Nesheim Online

FOCUS AND FLANKING INTO UNCONTESTED MARKETS FOR STARTUPS: A winning combination

Startups often attempt to attack the market leader by launching products/services with superior features.

Most startups die when the leader responds with a similar or better feature. The Defensive strategy crushes the Offensive strategy.

Serial entrepreneurs instead use the Flanking strategy and win. It is focused on an uncontested market segment, one not yet dominated by another company. There may be several competitors in the space, but non have yet been "first to get it right". That is the opening for a clever startup.

Today I spotted a good example in Foodily. Reporters' responses in USA Today and TechCrunch reveal a stealth startup that is launching with a clear focus, flanking into uncontested territory.

• FOCUS: on social interaction between people who enjoy food. Let's dub it "social food" for now. Bloggers will soon give it a moniker that will stick.
• FLANKING: into a fresh sector of the food space. Many startups are currently offering part of the food experience. But this new space (social food) has no leader, no dominant company, yet. The focus of Foodily draws a larger circle around the food space, adds value to its users and distinguishes itself from other food startups. Bloggers are already a-buzzing.

There are some great tips from this fascinating startup:

• Note how social networking has been integrated as a tool (not a business). It is to be exploited on behalf of Foodlily users. Their business is not social networking, rather, it is about a specific experience to be shared among a crisp category of people who enjoy food. Fortunately for the company's employees and investors, that is a huge number of people world-wide.
• The draw, or carrot, the "gotcha!" for Foodily user begins with a clever home page whose message is about finding recipes. Following the clicking trail leads to social networking moments that begin the process of sharing with friends. Thus the simple, focused start leads to the the extensive offerings of the comprehensive service that grows richer and richer in social food sharing.
• The core team consists of top class professionals who had worked together at Yahoo. That excites investors and candidates for employees of the startup. That is pure gold, hard to duplicate and ads power to the company's ability to execute swiftly with high efficiency.

BOTTOM LINE: Foodlily is a clear example of how to use Focus and Flanking. Those are key to startups looking to win. Attacking a market leader leads to carnage, blood all over the carpet. You can avoid the blood bath if you instead use Focus and Flanking. Serial entrepreneurs get it. You can to. Modify your bplan and launch with confidence. It's what builds unfair advantages. 

I wish you The Best on your Adventure!

2011 - VCS LOOKING FOR "BIG" AND "THRILLS": Founders must be prepared

Are you ready to go after "serious money from top VCs"? 

That's what I heard a serial entrepreneur say Tuesday evening. He knows what that means after doing an eight figure series of financings from blue chip VCs over the past three years. Now he is ready for his next startup. And he knows what he must do to prepare for raising the first multi-million dollar round from the best of the bunch. 

Do you?

The clues are everywhere, so don't miss them. I'll help you out by pointing to a couple:

Here is an example on the home page of VC firm Kleiner Perkins Kauflield and Byers  :

 

Here is an example from the home page of New Enterprise Associates:

DARE TO DREAM BIG

Here is an example from Sequoia Capital:

"Sequoia Capital in the U.S. caters to the founders and management who have selected us as their business partners. We have learned that the only way to help develop a fabulous company is one step at a time. This only happens if the company makes wonderful products or delivers a service that thrills large numbers of customers. If that occurs then founders, management, and employees of these companies prosper. It is only then that the investor deserves to be rewarded. It has to happen in that order. There are no shortcuts."

I think that says it all.

2011 is a year filled with VCs looking for "the next big thing that is thrilling to customers."

If you think you've got that, get ready for your pitch.

If not, head back to your pad and re-think your idea.

BOTTOM LINE: The pattern is set for raising serious money from top tier VCs in 2011. Your business must be working and it must be exciting to end users and customers and bloggers and employees. That's different than "I've got this great idea, let me have an hour of your time to present my 50 PowerPoint slides." When you understand that, you'll be far ahead of others competing for capital from the VC pool. Your competition will complain that you have an unfair advantage.

I wish you The Best on your Adventure!

2011 - LOOK FOR STARTUP IDEAS IN STRANGE PLACES: Be constantly vigilant, scanning for that thing that triggers your "Eureka!" moment

This year bloggers will get viral about exciting startups. They will comment on the new enterprises whose founders have cleverly figured out how to surf on the power of the coming tsunami.

As I wrote in 2011 - The Year of Startup Amazement, this giant wave of the second decade of this young century has huge potential. Observers think it could be larger than the Internet boom of the 1990s. There will be surprising new opportunities to use as the basis for your startup idea.

This phenomena demands thinking out of the ordinary. Seek your idea far beyond faster, better, cheaper. Be constantly vigilant, scanning for that thing you see or read that triggers your "Eureka!" moment. 

Today let me continue to offer you some fresh ways to stimulate your thinking in your search for a good startup idea. Here are some tips:

• Digital wallet business is a wave building pressure, waiting for a launch. Do you know what NFC stands for? Take a look, it might trigger an idea for you. If you know a bit about this opportunity, where can you go to learn more from the real world already doing it? Here's my question of the day for you: Which continent is most advanced in use of mobile phones for cash payments? Take a look at the next tip.
• Africa is now one of the world's fastest growing regions.Yes, it has been amazingly successful substituting payment by cell phone for risky cash payments. Africa's startup dawn is rising, opening doors for aggressive entrepreneurs. Did you know that six of the word's ten fastest-growing economies were in sub-Saharan Africa? Yes, Angola grew faster (11.1%) than China (10.5%) measured by annual average GDP during 2001-2010. Look at the rest of the countries on the list and see if that opens the door of your mind to a great startup idea. You'll be reading a lot more about startup successes in Africa during 2011. Even TechCrunch has spotted the potential of Africa.
• Indonesia's culture is spawning clever forms of social networking. Did you know Indonesia is the world's second-largest market for Facebook and the third-largest for Twitter? In this over-looked economy, entrepreneurs are building different business models that do unusual things with social networking. Everyone is getting creative trying to make money doing social networking in this conservative Muslim dominated country. Take a look and see what triggers your mind.
• What can you do for or to the 20-Somethings? About 37% of 18-to-29-year-olds are unemployed in the United States. It's worse in most other countries. Their education levels will surprise you as will their values and motivation. Could they be a source for an inspirational idea for your startup?

Those are a few of the mind-ticklers for today. Notice how different each is and yet how much potential each has for entrepreneurs. First to figure it out will get it right and presto, out pops your startup idea.

BOTTOM LINE: Look in strange places for startup ideas. Stay acutely curious about what you see and hear. Let the unusual trigger your thinking. Then apply that to what your first startup idea. Perhaps you modify it. Maybe you abandon it because you just spotted your "Eureka!" moment, that way cool idea for your amazing startup. Finding startup inspiration in strange places can start you on the path to converting your idea into an exciting business with an unfair competitive advantage. The year 2011 will sprout many of them. One could be yours.

I wish you The Best on your Adventure!

2011 - FRESH STARTUP BUSINESS MODELS RISING: Innovative founders change the rules of the game to win

The new year is emerging with fresh business models popping up like mushrooms in the rain (sorry Australia).

A business model is how you make money. It is like an engine, with inter-working parts that contribute to how the startup books revenue and spends money, emerging with a fat, rapidly growing profit. 

Startup founders riding new market waves have become gorillas by creating fresh business models.

The world learned about a fresh business model when Google search services were given to users at no charge so the startup could make money via payment for targeted advertising. In its day it was a radical departure from "how things are done."

As a consequence, the printed media, especially newspapers, have suffered ever since. Internet users became accustomed to "free" access to all content and personal classified advertising.

But recently innovative newspapers in the United Kingdom have created fresh business models that are generating both fresh revenue and fresh readers. If embattled, centuries old companies can do it, so can startups.

Groupon is a good example of a recent business model innovation that has propelled the hot startup to revenues estimated at over $500 million for 2010 (in less than two years since its founding). 

The "cleverness" of a fresh business model is compelling to key startup stakeholders: employees, investors and bloggers. End users "get it" and so do customers (retailers offering the "deal of the day"). And Yahoo and Google got it, offering $ billions for the startup (but they were turned down).  Together it all adds up to a clever business model that brings exciting value to all the participants.

As I read daily about new startups on TechCrunch and VentureBeat, I am impressed at how innovative many of the business models are. That sprouting of fields full of such innovation signals to me that there are a lot of very different startups launched, each adding momentum to the current rising waves that I've been talking about this month. The subsequent tsunami is looking more and more likely.

So give your startup idea some fresh air. Rethink its business model. 2011 is already competitive for startups seeking gorilla power in new markets. Trying to compete with yesterday's business model is both old fashioned and a drag on your competitive abilities.

BOTTOM LINE: The fresh waves of startup opportunities rising in 2011 call for fresh business models. Bold innovation is required. This is no time for careful caution. I don't mean be reckless, rather, use your good mind to think out of the box and come up with a significantly better business model. One that adds a lot of value added to each of the components that contribute to making your engine generate money for you. So be bold, go for the gold. It's central to building your unfair competitive advantage.

I wish you The Best on your Adventure! 

2011 - WILL WE SEE A NEW TSUNAMI FORMING? Surprising startup opportunities

Are we in the early stages of a new tsunami forming? The kind of confluence that brings together multiple forces that combine into an amazing, swift rise in startup successes?

I think so.

So do others. Here is a must-read for you from author and thinking protagonist, Andy Kessler. He has seen what others have missed: surprising forces are directing our industries and pushing our economies. Would you believe that digital game technologies are the force he is talking about?

Startup entrepreneurs are like that: they spot opportunities that others do not. When the fog covers the opportunities for most people, the startup person sees the opportunity in spite of the fog.

That is one of the first requirements for a tsunami to form: fresh, surprising ideas pop up. Those are the ones that you did not even think about. You can see and read about a lot of them during the current Consumer Electronics Show and in the blogs that react to what reporters have seen recently.

Another requirement is the increasing success of companies in related new technologies. Obvious are the convergence and overlap of smart phones, tablets, wireless, and apps. Then add television over the Internet. And 4G mobile phone networks. And cloud computing. Now you can see a pattern forming. And there are several more.

And of course we have to see the rise of startup valuations to unthinkable size. Think Facebook at $50 billion. That is followed closely by venture investors complaining that the game has switched from VCs setting prices to VCs begging in on the hot startup ideas running around Silicon Valley looking for investors that the founder likes. Such is the state of the money market for seed and first round capital today.

What does this mean for you, the budding entrepreneur? Simple: no excuses, the time is now for you to find an idea to pursue.

It also means established corporations will be on the hunt to buy startups with exciting technologies, before they get too expensive. You can expect to see a lot of quick sales by a lot of startups during the formative stage of a rising tsunami. And as I blogged about last January 4, the IPO market for venture backed startups is returning.

And you will be able to get more favorable terms from investors. Yes it will still be hard work, but it will be easier than in the tough 2008-2009 tough days.

BOTTOM LINE: The signs are clear that a preliminary new tsunami is forming. The signs are there. They point to fresh opportunities in the fog, opportunities you can take advantage of, see before others do. Pick one, prepare it and go for it. Surf the rising wave. Use its energies to propel you to success. Understanding this is fundamental to building an unfair advantage. You can do it.

I wish you The Best on your Adventure!

2011 - THE YEAR OF STARTUP AMAZEMENT: Entrepreneurs will surf new waves and do amazing things

As I review r2010 and examine the buzz about the coming Consumer Electronics Show, I forsee a very optimistic 2011 for entrepreneurs like you.

There is a battle of elephants going on in the media war, massive shifts of computing into the cloud, tablet and smartphone markets are mushrooming, and global issues of security are stimulating creativity. Those are just a few of the massive waves for entrepreneurs to surf. And that does not even consider the amazing creations emerging in life sciences, energy and agriculture.

Each of those waves is so huge that there is room for many startups to ride each to greatness.

Such a confluence of waves builds the next tsunami.

Experienced investors have cash to invest. A few have even raised fresh funds during the past two years of business recession and psychological depression. Other investors still have cash standing ready to invest. And angels are increasingly organized with money looking for seed rounds. Emerging countries have established pools of capital looking for startups. We now are operating in a highly competitive global money market for new enterprise investing.

And the IPO market is returning to health, promising long overdue exits for tired (and in some cases desperate) investors. Such liquidity events will be quickly followed by investors raising fresh capital which will be looking eagerly for startups surfing the new waves. A few are already filed with the SEC, others are ready. A trickle is ready to start a river and further feed the implied tsunami.

Giant private startups such as Facebook and Twitter will increasingly face the 500 stock ownership limit that triggers mandatory SEC filing of a stock offering. That in effect forces an IPO. It happened finally to Microsoft decades ago. Others will follow. Those are liquidity and valuation events so huge that they add fuel to the rising tsunami.

How can a budding entrepreneur best take advantage of such favorable conditions? Here are a few of the classic tips from years of observing the waves form and rise:

• Founders with an idea will be expected to quickly advance it to the proof of concept stage. That may be a working prototype or a letter of intent from a giant corporate buyer. Whatever it is, it is not just an idea in your head described in a few PowerPoint slides. This implies that you'll need to find some way of financing that work. It is now considered pre-seed and required.
• Getting commitments from top talented people to join you will be increasingly difficult. The good people are already in high demand. Talent wars between Facebook and Google and all the rest are now notorious. Established public corporations will not lose vice presidents without a strong fight. And the global talent pool is so mobile ("Have passport, cell phone, laptop, will travel") that the good people are as likely to find a chance at greatness in Shanghai or Santiago, or anywhere else on this planet. Even Africa has heated up for startups recently. Your skills in forming your core team and recruiting the rest of your employees will be central to your success.
• There is no shortage of startup money, but there is a shortage of startups worth financing. That means you have to have the ingredients for building an unfair advantage. I've blogged and published on that many times. It is still central to all investors who have succeeded backing startups.

All of this assumes the world does not suddenly spin into cataclysmic disaster, political, nuclear or whatever. I end each day amazed that we are still hanging on to a world eagerly engaged in "the pursuit of happiness". Entrepreneurs contribute a huge amount to that worthy human endeavor. 

BOTTOM LINE: I open my 2011 year with refreshed optimism. Countless waves of opportunity are rising. Each has room for you to pick an idea and pursue it. Give careful attention to whom you choose to embark with on your adventure. They will be instrumental in helping you attract the people and investors you need to get going. They are central to building your unfair advantage.

I wish you The Best on your Adventure!

 

STARTUPS WIN THAT THINK BIG, LOSE WHEN THINKING IS SMALL

"But shouldn't we start small and gradually get larger?" asked the entrepreneur?

I had just finished presenting her the pattern of success of by-now famous startups: they had founders who focused on solving BIG problems.

Yes, even Facebook's founder saw the dawn one morning: there was a much larger opportunity in large scale, world-wide social networking than posting faces of attractive girls for college-age guys to post on-line comical remarks about.

Seeing the big problem (giant business opportunity) may not be immediate. An original idea is most likely far from the big thing. But it is a starting point. Like Facebook, you can start thinking with what you have and begin to change it, progressing from the small starting point idea to finally seeing a very big related problem to solve.

Other startup founders start at the top. They begin to think about huge problems such as hunger, disease, aging populations and security. Then starts the process of narrowing down and sharpening the focus. For instance, aging population problems lead one group to see how large numbers of adult children want to be in easy frequent contact with aging parents in other cities to be confident the parents are safe and secure. That led to the invention of a service to monitor the life signs of the elderly via a system of software, hardware and telecommunications that included clever sensors, GPS, Internet, wireless and mobile phone connections. The size of addressable market was very large and global.

The top venture firms are looking to invest minimums of $3 to $5 million per round, planning on totaling around $30 million or more. That calls for very large ideas.

You may have an idea that calls for half that amount of capital. Then you'll have to seek funding from the smaller venture firms or angels. Match the size of your idea to the size of the venture firm's capital at work.

BOTTOM LINE: Large problems lead to large markets big enough for a lot of competitors as well as your new enterprise. Each can focus on different segments and still be large successes. Investors have been more successful starting large and working down than starting small and hoping to find the small market growing very large very fast. So give your idea some additional thought: how could it become ten times larger? That may give you enough creative push to find a next higher level of problem to solve and thus boost the size of your new enterprise. The size of your thinking will attract the size of investor you need. That's how it's done. Knowing that, put it to work as you work on assembling your unfair advantage.

I wish you The Best on your Adventure!

STARTUPS EXPLOIT BATTLES OF GIANTS: Look for openings to exploit before others do

Today's mega-bold launch of Google TV confirms a new chapter in the battle we all knew was underway between two giants. Both Apple and Google will do well, regardless of what the bloggers rant and rave about. Consumers will benefit from the increasing competition and the markets that pop up will be large and fast to grow, spawing great new enterprises.

Your startup could exploit this fray.

Great startups want lots of fog, dust clouds blinding people, confusion and buzzing everywhere. In that disarray lie many amazing opportunities for great startups. It is where you want to be.

Waiting for confirmation of the new spaces will be too late.  Investors are already looking for fresh ideas in this battleground. Yours could be one of them.

For example, we've seen amazing startups emerge from the dust clouds of giants battling to be microprocessor gorilla (spawned an entire paradigm shift: the personal computer). Giants doing operating system battles spawned Lynux and many related new enterprises. The list of similar phenomena is very long.

Such battles generate opportunities so large that the new space quickly divides into splinters, each of which grows rapidly into large market segments. You want to be leader of one of them. That propels you to gorilla domination.

Think of the amazing applications and casual games and services businesses that exploded after the arrival of the iPhone. Today's battle will spawn even greater startups.

Today's new wave is about the television sets that can connect wirelessly with the Internet ("smart TVs, Internet TVs, connected TVs, whatever you want to name them).

It is about the battle for a better user television experience and what can be better than the current expensive couch potato cable experience.

It includes all the implications for fresh business models with vast streams of revenue shared between strategic partners.

The service ideas are in themselves mind boggling. So are the hardware opportunities (and all the internal components). And on and on.

Most of all, this is about "first to get it right" for one of the many new categories in a giant paradigm shift. Your company could be one of them.

BOTTOM LINE: When giants go to battle, smart startups are attracted to the fray and find many opportunities to exploit. Your job is to spot a new category and quickly get started on entering it. That swift moving gives you a chance to be first to get it right. Meanwhile the giants will continue their battle. Your opportunity will continue. If you figure out how to convert your idea into a competitive advantage that competitors consider unfair, you'll become the gorilla of the new category. I'm cheering for you.

I wish you The Best on your Adventure!

STARTUPS ARE MORE THAN A PRODUCT: Entrepreneurs build power with several pieces

Since yesterday's discussion, here is another example of how to build an enduring business with more than a product. It is from Jim Cramer's Mad Money the evening of January 11.

Note the elements that the CEO Tullman has added to what his company is offering (more than a product):

Tullman said Allscripts is making it easy for doctors by making their software easier to install, guaranteeing it meets all federal guidelines, and offering flexible payment terms.

Read that closely and you'll see there are three big pieces of additional things for customers, much more than just a product.

Here are more:

Tullman also noted that his company has great partners, with hospitals and larger providers referring their affiliated doctors to the company. He said the company's true promise of connecting disparate systems so that patients can avoid filling out forms with the same information over and over again will come to fruition as momentum grows.

These contain even more elements that create more power for the company.

Building with elements is how you construct an unfair competitive advantage.

BOTTOM LINE: Serial entrepreneurs build power using pieces. They sell more than a product. That is how they become successful. So can you. Think about what you are trying to sell today. Then think about what you could add so customers see more value in what you are offering. Your goal is to get them to stop at your lemonade stand (and not your competitor's). That's how you convert an idea into a world-class new enterprise.

I wish you The Best on your Adventure!

SERVICE -- NOT FEATURES -- IS POWER FOR STARTUPS: That is central to attracting the millions

Got an idea for a startup? That's easy.

Got a way to convert that to a hot product? That's hard.

What's a good solution? Try focusing on service.

Some call it "user experience" while other dub it "value added". Whatever you call it, this is what can move you from just another supplier to an amazing standout.

This blog by Seth Godin makes the point with a simple example.

Did you get the point?

Try this example: Build a hardward gadget to store and play back digital music. Creative did it (Rio) and was first to market. Years later along comes Apple with the iPod (and all the service that comes with it). Know anyone using a Rio? Now I think you get it.

I've seen a vast range of startups using service to become gorillas. Decades ago I watched Applied Materials emerge as the semiconductor equipment gorilla by focusing on delivering outstanding service around the world (instead of focusing on the complex technology). Today you can experience user experience/service you get when you enter a Whole Foods store. Both companies were startups of new waves in new markets. Both became gorillas of their new categories. By focusing on customer experience.

Search/social consumer web businesses are ripe for using user experience/service to build an outstanding business. So are game businesses (most of which desperately run scared hoping to find a new game to launch before users become bored with their last one). From Shanghai to San Palo to San Francisco the opportunities are wide open to build enduring greatness by focusing on end user experience/service in the fresh markets popping up day after day.

BOTTOM LINE: Are you stuck with an ordinary business idea for your startup? Are you focused on building "the killer app?" Try not doing those, instead try creating a fresh enterprise based on supplying end users with an experience they will call "Amazing!" "Like no other!" That will be very hard to duplicate. Much harder than duplicating your technology. Look at Facebook -- the technology is naive -- but the user experience is very hard to duplicate. When you can do that, you'll be able to build a competitive advantage so strong your competitors will complain it is unfair.

I wish you The Best on your Adventure!