One of the early companies I founded was a wellness center. We offered a variety of mind, body and spirit holistic services. Balance is important, you know, and we sought to gently reinforce this principle.
The basics are important too, especially the simplest things like breathing, which we often forget to do consciously. But when we remember to take a deep breath and let it out, we start to regain our focus. Sounds silly maybe, but there’s an effective and important principle here that applies to entrepreneurship in general: sometimes we get so wrapped up in our vision, so singularly focused, that we lose sight of little things that dramatically effect the bigger picture.
I see this with entrepreneurs all the time. With that in mind, I think it’s a good idea to look again at some entrepreneurship basics. These are things that you probably already know intuitively. But I am convinced that it is helpful to consider them again from time to time, just as it is useful to remind yourself to breathe intentionally.
With that in mind, let’s review the building blocks that form the core of every company:
1. Revenue Model: As I mention in an upcoming guest post for BrainZooming, your revenue strategy is like the main ingredient for a recipe. You can’t go without it, or improvise. Personally, I work for more than the bottom line. And I encourage all companies to consider social impact and environmental responsibility as part of their core strategy. But the reality is that we can’t stay in business for long if we’re not profitable. It’s not ok just to build it in the hope that customers will come, unless you are just playing around with a concept and don’t feel attached to a successful outcome.
A clear revenue model is the first and most important thing your company has to consider before you begin producing, building, etc.
Let me also offer some advice specifically to web-based businesses: advertising is not a revenue strategy. It’s the cherry on top, an add-on, but not the main dish. The traditional and online advertising markets are so volatile that you can hardly expect to fund your company on ads alone (unless you are Google and own a virtual monopoly). If you simply must include advertising as a part of your revenue strategy, at least take time to understand contextualized ad delivery.
2. Differentiation Strategy: Without a unique value proposition you (or your business) will be a commodity. There’s nothing wrong with commodity businesses per se, if you want to run a high volume, low margin company. The main problem though, is that these kinds of businesses have a tremendously difficult time doing anything different once they get started:
• On one hand customers tend to buy based on price, so you are limited in how you can change your approach.
• On the other hand, even if you try to make yourself different (and it works) competition will jump in and
quickly dissolve the advantage you just discovered.
If you lack a differentiation strategy it is going to be extremely difficult to succeed. Many entrepreneurs understand this, but lose sight of the critical next step. Being differentiated up front is only part of the process. The truly essential and ongoing question is “How will your company maintain distinction after competition enters the market?”
This seemingly simple question brings us to a slightly more complicated idea: the organizational model (and corresponding culture) you create up front is more important to the overall success of your venture than the actual product or service you plan on introducing first. Very rarely does a company get a smash hit, cash out and retire. Most of us are in this for the long haul. And with few exceptions, the longer we are around the harder it is to remain differentiated. Competition is a fundamental reality of existence in capitalist society. Don’t ever lose site of this.
So what can you do then, to create a culture of differentiation? Build a business model that encourages it.
3. Put as much thought into your Organizational Design as you do for your product(s). Your corporate structure is the foundation on which the long-term success or failure of your company sits. You can have the best product in the world and fail miserably if you can’t figure out how to continuously leverage your competitive advantage, reinvent yourself when the market shifts, and seize new opportunities.
Here’s more context around the four traditional ways that we arrange our organizations:
A. Hierarchical (top down):
Think military. Everyone in the chain of command does what he or she is told to do, with no exceptions. Many institutions (financial services companies in particular) still work this way.
B. Cross-functional:
An attempt is made to encourage inter-departmental collaboration, but political realities and
self-motivations keep things from working the way we’d like them to. A lot of technology companies
operate this way. Virtually any company with separate sales and marketing teams will experience the
limitations of this model.
C. Spin-off:
When a company develops something so unique that they require a separate culture to build, sell and
service the new idea, they often place the idea into a new division and send it packing. Or more to the
point, they often sell off the division as a distinct entity, pocket the profit and move on. 3Com’s
divestiture of Palm computing is a good example of this.
D. Ambidextrous organizations:
Some companies innovate with intention, only to realize that their new ideas are constrained politically,
physically, logistically or philosophically by the parent organization. In these cases they encourage a new
division to emerge. This can look like a spin-off, but there is a major difference; executives from both the parent company and the new ambidextrous organization remain financially and politically co-dependent.
This encourages, in effect, a ‘cooperative one-way street’: the new organization is able to ‘borrow’
intellectual property and other important resources from the parent company, while maintaining the
autonomy required to choose their own location, staff, culture, etc. It’s about acceleration. By taking the
‘good old stuff’ and leaving behind the ‘bad old stuff’ the new entity emerges more quickly and
successfully. IBM did this several times as they transitioned from Mainframe to micro computing, again
from micro computing to desktop computing, and also with service and software businesses.
Recently, the CEO of a Social Analytics company I have been consulting with mentioned a side project his team has been working on. Perhaps expecting to be criticized for that, he preemptively told me that he knew they should be exclusively focused on ensuring the progression of their core platform. I respectfully disagreed, explained how his sounds like an ambidextrous approach, and asserted that they should keep doing this kind of thing so long as it fits within their scope of Information Strategy. If an idea comes along that falls outside of their focus then they will need to determine whether it really should be a spin-off, with its own dedicated corporate structure.
4. Research the market: if you can’t clearly articulate your target audience, define their wants and needs, and show data that supports your plan to reach them then you haven’t done enough homework. Few businesses really understand how market research works and why it is mandatory. Ironically, in the small business world we tend to think we ‘can’t afford’ to do market research. Consequently, we make huge missteps when it comes to:
• Organizing user groups
• Creating communities
• Evaluating our packaging and other messaging
• Pricing correctly
• Determining usability
In these areas a little work goes a long way. Can you afford to launch a business that fails? If not, then you probably shouldn’t be an entrepreneur in the first place. That may sound harsh, but it’s a fact that many people miss. And even if you can afford to fail, why wouldn’t you want to improve your likelihood of success? In our hyper-competitive markets, knowledge is power. Confidently knowing exactly what your audience wants, why they want it, how they will use your product or service and what could keep them from using your product/service will keep you from making large mistakes early on.
Bottom line: if you are going to start a new business and don’t hire out for market research be sure to run extremely lean; little overhead, few employees, no manufacturing or investments of any kind. Any money that you spend beyond the bare-bones infrastructure of your time and some web hosting can quickly disappear.
