollars into (a greater number of) revenue dollars.

Celebrity Championship

I already beat you to death about how celebrity endorsement can serve as an untouchable competitive advantage, and it’s also an answer to how to burst out of the dull roar of Internet marketing.

Take me. I’m no Seth Godin, but consider what I could do if I were a co-founder in a new software development tool company:

  • I have personal relationships with the CEOs and other influencers at hundreds of software development companies. During ideation, they would brainstorm. During beta-testing they would be guinea pigs. After release of v3.0 some would be ready to become paying customers.
  • I have relationships with editors of nearly all software development publications (on-line and off); I’ve already published articles with them. Some would help vet our stories, some would publish our articles.
  • I’ve bought ads in every major (and quite a few minor) software development websites, magazines, newsletters, conferences, and webinars. So when it’s time to advertise, we’ll come in with the right message for the audience and probably cut a deal.
  • If you read this blog you’re probably a software developer, so even just a few mentions here might be more powerful than $10,000 in A/B tested Google AdWords.
  • If we were trying to raise money, my previous success would not only get us the initial meetings but would be a significant bump in our chance of raising it.

While everyone else is mucking about with a new blog, blasting their LinkedIn network with pleading emails, and paying out the nose to test AdWord variants, we’re years ahead in the marketing war.

Let’s generate more ideas

Share the love in the comments section. Let’s come up with more ways to reach customers that isn’t the same as everyone else.



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The right way to position against competition



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google-goldfish

This is Part 4 of the series: 5 lessons from 150 startup pitches.

After seeing hundreds of startup pitches for this year’s Capital Factory program, I can tell you that the two most common errors in positioning a company against competition are, strangely, opposites:

  1. Claiming you have no competition.
  2. Defining your company’s offering and positioning by combining “the best” traits of 6 competitors.

This isn’t just a problem when pitching — it’s a problem with you defining who your customers are, what they want, and your role in the marketplace.

Let’s break down the ways these fallacies manifest and what you can do instead.

There is no competition

Here’s what this sounds like in the wild, and my reaction when I hear it:

  • “I have no competitors.”
    Either you’re ignorant of direct competition, or your not considering alternate solutions like “build it yourself.”
  • “No one is doing it like we are.”
    Of course you’re going to position your company with a unique offering: exclusive features, a distinctive culture, a refreshing pricing plan, an innovative sales strategy, etc.. But uniqueness doesn’t imply lack of competition!
  • “There’s no competition because this is an industry that has never used software to solve this problem.”
    I know that sounds like a good thing, but what this also implies is that you’ll have to convince computer-phobic people to trust software, and that’s a disadvantage. You’re competing against the status quo.
  • “There’s no competition because people haven’t realized it’s a problem.”
    If they don’t already know they have the pain, the sales process is going to be excruciating. There’s a word for that — evangelism — which conjures other words: Expensive, difficult, time-consuming.

If you’re tempted to argue that you’re the exception, here’s how to elucidate the advantages you’re seeing, but in a way that actually makes sense as a business strategy:

  • We’ve carved out a niche specific enough that no one else is actively targeting it. There are similar competitors A, B, and C, but they’re not targeting this niche because of X, and would be hard for them to switch into this niche because of Y. In fact, it’s quite possible that we’d end up partnering with or being bought by A, B, or C exactly because our idea is similar but out of their reach.
  • We’ve identified a market too small for the large, established players to address, but big enough to build a company. For example, because an 800-pound gorilla like Microsoft is so inefficient at building new software, it can’t go after a market unless there’s a billion dollars at stake. We think there’s a solid business to be made in this hundred-million-dollar market. However, whereas Microsoft can’t afford to build this from scratch, if we show good growth and profits it would be an obvious acquisition target for them.
  • We’ve created technology so different from the incumbents that we’re changing the conversation about how people solve this pain.  Though it’s different, our solution is very easy to describe and to use. (Example: Netflix)
  • Our target customer has traditionally solved this pain themselves or just lived with the pain rather than paying for relief. However, a combination of newly-available technology and modern mindset makes this the right time for a new software play.For example, my company Smart Bear created the first commercial peer code review tool. Before us, there was no software competition but there were plenty of alternative processes — looking over someone’s shoulder, sending emails with diffs, code review meetings, even “Formal Inspections.” By tackling a few specific annoyances with peer code review and leveraging newer technology (like the advent of ubiquitous version control), we completely changed what a “code review” could be.
  • It’s true that this industry hasn’t yet seen a software solution, but that’s not because they hate computers, but rather that it hasn’t been possible to address that market with software. Now it is because (pick one):
    • We’ve built an improbable team that spans geeks and industry insiders.
    • New hardware/networks have just appeared which makes this possible.
    • New attitudes towards the Internet (e.g. ubiquity of Facebook even among traditional technophobes) enables new workflows.
    • This industry is commoditized so giving a player the slightest edge is a big deal.
    • This industry is just now starting to show tangible signs of embracing technology.
    • We have three lead customers signed up for alpha testers; if we make them successful the case studies will be all the evangelism we’ll need.

Defining your company by the competition

Your company is defined by its own strengths, values, customers, and products, not by how it compares with other companies. You need a strong position, something that would be equally clear and compelling even if competitors didn’t exist.

Here’s some ways this mistake manifests:

  • “We combine the best traits of our competitors, letting them show the way to our success.”
    I like the idea that you can learn from the mistakes and successes of similar companies, but “combining the best” misses the point. There are specific tradeoffs each of those companies are making; things you see as “not best” might in fact be best for their target market. Why are you sure that your notion of “best” will result in enough customers who not only agree with you, but is so convinced that they’re willing to switch to you?
  • The rubric.
    A chart with one row for each “feature” and one column for each of six “competitors.” There’s checks and X’s everywhere, except of course a glowing, highlighted column representing your company which just happens to be full of checks. C’mon, everyone knows this is bullshit; it’s insulting.
  • “We’re just like competitor X, only we’re Y.”
    In that case you’re betting your future on the fact that Y is overwhelmingly compelling to a large market segment. X automatically has advantages over you (brand, customers, revenue, inside knowledge, a team, momentum), so Y had better be brain-explodingly awesome.
    Oh, and it’d better be impossible for X to implement Y — or even 1/3 of Y — themselves. Talk about putting your fate in others’ hands!
  • “We’re the same as X, only cheaper.”
    Being cheaper is a strategy, but it can’t be your only strategy. It’s too easy for competitors to change price or offer deals. Typically the best customers aren’t as price-sensitive anyway, so you’re actually biting off a less desirable segment of the market. Often this claim is paired with “We’ll do 70% of the features for 50% of the price,” but supplying less for less is not inspirational.

So how do you look inward to establish your company, contrasting with the competition but not letting the competition dictate your identity?

  • We’re targeting the market segment defined by X, Y, and Z.  We’ve spoken with 20 potential customers who match at least two of those criteria, and they agree our product is exactly what they need and that none of our competitors are doing an acceptable job addressing their issues.
  • Our company has core value X that we exude everywhere from our AdWords to our tech support to our product. (Example value: Simplicity. A simple product with few features, low-cost, pain-point obvious, not tackling complex problems, focussed on making life easier rather than on saving money.) We own this value because we’re completely committed; this is the one point on which we will never compromise. Our customers know it and value this too, which is why it doesn’t matter what features, prices, or advertisement our competitors have.
  • This is the competitive matrix. Note that each player in this space is targeting a different market segment, as is clear from feature selection, pricing, and advertising/messaging. We, too, are targeting a niche; as you can see our offering is consistent with owning that niche, and doesn’t overlap significantly with competitors. It would be difficult for any of them to “switch” into our niche, because as you can see they’d have to change the product, pricing, and their company’s persona; that’s a risk we’re willing to take.
  • We’re going after competitor X. We know they already have a ton of advantages over us — well-known, well understood, and a deep feature list. However they haven’t done anything new in 3 years and we have evidence that their customer base is pissed off. Not only that, they’re famous for annoying attributes A, B, and C (Examples: buggy, slow, confusing, must install, expensive, crap tech support). We see a huge opportunity in their wake of destruction, vacuuming up their customers with our overwhelming advantage. They can’t do this themselves because they’re too big to turn the ship, and anyway the past 3 years shows they’re not able to change.

What else?

How do you cope with competition, incorporating it into your strategy while not letting it consume you? Leave a comment and join the conversation.



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What the crazy name "Smart Bear" taught me about branding



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smart bear logoEvery founder struggles to find a great name for her company. Often it’s the first source of good-natured strife between co-founders. It’s an exhilarating, scary combination of having to decide who you are — what you do, the persona you expose — combined with the technical issues of being memorable, spell-able, and available as a domain name.

My name started as a whim, was almost changed for the wrong reasons, and ended up with a punch-line I would never have dreamed of.

Storytime! (Lessons at the end.)

hotel new hampshire

An inauspicious birth

The origin of “Smart Bear” is John Irving’s Hotel New Hampshire, a surreal novel in which a “smart bear” plays an important role; near the end we are told repeatedly that “a smart bear makes all the difference.” I chose it because at the time my (then new) wife and I were into John Irving and it was whimsical, fun, and meaningful, albeit just to us.

In other words: I picked the name with utter disregard to marketing or business sensibility. I’m not saying that’s right or wrong; maybe all it means is that some branding principles, while interesting, aren’t as vital as they first seem.

“It sounds like shareware.”

A few years into Smart Bear I was still toiling away at the compiler when I was approached by an ex-VP of Sales from a company that had IPO’ed. He wanted to partner up — I’m the young geek, he’s the silver-haired, golf-bag-toting, sports-metaphor-slinging salesman.

The full story of that ill-fated misadventure is related here; the relevant detail is that this guy insisted that we change the name of the company:

“Our potential customers — IBM, Intuit, Adobe, Qualcomm — aren’t going to take us seriously with a silly name like ‘Smart Bear.’ It sounds like shareware, not enterprise software.

“Big companies buy from companies with formal names like IBM, CA, BEA, CSC, HP, stuff like that.”

His suggestion? Software Test and Deployment Systems, Inc, which shortens to the unfortunate “STDS.”

Yeah, an acronym already taken by gonorrhea.

(The jokes, though, were almost worth it. Viral marketing! Our invoices flare up every year!)

I got lucky, though. I was all set to pair up with this guy and change the name, but in another example of serendipity being more influential on business success than purposeful action, I happened to receive a hugeamongous purchase order from Intuit, a whopping $50,000.

You know, exactly the kind of order from exactly the kind of company who would never do business with silly old “Smart Bear” run by non-salesy, geeky Jason. Today, as you can see from our customer list, all the companies he listed are, in fact, customers, and many more besides.

All with a silly name and informal sales.

The VP of Sales’ rationale made sense though, and of course Smart Bear might have been equally successful if named STDS. But once again I learned that maybe the name isn’t as important as either of us thought.

“Let’s just ask the customers.”

Fast-forward six years to present day. I sold Smart Bear a few years ago to AutomatedQA — a great company with a compatible culture and similar goals where Smart Bear (now as a division) continued to thrive (meaning: more revenue, more profits, bigger-and-badder software, and happy customers).

After making a few other acquisitions and continuing to grow, AutomatedQA is now a large company which in the next few years is on a path to be successful even by a VC’s standards. If you thought “Smart Bear” was too informal before, now it’s even more out of place. (If you subscribe to that theory.)

But having all these departments with different names (AutomatedQA, Smart Bear, Pragmatic Software) sucks when you’re trying to build a company which is starting to capitalize by making already-best-of-breed tools work together, especially with customers who we all share. So they decided to rebrand everything under a single name.

But which name? AutomatedQA (the one which was biggest to begin with and clearly a great name)? Smart Bear? Something new? STDS?

So they decided to poll everyone they could find in the software industry — customers and otherwise. They asked positioning questions like:

  • Do you have a good or bad immediate impression of this brand?
  • Have you heard this name before, and if yes what have you heard?
  • If you have experience with this brand, what was that like?

The result? See for yourself: As of July 19th 2010, the entire company has been rebranded Smart Bear. Come see the new website — it’s neat to see something start out so ugly and terrible and end up as the banner of what is already a massively successful, many-million-dollar business.

So what’s in a name?

What’s in a name? Not as much as some folks say, it appears.

The lessons I took from this are:

  • It’s what you do, not what you call it.
  • It’s more effective to do/say something important/valuable than to hope a logo or name will say it for you.
  • Being memorable is more important than what they remember.
  • First impressions are important, but so are all the other impressions, and the latter can trump the former.
  • Your time isn’t well-spent fretting about brand (early on).
  • You can change your brand later.

Continued in the comments…

What are your experiences with naming and branding? Am I being too harsh in dismissing the value of branding? Let’s continue the discussion in the comments.



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Out of the cesspool and into the sewer: A/B testing trap



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local-minimum-global-maximum.jpg

Your A/B tests are trapped in a cesspool when they should be in the sewer.

Do you really care why A/B testing is analogous to unwanted liquids? Not yet, so I’d better get right to the point.

Water pools in backyard.jpg

On the rare occasion that it rains in Austin we get these deep puddles in the backyard. Of course it would be better if the water would flow out into the street and into the sewer, but that’s not how gravity works.

Water “seeks” the lowest point in the yard, but it’s narrow-minded. It doesn’t survey the environment, locate the lowest area, and head there. Rather, at each point along its path it chooses whatever direction is lowest in the immediate vicinity. Water doesn’t “know” that if only it made the effort to hop over the fence, it could get much lower, like in the sewer.

In mathematical terms, water doesn’t “globally optimize” for getting to the lowest possible point, but rather “locally optimizes” at each step. If you enjoy clichés, water misses the forest for the trees.

Maybe your A/B tests are missing the forest for the trees too.

A typical A/B test looks like this: You start with a baseline, then you make a change. Maybe the title changes from “Sour Cream Getting you Down?” to “Don’t know when Sour Cream Goes Bad?”  You test that for a while and one wins, and then you try another variation: “Is this Sour Cream Good or Bad?”

And so on, inching your way through incremental improvements. A little here, a little there, and — you believe — soon it adds up to real money.

Except, often it doesn’t.

Often what happens is you get to a point where small changes aren’t doing anything. It can be hard to recognize this effect which is why you need to (horrors!) use math to decide empirically whether anything’s actually happening.

At this point you might be tempted to give up, but that’s wrong too.

What’s happened is that you’ve found what mathematicians call a “local minimum” and what I just called a “cesspool” (and what more tasteful writers call a “watershed.”) Your test is the water in the backyard — you’ve flowed into the lowest point, but you’re still in the backyard!

Completely changing your perspective, your message, your layout, your value proposition, your colors, or your target audience might reveal an entirely new, discontinuous, non-incremental change. The real fun is in the sewer; you need to jump over the backyard fence.

In fact, because looking in completely new places has the potential to yield far more results than incremental improvement, you need to be looking for discontinuous results from the start.

The best idea is to do both: Instead of just running A versus incremental-change A2, also run a B version that’s radically different from A. Thus you reap the straightforward benefits of incremental improvements while also searching for something that could radically improve your revenue.

Better still, if a radically different message gets you massively better results, perhaps all your messaging should change accordingly. Maybe your idea of what the market wants should shift. Maybe your entire business can change for the better.

Why poop along with minor variations when you could be toying with new ideas and new identities?

Play!

What strategies do you use for tests? Leave a comment and join the conversation.


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Telling the 800-lb Gorilla to Shove it up his Ass



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Every founder frets about competition from a big company, me included.

We scoff at their inability to innovate and for prioritizing shareholders over customers, but still we quiver in fear.

stock-dance

Dozens of people on Answers.OnStartups ask about it so I know I’m not alone. It always goes like this:

I’m just a two-person operation with no budget. What if a huge company with a hundred software developers and a million dollars in marketing budget decides to copy my idea?

Answer: You’re dead! Give up! No small company has ever survived competition with a large one!

Oh wait, that’s not true. But poking fun doesn’t help; maybe this article will.

First, take a deep breath and remember that every little software company on Earth in under this threat. This fact alone means competition — or threat of competition — isn’t fatal, and possibly not even important.

Don’t fear the dinosaur, fear the quivering warm-blooded tree-shrew

65 million years ago an iridium-enfused extra-terrestrial meatball o’ death caused what we would nowadays call a “disruptive market event,” and the cold-blooded dinosaurs couldn’t weather the shitstorm. It was the little cenozoic warm-blooded agile (oh sorry, now we’re saying “lean”) rodents who adapted by getting “outside the nest” to discover how to eat cockroaches, because we all know that cockroaches are the one form of life that can survive anything.

Like unadaptable dinosaurs, whatever your large competitor is doing now is probably what they’ll be doing two years from now, possibly four. Same message, same product, same pricing, and still taking a dump on Facebook instead of playing by the new rules. By then where will you be?

That kind of competition isn’t scary. What is scary is another scrappy, smart startup like yours — another tree-shrew. The one who silently observes you from afar, then drives down the road you paved, skipping the mistakes you made and copying the good parts.

Take all your angst about big competitors and refocus it on the little ones. (I’ll talk about this sort of competition in future post.)

You’re scratching out a living, not “beating Google.”

If your only conception of “success” is to utterly destroy large companies, then I guess you should stop reading now.

But if you want to build a solid company, something you’re proud of, something that pays handsomely but doesn’t have to be worth $1B, then the game isn’t “us or them.” The question is: How can you own your little piece of the world; Not: How can you wrest $100m of revenue from a big guy.

It’s not your purpose to “beat” another company. It’s your purpose to define yourself on your own terms, not in terms of how you’re like or unlike someone else.

Sure it’s constructive to “set your sights” on a competitor, actively trying to beat them in the marketplace or even steal their customers (e.g. give a discount if someone switches to you). But ultimately the only thing that matters is that you earn more and more customers, whether or not anyone else does too.

Using a gorilla to increase your own prospects

It can actually be an advantage to have a big player in your market, especially if they enter your market after you’re established.

At Smart Bear we make a peer review tool for software programmers; you don’t have to be a geek to know that any software development tool company shares the following fear: “What if Microsoft copies us?” But we know that any code review tool from Microsoft would work only with their own version control system and only inside Visual Studio. (Can you imagine a tool from Microsoft that supported ClearCase, ran inside Eclipse, and had excellent support for Java?)

So what if they did copy us, and what if as a result they owned 100% of the Visual Studio market? Well that still leaves every other market on Earth. And then all of Microsoft’s competitors would also need a code review tool so they don’t fall behind on the hallowed competitive analysis chart, so suddenly IBM, CA, Oracle, Serena, CompuWare, and HP would need a code review tool right away. What better way to accomplish that than to buy the #1 (or maybe now #2) code review tool company — hey that’s us! — which by the way is profitable at a time when any company is happy to have a department that’s generating cash.

In short, Microsoft copying the idea would only validate the market, causing the value of Smart Bear to increase.

What actually happened is instructive too: Microsoft added the concept of “shelving” and put the absolute least amount of effort into supporting code review (it’s literally a check-box that indicates that, somehow, somewhere, a code review happened), so the result is that we sell a ton of Code Collaborator to Visual Studio shops.

In other words, they validated the market by entering it, but exactly because they’re a huge company they couldn’t make it good enough to stop us.

Go where they can’t follow

Big companies play only in big markets.

It’s logical: With all the expensive machinery and bureaucracy it takes a dump truck of money and dozens of man-years to build something new, so the opportunity has to be enormous. Even if they were successful in a small market there wouldn’t be enough profits to move the big needle at the top.

So Microsoft can’t attack a market unless there’s a potential to earn at least $1B. But wouldn’t you be happy playing in a market where you’d be able to rake in “only” $100M? Of course you would.

I’m not talking about carving out micro-niches where only seven people on Earth are potential customers. Just don’t go after massive, general markets like “everyone with a digital camera” or “anyone with a smart phone” or “all software developers.”

big fish small pond

Do what they cannot

Big companies have significant advantages like money, a brand, a team, and a large customer base, many of whom will never switch even when presented with a clearly-better alternative.

Their brand alone is a powerful force you probably cannot overcome, e.g. “eBay is trustable” or “Apple is cool” or “IBM is safe.”

But the same attributes which deliver those advantages are also restrictive:

  • They can’t release a completely-revamped, brand-new version because they can’t retrain 200,000 users.
  • They can’t take a risk because protecting the existing revenue stream is more important than anything else, even if it means their ultimate demise.
  • They can’t quickly convert new ideas to released code because there’s requirements and documents and designers and approvals and schedules and testing and vetting.
  • They can’t change their image because there’s too much momentum with the old one. For example if they have a reputation for bad tech support, even if it gets remedied most people will still think of them has having bad support.
  • They can’t observe and react quickly to changing market demands because there’s too many layers of people and process, and too many people whose careers depend on maintaining the status quo.

For example, Intuit needs to look solid and timeless, their developers know C++ and desktop applications, and they can’t retrain the computer-phobic home users of Quicken… so they cannot create Mint.

As another example, IBM requires expensive infrastructure, development teams, and sales channels to command multi-million dollar consulting deals, but that also means it’s not profitable to do a small deal, which means small consulting shops never worry about competing with IBM.

They can’t change their product, so you can innovate without competition. They can’t change their image, so you can fill the gap. They can’t listen to a customer and make an impact one week later; you can.

Do what they can’t do, be what they’re not, and you won’t have to worry about competing on those points.

What else?

What are more tips for defending, defeating, or just avoiding big companies? What are your experiences with meeting dinosaurs on the sales floor? Leave a comment and extend this discussion.



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