Startup Success: The Market Rewards Specialists

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Startup Success: The Market Rewards Specialists

 


I’ve been meaning to write this article for a while, but a recent post from Matt at Xobni titled “Do One Thing And Do It Well” reminded me about this topic, so felt this was as a good a time as any.  By the way, I’ve met Adam Smith and Matt Brezina both founders of Xobni a few times when they were based out of Cambridge.  They’re great guys. 

You’ve probably heard of the mantra, “focus, focus, FOCUS!” at least a few times.  I’m hoping not to belabor that particular point, but look at the issue from a slightly different perspective.

The Market Rewards Specialists.  If you think about your personal behavior and buying experience, you’ll likely agree with me.  As an overall society, we are digging deeper and deeper into most problem domains and we tend to reward those that have dug deeper than others.  We are now seeking experts on everything from the life-critical (the medical industry) to the not-so-critical (landscape designers that focus on small urban gardens).  This particular movement applies to startups as much as anything else.

Understanding The Problem Is More Important:  Personally, I think there is a lot of value in digging deep into a problem and really, really understanding it.  Lots of good things come out of this particular specialization.  First, you figure out whether the problem itself and the way you’re thinking about it is shared by a sufficient number of people.  You also start to get a sense of where you draw the lines around the problem when crafting your particular solution.  One of the biggest makes startups make is drawing the line wrong.  By not understanding the problem well enough, they either end up solving parts of the problem that nobody cares about, or not solving parts of the problem that everyone cares about.  The reason is usually quite basic.  Founders assume that if the problem is hard to solve, then lots of people will care about the solution.  Unfortunately, the complexity of a problem is not that highly correlated with the perceived value to a customer.  Said differently, just because something is hard to solve, doesn’t mean people will pay you to solve it.  Just because something is easy, doesn’t mean that there is no market.

Compete On Depth:  This piece of advice is probably the best I’ve received and that I can pass along to you.  And, I mean “pass along” in the literal sense.  It’s advice that I personally have a really hard time taking myself – even though I know it’s right.   This is despite the fact that my first startup was highly focused (and to date, the most successful venture I’ve had).   It is much, much more important to solve a seemingly small problem really, really well than it is to solve a large problem (or set of problems) in a mediocre way.  Once again, the market rewards specialists.

I’ve struggled with this whole issue of specialization in my current startup – but have gotten much, much better.  I’ve now figured out that it is hard for me to focus in the very early stages of creating a startup strategy.  So, what I’ve arrived on is to “start big and broad” – and then narrow quickly.  What works for me is to “cast a wide net” for a little while, and then find a problem that I find particularly interesting and then lock in on that.  At HubSpot, one of the early strategies was to create a company that would deliver “enterprise apps for small businesses”.  We thought of ourselves as “Oracle of the small business world”.  This was an ambitious (read:  foolish) notion.  The strategy was simply too broad for a startup to pursue.  But, Brian (my co-founder) and I had enough sense to figure this out pretty quickly.  Hence, we’ve narrowed our focus – a lot.   

How about you?  Do you find it difficult to get dig deep into a particular problem?  Are you trying to be a generalist because you think the market is bigger?  Are there particular techniques that you’ve found helpful in drawing a circle around the problem to be solved?  Leave a comment and share your wisdom and experience. 

Posted by Dharmesh Shah on Tue, Oct 31, 2006

COMMENTS

Darmesh,
I think this hypothesis may need some qualification. As a general trend this may be the case, and it even may apply to parts of the software industry, but I don't think it is true for the enterprise software market.
I am puzzled to hear it from you since you know the enterprise software market very well, so I'd be interested in hearing whether you think this is true for the enterprise software market as well.
In our experience, enterprises are increasingly trying to consolidate their suppliers at the expense of the smaller vendors. Assuming that smaller companies are more specialized and the larger corporations are more generalists, this trend can be interpreted as the opposite of your hypothesis. Companies seem to settle with "generalists", in an effort to eliminate the overhead of finding a specialist for every area they need products or services. I see this trend both in acquisition of professional services and products.
I had written about this trend in the management tools market, where majority of the small to midsize companies have disappeared in the last couple of years, and market is left to the very large players IBM, CA, HP, BMC, EMC, Cisco, etc.

I'd really hope that what you're stating above is true, as we are a small specialized company :)

posted on Tuesday, October 31, 2006 at 11:46 AM by Berkay Mollamustafaoglu


Excellent point regarding enterprise software purchasing patterns. Though I would agree that enterprise software is going through an ongoing consolidation (for the reasons you've already outlined), I'd suggest that from a startup's perspective, you are still better off being a specialist.

Though enterprises would prefer to buy as much from a single vendor as possible, it is unlikely they're going to do so from a startup. The startup doesn't have the resources to overcome the credibility gap.

So, my thinking is that a startup first specializes to build some early credibilty and then expands to serve the need for a broader product range -- or is acquired by someone larger who can extend their portfolio.

posted on Tuesday, October 31, 2006 at 12:00 PM by


I completely agree. Streampad's offering is remote access to your music. Many people ask if/when Streampad will offer remote access to photos, video, documents, etc. I tell them that many competitors offer this and their product suffers because of it. Nailing down the perfect interface and usability for music is hard enough. Having to perfect it for different types of files would make it even harder and would likely make each experience sub-optimal.

posted on Tuesday, October 31, 2006 at 12:19 PM by Dan


The last one was a very nice piece of advice. I totally agree.

posted on Wednesday, November 01, 2006 at 3:54 PM by Juan Manuel Tapiola


I totally agree with your point, especially the last one. I am in latest stages of starting a startup! the earliest it can get, and no wonder I have a focus issue at this time.
Thank you for your advice.

posted on Thursday, November 02, 2006 at 7:08 AM by Razan Khatib


Another great article. Certainly true in our case.
This bit is incredibly insightful and bears repeating:

Founders assume that if the problem is hard to solve, then lots of people will care about the solution. Unfortunately, the complexity of a problem is not that highly correlated with the perceived value to a customer.

posted on Friday, November 03, 2006 at 7:05 PM by Aphasia Software


Dharmesh,

I believe that the size and composition of your target market determines your acceptable level of specialization. Software, being a global business, requires us to specialize down to an extremely fine level of detail - IF, and only if, we are talking about software that is marketed globally, rather than services marketed locally.

To illustrate, if I lived in a village of 5 people and wished to procure goods and/or services, it is unlikely that I would achieve the maximal amount of success by specializing in urban gardens. These sorts of markets only occur when you have not 5, but 5 million, people.

One of the most difficult aspects of being a software entrepreneur, for me, has been that I market myself more generally on a local basis than I do online, because I can be fairly certain that by advertising specialities online I can reach members of my *ideal* market, I cannot be certain of this when I casually bump into an individual at a networking event.

posted on Friday, November 03, 2006 at 9:00 PM by Charles


Software! Software! Software! I realize that this is a site for software entrepreneurs, but doesn't this apply to "real life" as well. I've worked with thousands of clients in virtually every industry. Take chocolate for instance. Do Godiva, Lindt and Mars really compete? They all make chocolate. Is there any store anywhere that carries all three? Given the choice, is a 7 year old kid gonna pick the high end Godiva specialty shop or the convenience store next door that sells M&M's, Milky Ways and Snickers? Doesn't the chocolatier have to decide which problem he's going to address? At certain times of day, mightn't a person be more interested in getting a chocolate fix than getting a CRM fix?

posted on Tuesday, November 07, 2006 at 6:38 AM by Rick Roberge


Rick, consumer goods companies compete on the basis of their promotional spend for the last period, however long that might be. Likewise, complementor software vendors. But, prime vendors of underlying technology compete on standards. These prime vendors operate within the ecomics of the increasing return, unless they fail at it, and some do. For complementors and consumer goods companies, there are no increasing returns.

The chocolatier decides which market they will serve and price to meet that market's demands. Brand matters. But, brand is not the most effective way to sell software for the prime vendor. For a prime vendor, brand starts with institutionalization and serves investor relations purposes rather than as a means of differentiating commodity products.

posted on Sunday, November 19, 2006 at 6:48 PM by David Locke


Rick, consumer goods companies compete on the basis of their promotional spend for the last period, however long that might be. Likewise, complementor software vendors. But, prime vendors of underlying technology compete on standards. These prime vendors operate within the ecomics of the increasing return, unless they fail at it, and some do. For complementors and consumer goods companies, there are no increasing returns.

The chocolatier decides which market they will serve and price to meet that market's demands. Brand matters. But, brand is not the most effective way to sell software for the prime vendor. For a prime vendor, brand starts with institutionalization and serves investor relations purposes rather than as a means of differentiating commodity products.

posted on Sunday, November 19, 2006 at 6:49 PM by David Locke


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