In a World Ruled by Giants, Staying Small May Be the Smarter
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Too many startups are
built for growth -- in sales, product offerings, and staff. That can make them
overextended or attract competitors. Think instead about building to be bought.
BY HOWARD
TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH
INVESTORS@HOWARDTULLMAN1
I suppose in a country
where constant change, reinvention, and disruptive innovation are so critical
to our future that we should be grateful for the regularly refreshed stream of
eager and strikingly ignorant wannabe entrepreneurs who attempt to build new
businesses. I've been there many times. And let's be clear that their energies
and efforts fuel and support entire industries of investors, advisers,
educators, marketers, and techies. So, the whole painful process makes economic
sense even if a staggeringly large proportion of the money invested ultimately
ends up being wasted.
It's just a little sad
to know how many of them will never get their startups out of the gate and how
few of them that actually do will ever survive more than a year or eventually
thrive. We never seem to tell them that well-known truth or alert them to the many pitfalls along the way.
We think we're helping them by wishing them well and encouraging them on their
journey. I think we can do better and give them some concrete advice and some
practical plans for how to best navigate the shoals and the sharks.
If they knew the
unlikely odds of success or how painful and hard the process of building a new
business has become in a "winner take all" world controlled and dominated by predatory platforms and
structured by tech-driven oligopolies, it's pretty clear that millions of them
- even given the lack of viable alternatives these days - wouldn't start down
the path. We're never going to convince them of the odds, and millions of new
businesses are still being launched every year, but the competitive environment
really has changed over the last decade. Going forward, the survivors are going
to have to use new more conservative strategies and adjust their expectations
as to what's a reasonable outcome for all the interested parties.0
Right now, I'm watching
new entrants, entrenched institutions, regulators and legislators, as well as
long-established managers, agents, and gatekeepers engaging in the NIL space
(name, image and likeness), which is all the rage in college sports. The battle
lines are being drawn in this emerging new area of competition, which
surprisingly has virtually nothing to do with A.I. or image recognition, annotation,
and interpretation. However, it's certain to be another toxic environment where
we'll see rampant dream snuffing, early entrepreneurs bigfooted and crushed by
the eventual entry of the big guys, and opportunities to make real economic and
equitable changes rapidly evaporated by the politicians and institutional
powers.
Not the most pleasant
prospects, but a clear and present warning to anyone looking into any
greenfield space, especially one that involves big money, college sports and
student athletes. I realize that the prospect of a novel market
segment free from the threats and promises of A.I. is almost inconceivable
right now, but you can rest easy. Because the NIL marketplace has everything to
do with the economics, players and livelihoods associated with millions of
names, images, and likenesses as well as the data and stats that swamp our
smart phones and clog our social media channels daily.
We've recently seen the
froth, frenzy, and failures in the world of legal cannabis cultivation, commercialization,
and consumption, and in online betting. There are certainly instructive
parallels in the broken hearts and dreams, wasted millions, hypocritical
politicians and lip service efforts toward equity and inclusion. Ultimately the
clean-up consolidations and rollups engineered by the usual suspects have
rapidly contracted and oligopolized those industries.
There's also a lot
to be learned from the abrupt surrender and sellout by the craven senior
management of the PGA Tour to the sports-washing Saudis in secretly signing the
LIV merger deal without bothering to share the critical terms or even to alert most
of their own board members to the pendency of the arrangement. In fact,
if you ask me, almost nothing beats the scummy way the PGA bosses left their
own players in the lurch after those guys acted honestly and with some dignity
while some of their peers and fellow players fell all over themselves chasing
the big bucks being thrown around by Saudi leader Muḥammad ibn Salmān and his
minions. Notwithstanding the many hypocritical early statements by the same
money-grubbing PGA slugs who wrapped themselves so piously in chauvinistic
pronouncements flavored with 9-11 trappings until the dollars got large enough,
they swiftly caved like the greedy phonies they've always been when the cash
register started ringing in earnest.
The message which every
startup builder and entrepreneur needs to hear and take to heart is that when
the elephants dance, the grass takes a beating. More simply stated, in
almost every instance where the big guys wake up and wade in, the little
guys lose. Sometimes it's just mountains of money; sometimes it's lobbied
legislation or new regulations that abruptly and unfairly tilt the playing
field; sometimes the nature of the emergent technology really dictates a
"winner take most" kind of outcome; and other times it can be quiet
collusion among the market leaders that skews the situation.
But to be sure, however
the game ends up and whatever the particular drivers turn out to be, it's
likely to be rigged and it's never gonna be bent in favor of the little guys,
whether they're new entrants, small players, customers or consumers. The
"house" always wins in the end, but the smart little guys can thrive
in the cracks and with the early crumbs if they're quick and clever. And that's
my main interest in the coming conflagration.
If you're intent on
entering one of these new marketplaces and you want to survive, here are five
critical rules to keep in mind.
(1) Stay
Simple
Launch with an MVP
(minimum viable product/application) as soon as possible and don't spend a lot
of energy enhancing or upgrading the offering. You won't have the time or
resources to educate and support your users -- rely on them to learn on their
own or from their peers. Simple is smart, swift, and viral. Complicated is
painfully slow and looks more like a chore than a challenge.
(2) Stay Low
There's no upside in the
short term to press, PR, conferences, or competitions. Noise attracts premature
and competitive interest, knockoffs, and rip-offs. If you've built something
that does a great job of getting a simple and important job done quickly and
well, the promotion, word of mouth and spread will take care of themselves. You
want to get broad (widely distributed and adopted), but not so big that you
become a target too soon.
(3) Stay
Focused
Do one thing really well
and avoid the temptation to grow and expand horizontally or vertically --
building new functions and app extensions simply adds costs and complexity. Not
every app needs email and only your engineers love bloat and feature creep -- your
customers don't really care.
(4) Stay
Small
Simple, smart offerings
don't need staff. They don't need support or middle management or extensive
infrastructure and overhead. The world now understands that the best businesses
are as virtual and hybrid as possible and are focused on access, convenience,
and utility rather than space, facilities and headcount.
(5) Stay Skinny
The name of the game is
getting in and out -- the design and the execution plan are all about creating
a valuable and attractive asset that can be economically acquired -- before you
find your business being crushed. You can't attract a buyer and make a reasonable
return for your team and your investors if you've raised and spent too much for
an acquirer to find your business attractive and accretive. Too much funding
can make you soft and lazy, not tough and to the point.
Bottom line: these
aren't guidelines to build a business intended to last a lifetime, mainly
because the current market conditions in almost every new industry are so
hostile to that prospect that it's not a realistic objective or plan. The
simple goal these days is to get in, get broad, and get out. Build to be
bought.