These 3 Things Make Startups Powerful And Vulnerable At The Same Time

Think of a startup, and you'll probably see a company with a few typical characteristics:

Startup hallmark 1: Resource Stretch

Startups are, by definition, growing, often improbably fast. So the first hallmark of a startup is that we face resource stretch all the time, whether in terms of cash, time or talent.

Startup hallmark 2: Celebration of Change

The second hallmark of a startup is that we embrace, even celebrate, change (while incumbents tend to doggedly resist it).

Startup hallmark 3: Powerful Vision

The best startups have a vision so powerful it can overcome great adversity.

The startup ecosystem commonly thinks of these three hallmarks as strategic advantages; they are why we can compete asymmetrically, do more with less, go faster, be inventive, be agile, challenge the status quo…

While it’s absolutely true these are the intrinsic strategic advantage of startups, like the power of Achilles, I believe it's vital to understand how they also make us vulnerable. Below are the hidden risks that I have discovered.

The Hidden Risk of Resource Stretch: Always Focusing On Efficiency Can Make Us Fail To Be Effective

When resources are scarce, we naturally try and maximize them. For example, I often get asked by early stage startups what’s the best use of their scare financial resources, to hire in-house or get an agency for marketing; to invest more in PR or paid; to focus on digital or to try offline… I never answer directly, because it’s rarely the right question. Most early stage companies are, in fact, so resource constrained, they should be investing everything they’ve got in the few levers that most directly impact success. The right question being, of course: what are those levers?

The best startups focus on the levers that most impact success, and make sure what resources are available are directed towards that, and only that (not any of the things that other people are doing, or what that consultant said we should do).

For example, I was talking to an apparel entrepreneur earlier this year who was looking for solutions to drive traffic for online sales without spending precious cash. This product has a powerful media story, is exquisitely designed by a charismatic woman and has a groundbreaking approach to body inclusiveness. The assumption was that PR was the answer to get free traffic. On exploration, two things appeared. First, existing traffic was not converting to sales. Second, the founder was struggling with the time investment required by PR. This meant that right now more traffic would not mean more sales, and that PR was not actually free at all, but consuming a most precious resource: founder time. We realised the one task at hand was discovering what the sales conversion issue was; nothing else mattered. We hypothesised that it might be due to a) prices being too high b) sizing concerns; we decided the fastest way to discover this was for the founder to be in direct customer contact, as a salesperson. The new strategy involved neither PR nor e-commerce, but trunk shows and private sales appointments. Now, private sales appointments and trunk shows are clearly not the most efficient sales method out there, but efficiency in the wrong direction is nothing, while progress in the right direction, even if inefficient, is everything. In this case, direct sales allow us to focus all available resources on the single most important lever for success: discovering the product-market friction, and at risk of repeating myself, nothing else matters. Whether efficient or not, it is the most effective resource use.

In this mad game of ingenuity and duct tape, the risk is losing a clear view on what matters. It’s counter-intuitive, when we have so little, when we are trying to go so fast and do so many things at the same time, to stop and ask a different question. Is this the single most important thing to solve? If not, what is? It demands that we take a breath and forget the looming scarcity for a moment. It demands, in fact, that we stop focusing on resource management (efficiency) and focus on goal management instead (effectiveness). This is harder than it sounds because the urgent (resource management) has a sneaky way of trumping the important (goal management) in our crazy startup days.

The implications of this is that our job is not actually to get it all done, it’s to decide what part of the job has to get done and to grow the balls to say no to the rest (also much, much harder than it sounds). For example, in a personal learning experience, AKA failure, when I was leading Marketing and Design at BlaBlaCar, I hired too slowly. This was because I didn’t have the balls to say to the founders: “No, this will not get delivered this quarter because I will be spending 2/3 of my time hiring, in order to scale delivery speed, which is the single most important lever of success”. My balls are much grown since then.

The Hidden Risk of Celebrating Change: Great Enthusiasm Can Cause Blindness (AKA Drinking The Kool Aid)

When I started working in startups, I though what we were doing was hugely different to what the incumbents were doing because we were unattached to the old ways; we have no industry stakeholders at all, we are young, we are free, we are brave! This is true, and a clear advantage to be leveraged like there’s no tomorrow. But it also hides a big risk: underestimating the past, the power of entrenchment, the strength of inertia. Understand this: it’s not just the incumbents that are inert, it’s often the market itself, so incumbent inertia is not nonsense (in fact, it is often what we startups are trying to do that is super dumb!)

As I’ve deepened my experience, I’ve learnt to protect myself against underestimating incumbents: I now aim to totally understand the old guard, their stakeholders and the reasons for their past decisions, never assuming weakness. I keep top of mind that right now they own the market, the customer behaviour of decades, the cognitive references, the relationships, sometimes even the language. If we want to own just some of those in the future (even if we will disintermediate or fundamentally alter the value chain in some other way), that actually makes us much more the same than it does different, so I have a lot to learn from them. I am their humble student.

For example, one Aha! moment came when I was doing some strategy work for a dating startup, and I looked into some pretty archaic IRL behaviours: arranged marriages. In India, singles have a marriage CV distributed across massive friends and family networks, and communities organise singles conventions that work like a business conference, name tags and all. Intermediated dating in this cultural context, is, and always has been, embedded in the very fabric of community and social life, in total contrast to how “new” online dating apps are held apart from the rest of our social life. I learnt that the breakthrough product insights come from looking at the whole human picture, including how it has always been done. I learnt to see tech-enabling for what it is: just a self-important, little pixel in a very big picture.

When we set out to disrupt an industry, we feel a sense of pioneering possibility and freedom that frames our view of the industry as us v them, focusing our attention on what’s new and powerful and brave about us. When we market our new offer, we focus on explaining, glorifying even, the change we embody. Please don’t misunderstand, I am in no way negging a focus on change, as a startup operator, I live on belief in better and eat enthusiasm for breakfast. But I also know that it’s vital not to get drunk on our own kool aid! Getting obsessed about how different and special we are is hubris, believing that change is good by default is just blind. Rather, we should seek to understand what already is and what has been for decades, centuries even. In war, know and respect your enemy.

The Hidden Risk of Powerful Vision: Celestial Navigation Only Works On Very Long Timeframes

Startups are so crazy hard that only a really powerful vision can drive them into being, a North Star so bright it pulls an adventurer to focus on it. This guiding star is our secret power over an incumbent that has lost their sense of adventure. It’s an incredibly powerful force that I never question. It’s nothing less than vital. But even with a guiding star, an adventurer needs a map. Incumbents have maps, they know where they want to be by the end of this quarter and they can accurately estimate their yearly position. I’ve found that startups tend to focus so much on the star in the sky that we really struggle with setting useful proximate goals, ones we can get to soon, and map out concretely. I talk to many startups that have no clarity on what milestones they are trying to reach in the next six months. When I challenge them on this, the answers tend to be about growth: more of something. Sometimes it’s about speed, which is just a time-bound spin on growth. These are results, not goals, and not differentiating these is a huge risk to any startup.

For example, I was talking to a startup with two audiences, consumers who purchased directly and consumers who delegated the purchase. Their goal was to double sales by the end of the year. However, the two audiences impacted sales in a different way. The delegating audience had a much higher basket value and retention, but was a much smaller audience and a higher acquisition cost. In this case, a properly considered goal would have clarity on which audience the new sales should come from, because they would each require a very different path and equipment. Asking the team to just increase sales is like asking them to walk towards the star without any further information. They’ll take different routes, break into small groups, lack the proper equipment and efforts may even nullify each other as they struggle to co-ordinate.

It’s not enough to gaze skywards for our navigation, we must focus on the terrain ahead, and clearly articulate the more mundane business of how to get to that next point, together. A bright, shining vision in the sky does not replace the need for a clear, proximate goal on the horizon.

Just as the greatest people know the weaknesses of their strengths, so the greatest startups must be mindful that what makes us awesome can also make us vulnerable, ineffective, foolish, blind. The best startup leaders use this self-knowledge to protect their enterprise, themselves, and above all, their people.

Article originally published on Medium, June 2017