Strategy and tactics redux or Winning for itsy, bitsy, teeny, weenie, little Pakistani mom and pop tech shops.
Here are my hard earned qualifications that allow me to speak on strategy.
I have never been rich or famous (infamy is separate classification) or successful. Of the last four of my ventures, three were dismal failures. I have been teaching since a crazy afternoon in 1995, when I was asked to substitute for a peer at FAST ICS who had been transferred to Amsterdam on short notice. I flip the finger quite frequently on the road and have been known to swear and cuss in public gatherings on camera. I am an arm chair critique, who has been too busy buying laptops, servers and Borland licenses to worry about an arm chair. I have strong opinions, shaped by an even stronger belief that since now it is my money I am blowing up; you better convince me about the likely and unlikely consequences of your tactics. If my gut doesn’t feel right, I really don’t care about your rational arguments, your slick presentation or your even slicker credentials – the answer is No. And, I once used a pseudonym inspired by a six legged nocturnal insect.
Everything I know about strategy I owe to Bruce Greenwald at Columbia Business School. Bruce has a fairly simple framework that says that in order to win, win big, you have to restrict the threat of new entrants. Pick a field where there is no or very limited competition and either by design, structure, or choice make it impossible for a competitor to enter that field. The consult speak for this framework is barriers to entry.
There are three ways that you can restrict competition
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Scale – because of your volumes you can do something critical, much cheaper than a new entrant.
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Proprietary Technology – Aka, Intellectual property, the oft repeated, over used buzz word that we love to drop without understanding what it means. It means that if it can be stolen, copied, re-engineered, re-worked, then it is not intellectual property. If the guy next doors can hire 10 geeks and redo what you are doing, it is not intellectual property. If he can steal it and replicate your business model it is not intellectual property. But if similar to the petro-chemical industry you can license your refining process for a royalty for more than 150 years and get away with it – that is intellectual property.
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Switching costs or captive customers. If your customer has to undergo the pain the death for him to switch over to a competing product, you will either have it made or depending on how bad your product is, be left with very dead customers. Did you know that S&P and Moody together control more than 80% of the market share when it comes to rating new debt issues or that Berkshire Hathaway is one of the largest share holders in Moody. Or that most investors (lenders) require issuers (borrowers) to get them rated by one of the big two. That is customer captivity of the first order. (See the Economist, June 2nd-8th , 2007, issue for more details)
Bruce presents these ideas and more in Competition Demystified, one of the most clearheaded and practical book on strategy ever written. The hardback edition is on deep discount at Amazon for five dollars and change right now and if you are serious about strategy, you need to buy yourself a copy.
How is all this relevant to desi mom and pop tech shops.
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You cannot take on the big guys head on. They will not even notice the irritation you plan on causing them. They have spent the last two, three and in some cases four decades erecting barriers around their business models and it is not going to be easy bypassing them.
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But there are edges and or niches, where the big guys are either not focused or too spread out. Where there are gaps in the barriers. Within the technology game, these are primarily local or regional niches created by local eccentricities and requirements that are too cumbersome for the bigger players to handle or satisfy. There are support areas where the absence of sufficient customers leads to support inequities (plain speak: no service available). Within the desi scene there are hundreds of horror stories about a big fat local account, buying another big fat solution of international repute and then walking away from that investment simply because it was not possible to receive local service. Or even when that service was available, the absence of the right level of quality or sophistication in that service.
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The gaps are where you need to focus. These are your entry points.
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Pick fields where there are barriers, where there is and will be limited competition and find your little edge that you can dominate over the next two decades. Please don’t build the next generation General Ledger, or HRMS or Payroll application. Don’t buy a franchise. If your next door neighbor can build it, there are no barriers.
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For you to dominate this edge, remember the smaller the surface area, the easier it is to defend. Focus on one thing and do it exceedingly well. If you become a God, you will find that your customers will find you themselves.
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Pick a business model that is scalable. Plain speak: for every new customer and dollar in revenue, you shouldn’t need to add a new employee.
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The next hurdle that you face after breaching the gaps is credibility. Plain speak: reference sites. A reference site is the most important element in your strategy. In some cases it allows you to fund product development. It most cases it allows you to refine your product and achieve what Marc calls the product/fit market/fit milestone. But most importantly it creates a roadmap that allows you to evolve your offering with evolving customers.
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Your ideal candidate for a reference site will not be a Moby Dick. It will most likely be a small fry. Price sensitive, time sensitive, willing to compromise on quality and credentials. Someone who has been suffering from service inequity and is desperately looking for a change. Look in the mirror and you will see exactly what your first customer looks like. Remember he switched because of service, he will only stay on account of service. Take care of your first customer.
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So far so good. You have identified a gap, used the breach to enter hallowed ground, found a customer and a reference site. There is a very good chance that you will now screw it all. Why?
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Two reasons primarily.
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First in your eagerness to close the deal you have most likely royally @&$%#! up your pricing, delivery feature set and expectations on the client side. By the time you realize this it is too late. You are now stuck in a no win situation. If that is not bad enough, your service quality reflects your pricing mismatch and your one and only lonely customer is thinking, “No one ever gets fired for hiring Oracle and IBM, why did I have to hire this group of losers”.
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Second you are so much in love with technology that you refuse to understand the business context. I don’t give a flying jack about AJAX, if my two hundred thousand dollar web application doesn’t do what it was supposed to do. If it misses the point in its entirety and refuses to adapt to changing business requirements. Get the business context right, technology will take care of itself.
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Friendly and free advice. Get your pricing right. Take the safest number you can think of and multiply it by three. Get your clients expectations right. If it will take you two months, ask for four. If your application will do flying flips and teach his dog to talk, say it will do the needful. Undersell and over deliver. Customer don’t buy products because you will do it cheaper and faster. They buy products because they need to get work done.
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Now what. You add scale. You add scale on the customer side. Plain speak: get more customers. You add scale in the organization. Plain speak: hire your replacements. Playing on your home ground makes scale easier. Your network is stronger, there is an entire community out there that is willing to give you a break and help you out. (It helps if you are humble, pleasant, down to earth, sincere, committed and have a product that works).
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When you add scale, be careful. Do it organically and patiently. Great companies are not built in a week or a year. They take decades. You have just started. Great wealth is also not accumulated in a few years. That also takes decades. There are no short cuts, be patient. If you are not, you will come across as a con.
- When you are done dominating your local edge, find the next edge. Go back to a) and repeat.
Over to you, Osama, Adnan and Marc…
I didn’t know we were playing ‘Tag’. Tag requires links
These are great points – admittedly I haven’t drunk these points down with a heavy coffee dose, but my initial thoughts would be that edge-centric models may have refined these initial points — as in they apply to b2b sales for products or professional services but not b2c sales, SaaS, or micro-markets (Google AdSense ; Facebook Apps; Widgets; Zazzle.com and other businesses that run on high-personalization by consumers themselves.)
I might be wrong because I didn’t stop to think hard about these points (yet), so maybe you can clarify these for me.
What about Salesforce.com or other SaaS vendors – surely they didn’t go one-customer-at-a-time?
I have been very lazy, Osama…
I agree. My focus has always been the non-retail side. On the b2c side, I would replace a relationship or a single customer with a target niche segement. Execute and then repeat. The bowling pin/alley strategy suggested by Geoff Moore in crossing the chasm.
When you are funded by a VC or a big silicon valley name (Larry Ellison), the emphasis is on hitting speed and scale. You could pretty much ignore the speed limit. Though I am not sure it works out well in the long run. I am not sure how salesforce.com scaled up – if they did it organically or exponentially? Comments anyone?
Adnan, where are you when you are needed?
[...] Strategy and tactics redux or Winning for itsy, bitsy, teeny … Pick a business model that is scalable. Plain speak: for every new customer and dollar in revenue, you shouldn?t need to add a new employee. The next hurdle that you face after breaching the gaps is credibility. Plain speak: reference … [...]
I have to admit I loved all of your points though I had grasped first few through “Information Rules” by Carl Shapiro et al. I especially liked and shared with others about your “overloaded-tech syndrome” that our techies are so overly-loaded with technology buzz words and whatnots that they seem to forget or even not grasp the business logic or context as you put it. Many a times these are the ones who damage the industry even more because most of the times they build products and systems entirely based on the conversations with their clients and as you know clients’re trying hard to converse in a credible way for a technology person. The result is a product based on previous products or just random ideas from clients meetings completely overlooking the business sense or competitive advantage of their own app.
Also, I think many of the new grads would try to do it so cheap and under-deliver it later on that they become bitter and so do their clients. This leaves a strange sense of understanding and relationships at both sides. To this day, I haven’t found a cure, have you?
Ejaz, the appreciation is always appreciated
I think there are two things that need to change.
a) Within the academic setting as well as business mindset the primary driver is what we call, T & M, Time and Material. When we do the T&M approach we tell the customer, “Oh, we got it wrong; not a problem. We will fix it and will charge you and arm and a leg for fixing it… And if you don’t like that you can keep what you have…”. I call this the shut up, sit down and screw you approach..Where the object of the abuse is the customer.
b) The alternate is the “you shut up, you sit down and you listen approach”. Don’t let your ego get in the way. Even if you get it wrong, collaborate with your customer to get it right. I call this the product development approach.
c) From an economic point of view, this can only happen if you can get paid for this. The only way you can get paid for it, is by making sure that your pricing relfects the fact that there will be atleast two iterations and you need to not just budget for that, but also charge your customer upfront for it. Customers don’t have a problem with money. They need to solve a problem, they will willingly pay for it. What they do have an issue with is changing budgets and timelines. They can accept your incompetence, but they cannot and willnot accept you MAKING THEM LOOK incompetent.
d) The second thing that needs to change is that we have to let go of our love affair with tech. Too many times a product conversation starts with “SQL 2005 has a built in data ware housing and business intelligence (BI) module, so lets do something with BI”. Where as it needs to start with, “Customer x, does a data dump, an excel spreadsheet and manual calculations using that data on a daily basis, that he gets wrong every alternate day…Will he PAY for an upgrade in his lifestyle”. Notice there is no mention of technology in this conversation.
I taught software engineering at FAST for two years in the mid 90′s. My students hated me. But I made them do their projects with a condition that if me or my team can crash their final application, they will forfeit their grade. I then made them demonstrate their projects on random machines, with known problems in my office…
Hi Jawwad,
Read all of your book today. Found confirmation and rejection of many a thoughts through the day. A book on failure. Is it really supposed to inspire and re-ignite entrepreneural spark?
Thanks for doing the diligence. I am sure it was a cathartic exercise for you but it sure hell was spiritual.
I left US around mid 2005. Eversince my time in Lahore, I have struggled to meet the right kind of people who would share the kind of intellect and taste for business that I was looking for. Can you guide me to the right folks in Lahore?
This is to hoping you read your reader’s comments.
Dear Adnan
Yes I do read my readers comments.
Did you hear about the startup insider sessions in Lahore. You can also hit Imran Zia at Vazhay who is PASHA’s new vice chair in Lahore and a faculty member at FAST Lahore. Other than that there are some very smart kids in Lahore doing some very interesting things. There is an incubation group in LUMS that spun off Kraysis a few months ago. Kewan and Salman at Techlogix. Amir Hussain at Five River and possibly many more that I am not aware off…
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