Dave Concannon

There are two main schools of advice I’ve come across when trying to position a product:

Pick a Fight

In Rework, 37signals advise setting yourself up as the antithesis to the dominant market player:

If you think a competitor sucks, say so. When you do that, you’ll find that others who agree with you will rally to your side.

or:

Ignore Them

Cal Newport describes this second theory as the “Steve Martin” approach:

Be so good they can’t ignore you.

Are both right? Can you do both at the same time?

Dell

Michael Dell is a very innovative guy, but what really struck me about his book “Direct from Dell” was that he never mentioned a single competitor by name in the entire book . He made vague allusions to ‘other players in the market’ or simply referenced them as ‘competitors’.  In the way back when,  I was supervising two teams technical support operatives in Gateway and I was interested to hear what Dell had to say about us (we were their main competition at the time). Nada! Zip! He was too busy keeping his customers happy.

The alternative example – I can think of two Irish web hosting companies that always seem to be at each others throats over something or other. As a result, my impression of both is negative – I don’t want to use either of them.

If You Had to Pick One Option?

Spend your time making your customer happy instead of trying to make your competitors mad. Create something that makes their lives easier and then follow it up with great service.

There is a fantastic samurai maxim from the Hagakure:

A samurai will use a toothpick even though he has not eaten. Inside the skin of a dog, outside the hide of a tiger.

This applies as well to startups as it does to personal development.  There’s a lot of sacrifices needed when bootstrapping, and then you need to put on a confident face as you try to sell a half-implemented idea or pitch to investors. You might be as hungry as a mangy dog, but outside you need to project the appearance of a tiger.

Confidence

Confidence goes a long way. All the raw talent in the world isn’t going to carry you very far if you’re so humble or shy and it comes across as uncertainty. A lot of technical people consider Marketing ‘evil’, yet a little dab of it applied to their own careers might do them the world of good. You need to push your ideas past your immediate circle and it’s not going to happen by itself. The Million-Dollar homepage didn’t just ‘go viral’, Alex Tew relentlessly pestered everyone he came into contact with to spread the word.

The Flipside of the Coin

There are two cases which are contraindicated. Firstly, from the lips of Lady MacBeth:

Look like the innocent flower, but be the serpent under ‘t.

Nobody likes a manipulator. Confidence is one thing, but duplicity is a totally different story. It might work in the short-term, but over the long game integrity wins. Mark Suster touches upon a similar subject in his latest article on ‘Grin F***ing‘.

The Smartest Person in the Room Syndrome

This is something I’ve definitely been guilty of in the past (but hopefully not recently). As generalizations go geeks tend to be smart, and are paid to critically analyze things. This well-written blog post has a good explanation of why this isn’t usually a bad thing, but the ‘Smartest Person in the Room Syndrome’ is that critical analysis applied in less acceptable ways.

The smartest person in the room has to be correct in everything that they say, and usually for that to happen everyone else needs to be wrong. This can be from as simple a level of ‘rightness’ as shoe-horning an unnecessary degree of detail into a conversation,  blatantly contradicting someone who’s either making a joke or speaking hypothetically, right through to loudly shouting down any contradictory opinions. It could be some sort of insecurity that needs  constantly validation through one-upmanship, or just a lack of awareness of how it comes across.  Be confident, but don’t be that guy.

This great article by Sachin Rekhi got me thinking. Sachin broadly divides entrepreneurial tactics between those that are trying to create “Fundamental” value:

An entrepreneur that focuses on building fundamental value is optimizing for creating a standalone business that generates meaningful cash flow and profit as an independent entity.

and those that are going for “Strategic” value:

An entrepreneur optimizing for strategic value is one that is building their organization in such a way to maximize potential value to a larger organization that will ultimately benefit from an acquisition.

The argument is that in order to create Strategic value, you may need to sacrifice profitability for several years while you grow your user base, capture advantage with industry partnerships or create some hard-to-replicate value.  Those companies looking to acquire the business will need some essential market position or value-add that it would be impractical to try to create themselves.

Mint’s Fundamental Value

For a company such as Mint.com we have an example of a business that was creating fundamental value with a product that gave users insights into their finance while earning the company immediate revenue via affiliate sales deals. This was a profitable business that could quite happily have continued under it’s own steam before it was bought by Inuit. It’s quite probable that the founders thought of Inuit as a potential acquirer, but wisely stuck to their original plan to create fundamental value (and revenue along with it).  Despite some industry whinging, it seems to me that it was a good opportunity for the founders to get a return on their hard work.

Why take VC money?

While 37Signals seem to dismiss the entire concept of raising VC money on principle alone, I’m going to play devil’s advocate. The obvious addition of a good chunk of cash to act as a runway can’t hurt.  To build up the basis of a strategic value company may take years to create a platform, collect data, or build up a critical mass of users.  A venture capitalist may carry the sort of clout that legitimizes your company in the marketplace.  A well-chosen VC can also have the sort of contacts that is worth far more than the cash they invest, opening doors in your industry that might be completely inaccessible otherwise. Coincidentally as I finish writing this, Dave McClure announced that he’s part of a panel on this very topic at SxSW.

Amazon

According to this article from August 2000, Amazon had at least $530 million invested in it. In order to create the strategic value that currently dominates online retailing they burned through huge amounts of capital to build distribution systems, expensive scalable online platforms, huge amounts of content and data entry etc. It seems to be a far riskier play, but if you pick the market, get the formula right, and have a little luck you can fundamentally change how people interact. I can’t envisage a way that Amazon could have done it differently.

Why run away from VC money?

While all clichés may not be true, they surely have some grain of truth in them. The stereotype that a VC will boot out the founders if things don’t go to plan certainly doesn’t happen all the time, but the story doesn’t come from nowhere. The main anti-VC argument that 37signals seem to have is that if you have more money then you’re inclined to spend it less wisely – this is probably valid from simple economics alone. The discipline to ensure the money is used on the important things (or that your VC will be prepared to keep the cash coming) may be the key for companies aiming to create Strategic value.

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