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BECOMING A STARTUP GORILLA: What, Why, Who, How (3 of 4)

Google, Baidu, Netease, Cisco, are in different countries, compete in different market categories and are lead by different styles of management.

But all of them have one thing in common: they are startups that became gorillas of a new market category.

Now they are brands respected around the globe, public corporations profitable and growing.

That is your objective as a startup: to become the gorilla of a new category.

In this series I'll explore what a startup gorilla is, why it is important to become one, who does that and how it is done.

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Who should focus on becoming a gorilla?

Answer: Not every startup.

For example, today I met a very talented medical professional. His idea for a business is not yet ready for working on a plan to become a gorilla. Instead, he needs to go through the "proof of concept" phase next. That will reveal the potential of his idea. If it is large enough, then he can do the hard work of preparing a plan to become a gorilla of a new space.

Also, don't aim at becoming a gorilla of a market already dominated by a gorilla. He will crush you. Beware of dreaming your technology will overcome the gorilla (that has inferior technology). And don't expect your "quicker, faster, cheaper, better" to leapfrog the gorilla. Instead, find a different market segment to focus on, use a flanking strategy to avoid confronting the powerful gorilla.

And, if you insist on "this is my company" as your rock solid position, then you should instead focus on becoming a big fish in a small pond. Soleproprietorships are made of that. There is nothing wrong with such a lifestyle, but do avoid dreaming you'll become the next Dolby Labs within five or ten years. It took him a lifetime to get there and most die trying.

Who should focus on becoming a gorilla?

Answer: Everyone else (than the above).

Why? Here is what I suggest you consider:

• Gorillas win. They end up on the top of the mountain, victory cup in hand. They are branded as the winner of the new space (category). That not only feels good, it also is worth a lot of money. Customers win as they benefit from the value your product/service has brought them. Employees win as they bath in the glory and wealth of having build a portion of the gorilla everyone is raving about. And so on goes the list of people who love it when thestartup wins by becoming the gorilla.
• Only a few will survive. The race is to win. There is room for only three on the awards platform at the end of the race: one gorilla and two chimpanzees.Either you enter to try to become the gorilla, or just be a spectator. Joggers will get trampled by the herd stampeding to become the gorilla.
• Investors run to potential gorillas (and ignore the rest). The investing world is intense, highly competitive and very risky. Experienced venture capitalists have learned (the hard way) that their money is best spent investing in people who have the idea and talent to convert those resources into a huge winner. That is why it is so important to dream large from Day One. Without the big dream you'll not get the attention of the quality investors you need to win.
• There is no other race. There is no money for people who say to investors and employees and the media "We plan on selling to a rich corporation in three years." That is like telling the Olympics coach you are trying out to win the silver or bronze medal. If you don't set your sights high enough, you'll not even have a chance to win as a chimpanzee. No one remembers who won the silver, they just recall who lost the gold. You have to instead go for the gold from Day One.

BOTTOM LINE: Gorillas win big. They run the race for the gold. Most startups must do the same. The alternatives are not going to attract the people and money you need to succeed. Some ideas are not ready for prime time yet. They need work, proof of concept, before a believable plan can be created to convert the idea into a gorilla. When you figure that out, you'll understand how it feels to have an unfair competitive advantage. It will be worth you hard work.

BECOMING A STARTUP GORILLA: What, Why, Who, How (2 of 4)

Google, Baidu, Netease, Cisco, are in different countries, compete in different market categories and are lead by different styles of management.

But all of them have one thing in common: they are startups that became gorillas of a new market category.

Now they are brands respected around the globe, public corporations profitable and growing.

That is your objective as a startup: to become the gorilla of a new category.

In this series I'll explore what a startup gorilla is, why it is important to become one, who does that and how it is done.

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Why should a startup focus on becoming a gorilla?

Simple: because then your startup has the greatest chance of emerging from the highly competitive fray with the most value, most success, most to share with investors, employees, media, customers and suppliers.

Here is what I mean:

• Do or die. If you do not succeed to become the gorilla of a new market category (microprocessors/Intel, routers/Cisco, China search/Baidu), then you are in great danger of going out of business (sold for a low value to another company, so low that your share of the wealth is zero). In fact, only three of the competitors in a new category emerge with enough wealth to make you, the founder, wealthy. Those three are the gorilla and two chimpanzees. All the rest of the startups are sold (mostly in pieces) to a late-arriving corporation who pays very little for the startup (in pieces). That is what investors and founders mean when they politely say "We sold the company to XYZ Inc. last year."
• Attract the top talent. Do you remember when Google was preparing to go IPO? Want-to-be employees were camping out in the company parking lot trying to get an interview. Resumes were crashing the Google email server. Bloggers could not say enough about Google's future. Stories were published about the company in newspapers and magazines around the world. Television reporters showed up to interview the company. The buzz attracted the best of the bunch: "I gott'a work for them!"
• Attract the top investors. When startup Cisco began to take the lead in routers, leaving competitors behind, top tier venture capital firms pounded on the doors of seed round investor Sequoia Capital. They wanted in, right then, at whatever price. And so it goes for other startups who "get on a roll" as excellent execution of the plan to become a gorilla begins to accelerate. EXAMPLE: Twitter recently completed a secondary round of venture capital financing that attracted many top tier investors even though the startup has yet to demonstrate its business model can be profitable.
• Generate the most buzz. Readers like to read about the extremes: the amazing winners or amazing losers. No reporter finds a readership interested in the in-between startups. You want to be in the gorilla race and be covered by eager bloggers, Twitterers and other media. You don't want to be described as the also-ran competitor (don't worry, you will not be, the reporters won't bother with that story). Either you are either Lance Armstrong (cycling king) or a couple of his close competitors, or you do not even get mentioned in the stories.
• Get the big customers. CEOs of large companies prefer to pick the startup gorilla over the (often better technology/service/product) competitors. This is a risk reducer for the customer. Your gorilla status will attract continuing financing, top talented employees and market share dominance. What else would a wise CEO customer want? In other words, once you move into the position of gorilla of a new category, use it aggressively to increase your share of market (at the sacrifice of your competitors). That is when you begin to accelerate and your sales begin climbing more and more rapidly, day after day.
• Lock in the great strategic partnerships. Your strong position as gorilla makes it much easier to sign the deals with the partners you need to further strengthen your emerging dominance. Suppliers will start seeking you and offer preferred terms. Distribution channels will open up in markets around the world where shelf/web space was blocking you. Your emails and phone calls will be answered by the finest giant corporations. As you issue the press announcement of each signing, your competition will feel more and more demoralized.
• Grow your market share. This is the big one: you begin to sense the market is hot, your company is leading, everything is going your way. Sales are shifting from small to medium size, the rate of climb is accelerating. Your simple data tells you that you are taking a greater and greater percentage share of market. You see your competitors trying to copy you, trying desperately to keep up with your success.

BOTTOM LINE: Aim to become the gorilla of a new space. That is the purpose of your startup. As you set out to achieve that, you'll find a trail of events more and more favorable to you. Each will add to your pattern of emerging as the dominant company, the gorilla, of this new space. The acceleration will leave your competitors behind. They will increasingly be demoralized. And so on it will go. By that time you'll appreciate the importance of how you got there: by building an unfair competitive advantage.

BECOMING A STARTUP GORILLA: What, Why, Who, How (1 of 4)

Google, Baidu, Netease, Cisco, are in different countries, compete in different market categories and are lead by different styles of management.

But all of them have one thing in common: they are startups that became gorillas of a new market category.

Now they are brands respected around the globe, public corporations profitable and growing.

That is your objective as a startup: to become the gorilla of a new category.

In this series I'll explore what a startup gorilla is, why it is important to become one, who does that and how it is done.

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A startup begins as a fledgling, a weak infant daily in danger of dying, but with hope of growing up to become strong and emerge as a great enterprise.

Greatness arrives when the world respects what the infant startup has grown into.

That greatness is measured in the following ways:

• Dominates a new category. The startup enters a highly competitive turmoil of competing enterprises, mostly private startups, some giant corporations. It emerges from the fray as more than the leader. It triumphs as the dominant company in the new category. EXAMPLE: Google in Internet search.
• Number one with share of market 30% or more. The competitive battle for a share of a new market category (e.g. mobile phones) ends up with the same mix: One gorilla (with around 30% SOM), two chimpanzees (with half that share each, 15% plus or minus) and then a dozen starving monkeys (with small single digit percentage SOM). EXAMPLE: Nokia (35%), Samsung (16%), Motorola (11%) and the rest each with 3-6% each.
• Gorillas dominate even though others can lead for a time. Today a good example is HP leading Dell in personal computers. Or Facebook (unprofitable) is overtaking MySpace (profitable) in number of end users. The gorillas continue to dominate but the by-now-large-growing market is bending in the direction the leader is going. The gorilla simply does a me-too copy-cat strategy, mimicking the clever moves of the leader, staying not far behind the changes of the leader. Thus the gorilla remains the leader.
• Customers see the brand of the gorilla as best choice, as number one. Customers accept the gorilla's brand by acknowledging that it is largest in the new category and thus is the best default choice. The competing chimpanzees have to offer something significantly different and of significantly greater value in order to get customers to switch from purchasing what the gorilla offers. EXAMPLE: Apple's iPhone.

BOTTOM LINE: The dream of a startup is to become the gorilla of a new market category. Fulfilling that objective adds up to a billion dollar IPO. It is what eagerly attracts investors, employees and the media. Studying how to get there is well worth the pain and time. Like anything worth doing, it is not easy to figure out. And when you do, you still have to do it ("executing your plan"). That also is hard to do. But if you prepare to become a startup gorilla, you'll be starting off on the right foot. You'll be able to focus your tiny amount of resources on a new category with the right objective. That wisdom of yours will prepare you to build a competitive advantage so powerful that it becomes unfair (ask your competition) and propels you to become the gorilla of the new category.

NEVER FEAR GIANTS: Startups are the winners

Look at how hard giant companies struggle to succeed. The article summarized below shows the pain and difficulty confronting giant multi-nationals as they try to move mountains in pursuit of growth in a world that is changing so fast they cannot keep up.

That is why you startup leaders should be encouraged: in fresh markets, startups always win. I hope it will be yours.

The corollary: "Never fear giants -- always run scared of other new enterprises (especially stealth startups)."

BOTTOM LINE: Learn this lesson and it will direct your thinking about how to craft your unfair competitive advantage.

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Article at a glance:

Innovative management: A conversation with Gary Hamel and Lowell Bryan

• In this conversation, management guru Gary Hamel and McKinsey’s Lowell Bryan discuss the need for companies to innovate management practices to better cope with and thrive in a business landscape marked by fundamental technological change and globalization.
• The conversation builds upon the work that Hamel and Bryan explored in recently published books, Hamel’s The Future of Management, and Bryan’s Mobilizing Minds, which he coauthored with McKinsey partner Claudia Joyce.
• The authors discuss how traditional management models do not enable businesses to adequately respond to today’s competitive forces. In a new environment that places a premium on collaboration and talent, they view old organizational structures as impediments to innovation and creative strategy.
• Hamel and Bryan explore the need for executives to balance revolutionary management thinking with practical experimentation to find new, innovative management models.

LEADER OR LARGEST? Decide and go for one

This is in response to email discussions over recent days. It is about the issue "What should we focus our startup on: being the leader or the largest?"

Central to confounding you is the reality that the gorilla company, the one that emerges from a marketing war over a new space, is indeed the company with the largest sales. However, the leader in emerging, immature markets is typically a later arrival and not the largest in sales at that moment in time.

For instance, Limelight is poised to go public this week. It competes against giant Akamai. This is the opening sentence to the Limelight prospectus: "Limelight Networks is a leading provider of high-performance content delivery network services." Akamai is much larger, about ten times greater sales and already public. It is a giant by comparison and a competitor of supreme strength. But Limelight is used by YouTube. And now content providers of video are leaning toward using LimeLight rather than Akamai. LimeLight has done a number of clever competitive things to get into this position and thus has become "one of the leaders." In the non-legal business world, LimeLight is acknowledged (by experts I talk to) as "the" leader, but the LimeLight lawyers will not let them state that in the prospectus because it is too hard to prove in court if Akamai sues them.

You do not need the largest share of market to be the leader. Someone can be ahead of you. For instance, I am on the board of a company, Atrua, who has taken the leadership position in its market for intelligent fingerprint driven navigations solutions. They have just announced several next generation mobile phones that are using their solutions, including the cool Porsche phone ($1,200 each) and a hot one by Toshiba. Their older rival has much greater sales revenue. But Atrua is the acknowledged leader.

Are your cool ideas being copied by an older, larger company? That is good news. Why? Because it means they are following. You have become the leader. An example is Cataphora. They invented the new generation of finding and analyzing important digital information for lawyers looking for clues in terabytes of digital communications. Now competitors are copying their market messaging and terminology. Cataphora has become the leader of the new generation of e-discovery.

BOTTOM LINE: Think about how you can become the leader of a new market segment. You are not late if you are not first: first is death - you get arrows in your back as a pioneer. Instead be first to get it right. That is how you get into position to become the leader. The key is to find something that your ideal customer finds very compelling. That attracts more customers to you than the existing, larger competitor. You have a chance to become a competitor with an unfair advantage.

STEALTH STARTUPS: Secrets you should know about

During today's Cornell University Alumni event at Google headquarters, I spoke to entrepreneurs about their startups. Most CEOs had already started selling ("traction") and were eager to speak about their companies.

However, a few CEOs in recent days said "We are in stealth mode" and they declined public comment.

Stealth mode means you are starting a new enterprise in secret. That is hard to do. But it is how you can surprise competitors. You might even shock them so much they give up when you go public about your company. Surprise can be an important element in building your unfair competitive advantage.

So how does a stealth startup operate? In a few words: very secretly, with a great deal of cunning.

Stealth startups have to recruit people by divulging a minimum of information.
Stealth startups get angel and venture capital firm money by exposing the minimum of facts needed to get the money.
Stealth startups tell reporters and bloggers a carefully prepared story, one that gets them curious but leaves them searching a false trail.

It feels something like taking your clothes off: you remove as little as possible to get the job done.

Candidates for employment move along a process that starts with bits of information and adds more and more as the process moves on to a job offer.

Venture firms are told just enough to get their initial interest and then get incrementally more information as they proceed to make an investment decision.

The prepared story for the media is intended to entice the curious but stop well before much is revealed.

The hardest part is to keep founders from bragging to their friends after a few beers. Startups are exciting. You want to tell the world all about yours. But to do so will make yours a public company and you'll loose your surprise power. This is a discipline that serial entrepreneurs are very serious about. They insist that all employees and investors adhere to secrecy as if the hidden secrets were top secret government facts that determine life or death.

BOTTOM LINE: Keeping your mouth shut is a sign of a wise entrepreneur. Until you are ready to go public about your company (typically when announcing the launch of your first product), you will gain a lot of power by keeping secret all that you can. It is one of the most important disciplines of a world-class unfair advantage core management team. I hope yours falls into that category.

IT'S A GORILLA GAME: Startup monkeys starve

Every new market ends up the same way: from an idea and no market there will grow several venture backed startups who fight it out for dominance of a new category. The survivors emerge from the bloody fray as (1) the Gorilla, (2) two Chimpanzees, and (3) twelve starving Monkeys. You don't want to be a monkey!

Here is an example reported by market researcher NPD: In 2007 April, Nintendo sold 471,000 Nintendo DS handheld game players and 360,000 Wii consoles. Nintendo is the Gorilla. Sony PlayStation 2s sold 194,000 as well as 82,000 Sony PlayStation 3s and 183,000 PlayStation handhelds. Microsoft Xbox 360s totaled 174,000. The rest of the game player companies were far behind those numbers. Sony and Microsoft are the Chimpanzees. The rest are the starving Monkeys.

If your intended market looks like that, don't try to enter it. The Gorilla will crush you. You will live on dreams that never happen.

Look for a new market that is not yet dominated by a leader. Find chaos. Seek fog, clouds, mist. Uncertainty is the entrepreneur's friend.

Then make your goal to emerge as the new market leader within 3 years. Aggressively plan to emerge as the Gorilla by the time you go IPO (Year 5).

BOTTOM LINE: If there already are a Gorilla and Chimpanzees in your intended market, stop. Find a different market to go after. Flank onto uncontested territory. Win by being smart. Use your energy to advantage, not to save your startup after the Gorilla and Chimpanzees decide to eliminate you, the pesky monkey. Understanding this will add an important element to the construction of your unfair advantage.

WORD OF THE DAY: CRUSHED

Today I spotted this blog note from InmanBlog about how a gorilla crushed a couple of small enterprises:

"April 05, 2007 Social Mapping for the Masses with MyMaps

Google launched its new MyMaps service today that allows anyone to create a customized map and turns all of us into potential cartographers. Using the service you can quickly add placemarks and draw lines and shapes to show boundaries or routes on a Google Map,instantly creating your own mashup. You can even embed photos and YouTube videos.

This is bad news for companies like Platial (who appeared at the Inman Connect conference in New York in January) and Frapper who have been trying to promote the same idea, and who just got their business models stomped on by the Google monster.

Once you've made a map in MyMaps however, you can share your creation with the public over a public URL or you can publish it to display alongside Google Maps search results. You can even export a KML file so you can see it in 3D in Google Earth.

MyMaps' applications in real estate are endless in my mind; a buyers agent could create an map of all the properties they wanted to show a buyer and email them a link of the route they'll be taking. Or, a broker could create a map of all the open houses they might be showing on a particular weekend. Any other ideas you can think of?

The only thing missing from this release is the ability to embed your maps in your own web site or blog but I suspect that it won't be long before we can."

BOTTOM LINE: Be prepared for the gorilla of a nearby market to leap into yours. You'll need a truly unfair advantage to survive. So think about that possibility before you launch your bplan. It is all too real and all too common that a Google crushes startups that lack an unfair competitive advantage.

OFFENSIVE OR FLANKING? The answer reveals your exposure

I got an interesting email today from a very insightful entrepreneur. She asked what to do with her company's strategic plan. She is familiar with the strategic concepts of the brilliant consumer branding guru, Al Ries: Marketing Warfare .

"The situation is this:
Our business has a product development cycle, which is divided into 2 stages.
The business strategy for the first stage product release, is that of offensive to certain other companies that are in the space of security (XYZ is the dominant gorilla corporation).
Then, once the product evolves into the stage 2 product, the business strategy changes to flanking to credit card companies like ABC.

Question 1.
Does this shift of strategy make sense?
Question 2.
Also, I remember in class you saying that it is extremely uncommon for startups to use an offensive strategy. However, the reasoning that we have given is, that after a lot of market research, we have come to a conclusion that XYX the current market leader in the security space, has a large share of the market, however there is an even larger share that is still looking for a solution. So it is this untapped market that we are targeting.
In a way the strategy can be considered flanking, as we are targeting a market that is not satisfied with XYZs solution.

Please do advise.

Thanks,
D."

My response included this observation: "Your choice of offensive makes sounds like that is part of your first phase. It also tells how exposed you are. You are attacking a gorilla head-on."

Such frontal attacks must be made on a narrow front, aimed at breaching the weakness in the market leader, the gorilla. Startups have only a few resources to use for firepower. Unfortunately, the gorilla typically makes a blocking move that fixes the weakness. Then the startup sinks into history, very quickly.

I often suggest startups re-think their strategies. See if you can get yours to shift to a flanking strategy. One that attacks a new market segment that is not yet dominated by a gorilla. That is much more likely to deliver good results for a startup.

BOTTOM  LINE: If you find you are attacking a weakness in an established, giant gorilla company, re-consider your offensive strategy. Examine how to change your bplan to move to a flanking strategy. That may spell the difference between survival and death for your new enterprise. Serial entrepreneurs are great strategists. They pick the flanking move most often. Think about it.

INCLUDE DYNAMIC STRATEGY: You launch - they react - you respond

Today I told AC that we needed a dynamic strategy documented for our bplan. That is now mandatory for this new era's bplans. Without it you'll be neither able to respond to investor's questions, nor able to counter-attack competitive attacks. Dynamic strategy has become mandatory in bplans for startups.

You launch your product. The competition reacts. You must respond. Are you prepared? Do you have a clear plan?

This requires you anticipate how the competitors will react.

And then it calls for you to describe how you will respond to their reaction.

To anticipate requires you understand the human behavior of your market leader, the prime competitor that you are positioned against. That means you must know the person that leads the strategy of the competitor, the CEO. Is he a price cutter? Does she think like a software person? Is he brilliant about using PR to tell a compelling story? To understand Microsoft you must understand Bill Gates.

Then you must plan your response. Document it. Count the resources it will take: time and cash, strategic partners and clever maneuvers that out-wit your competition. Lay it out and plan on doing it. You may need alternatives, a planB, if the competition is also likely to have a plan B.

BOTTOM LINE: Take time to role play your competition. Try to think like their CEO. Then describe their most likely reaction to the launch of your product. Then plan your response. That is how serial entrepreneurs think. It is how you get to the top of the mountain, become the gorilla of the new market. It also gets the money.