Should you avoid competition?

Businesses are on a spectrum from a perfect competition to monopoly. If you could decide where your business was on the spectrum you should choose the monopoly. Companies make revenue but the margin that is left for the owner differs and the margin is the part that creates value. But people feel more comfortable knowing that other people are doing the same things making coopetition somewhat attractive. It is hard doing something new and being afraid of uncertainty in is people’s nature. When starting a startup you should aim for monopoly, the uncertainty can really pay off. Look at Apple, Google, Microsoft and Amazon that operate on the narrow market in the tech industry. All very successful businesses that have accumulated so much cash that they do not know what to do with it. If you are the only one on the market you set the price and decide the margin. In monopoly you can grow your company faster and it is less expensive to get into the market than in perfect competition.

Of cores no one wants to advertise that their company is a monopoly because of government regulations, so they tell lies. They tell us that the market they are competing on is much bigger than it really is and pretend they are in incredible competition. Peter Thiel, co-founder of PayPal and early investor in Facebook, took google as an example in his lecture at Stanford University. Google has around 66% market share in the search engine market which makes it dominant on that market. But google hardly describes its self as a search engine company any more, even though the majority of their revenue comes from the search engine. You can think of google in many ways, it is a search engine, an online advertisement agency, a technology company among other things. If you describe google as advertisement agency the US online search advertisement market is around $17 billion. If you make the description of the market a little bit wider, the online advertisement market is twice as big or around $37 billion making the competition look more fears. Going even further, the total US advertisement market is around $150 billion and the total global advertisement market is around $495 billion making goggle’s market share only a fraction of what it is if you describe it as a search engine company.

But how do you build your own monopoly? You should focus on a small markets, make your product better and take over that market. You should not focus on what the competition is doing, find your own way and create value for the customer. Once you are dominant on the market you should focus on how to expand that market. If you go into a large market the competition is much greater and it is harder to differentiate your company from other companies. The very unique businesses, that are doing things differently, are more likely to create their own monopoly. Peter emphasized on the last mover advantage, the idea does not have to be something completely new but it can be an improvement on a key dimension for something that is already on the market.

If you have an idea that is different and you create your own monopoly you might want to take ethics into account and social responsibility when deciding your margin.  

 

Building a fan base is a crucial step in building your startup

I am taking a course on how to start a startup that will be thought over a fifteen week period. In this course I am supposed to build a team, find an idea and start a startup. No time was wasted. The team, later given the name BAASH, was built in the first week and the brainstorming session began. Our idea originated with a problem that one of our team members had. As she began sharing her problem with the team we realized other team members also had problems with the same product. The problems varied but they were all related to the same product that is already on the market. After a little bit of goole-ing we found out that many other users had problem with the same product. Our mission is to solve these problems.

Our next step is to build a fan base for our product. Feedback from potential users is important. Like we learned in our brain storming session, different users can have different problems with the same product. It is important to get out of the office/classroom and talk to potential users to see if they are dealing with the same problem and would be willing to use your improved product. 

We have already built our business model canvas, which was helpful as the team sat down together and discussed the strategy of the startup and our vision for the future. Now we are all on the same page. We are working on our value proposition canvas to further clarify why our product will be useful for our potential customers along with creating a prototype of our product. When the prototype is ready we can go out and talk to potential customers to get their feedback and see if our product can fulfill their needs. It is highly unlikely that your startup will be a success if you keep your idea for yourself until it is fully developed. You need to share it with the world. By sharing it you will hear other peoples concerns about the product which you can use to make your product better, increasing the likelihood of your startup being a success.

I am learning about startups, listening to Balas lectures, reading material online but the reason this class is so good and useful is that we learn by doing. You will not get good at figure skating by reading about figure skating, you will have to go to the ice rink every day and practice.

So what falls under the definition of a startup?

If you have a passion for sports and work out every day, wear sportswear all the time and have an idea to open a small store selling sportswear, does that fall under the definition of a startup?  No not really, that would be a small local company where local is the key word. In the book Zero to one a startup is described as a small group of people with a mission to change the world. You can start local but the idea needs to be scalable. The founders need to have a desire to change how the world works.

According to Bala business experience and a business degree are not advantages of an entrepreneur. He went so far as to call it a disadvantage as startups are counter intuitive meaning that you intuition of what is right is not right when it comes to startups. I cannot completely agree with Bala on this matter as experience in running a business or knowing how the market works can be an advantage when you have your startup up and running. Knowing that startups are counter intuitive you can be carful of letting your intuition, which has been shaped by business school and other experience from normal businesses, get the better of you. As startups are counter intuitive you should get a mentor that has started their own startup. You should listen to your mentor even though your intuition tells you that this is crazy and would never work. However you should not take the advice without thinking of how it can be adapted to your idea.  

If you see the value in doing something that everybody else thinks is stupid then it is likely that you have a good idea for a startup. You cannot predict beforehand if your startup will be a success as no one has done it before. If there is only one it is impossible to find a pattern and predict the future like we do with other non-counter intuitive things. In the documentary Something Ventured the story of Nolan Bushnell is told, when he took the first Pong game to the toy fair in New York. No one wanted to invest and everybody thought the idea was stupid. Finally a venture capitalist took the change and invested. Now videogames account for about third of the entertainment spending in America.  

Something ventured goes through many other successful startup ideas that later became companies that changed how the world works, Apple, Intel, Genentech along with other IT companies. Before 1957 you needed to be a part of a wealthy family or have collateral to be able to finance your idea. Arthur Rock, the first venture capitalist, helped the traitorous eight raise the capital needed to start Fairchild Semiconductor, a company that laid the path for the high tech world we know today. Venture capital is crucial for startup companies as they are more willing to take the change on ideas that no one else believes in and others only see as risk.

So to take it all together, startups are counter intuitive and if you have a good idea it is highly likely that no one will believe in it and it will be extremely hard to get financing. Therefore it is important that you believe in your idea, that it is something that you are passionate about and are willing to give it your all.  

How to create the ideal team for a startup 

The class yesterday was interesting. My goal has always been to own my own company and be my own boss. Bala raised the question what are the right and wrong reasons for starting a startup. Many of you will probably think, I will be my own boss, make a lot of money and have the flexibility of working on my own time schedule, like I thought. Apparently these are all the wrong reasons. Starting your own startup is hard and stressful, you will be working all the time, have no money and be everybody else’s slave. The right reason according to Bala and other entrepreneurs, is that you should have a vision for a different future, a dream that keeps you awake at night. This made sense for me as passion drives me and gives me strength when the times get tough.

It is hard to start a startup and you can’t do it alone unless you’re superman. You will need a team with the right combinationof skills. There are three important components your team needs to be successful; understanding of technology, understanding of customer behavior and operational skills. Technology is everything today and if you don’t understand it or have someone on your team that does you’re screwed. You will also have to have someone that can connect people together and sell your product. If your vision of why your product is great is communicated in the right way the likelihood of your startup being a success is higher. Finally you will need someone to keep everything together, someone that can take care of the operations and makes sure everybody is working together on reaching the goal. When building a great team you will also have to take into consideration that you will be spending a lot of time with your cofounders so it does not hurt if you know them, if your interest align and that you can have fun with them even when times get tough.

The quality of the team also matters when you are at the stage of getting someone to invest in your idea likes Bala points out in his blog post, Framework to build Great Companies. People that are relentlessly resourceful and get things done are more appealing to investors. The team should also think about how good a fit the investor is to the team as the investor often serves as the teams mentor.   

When I was thinking about who I wanted on my team in this class I looked through the student list and spotted out people that I had worked with before and knew shared my passion of excellence. I am optimistic about the times to come and look forward to the upcoming thirteen weeks of blood sweat and tears.

How do I get an idea for a startup?

I really enjoyed my first class. We had a guest speaker, Doctor Sean Wise the author of Startup Opportunities: know whento quit your day job. Before the class we could send inn questions that Sean, would answer during a Skype interview. The questions were helpful as they got me on the thinking path of finding an idea, which is the first step in starting a startup. Other important aspects you need to have when starting a startup is a product. Bala pointed out that great products come from great ideas which can lead to a great company. Finally you need a good team who shares your enthusiasm and can work together executing the idea.

But how do I get an idea? Sean, pointed out that the idea can be top down or bottom up. Bottom up is where you thinking of a solution to a problem people have to deal with in their day to day lives. Two years ago I got a bottom up idea, I was putting my food on a plate in the office cafeteria and was wondering the nutritional value of what was on my plate. Like so many other people I had no idea of how much protein, fat and carbohydrates where on my plate. I asked my coworkers why no one had come up with an app that could just tell me. I told them that I was going to make it happen. Of cores they laughed at me as the technical part of food recognition app with a good user interface is extremely complicated. The stubborn part of me though that this could be done, I was going to make it happen. I decided to contact my good friend, who is studying computer science and told her I had an idea for our company. We often talk about creating something huge, working together and concurring the world. I would look out for the business part and she would take care of the technical part. She told me that we should sign up for an idea competition at Reykjavik University. To make a long story short our idea won and we received a grant from Rannis for developing our idea further. At this time we were both extremely busy people, she working on hear studies and me with my job so the idea did not get the loving and caring it needed and faded out. Now google is training itself to count calories in food photos.  My idea was good but I was lacking the technical aspect to make it a great product and the team laced the passion of making it a reality.

I hope that this class will help me go further with the next idea. My mission is finding an idea that will solve a problem in people’s day to day lives. Who knows maybe my team will have a great idea that will be transformed in to a great product that will lead to a great company, the next unicorn. 

How to Start a Startup

My name is Agnes and I started this blog as a part of an assignment in one of my master's classes in Reykjavik University. Since I was a little girl I always wanted to be a powerful business woman and own my own company. I got really excited when I saw that one of the courses that I could take was named How to Start a Startup, I thought this is my chance to think outside of the box and challenge myself. It did not hurt that Bala Murugan Kamallakharan was the lecturer. For you that do not know him he is an entrepreneur with great experience when it comes to startups and mentoring, you should google him.

A little bit about myself. I decided to go and take my bachelor degree following the global financial crisis in 2008, as I knew I needed to get an education to be competitive in the market. I chose a degree in business at Reykjavik University, emphasizing on finance. You may think, why business, didn’t Iceland have enough of unemployed business people? Yes that is true but I had the feeling that I could learn from the mistakes others had made. I always wanted to be a business woman and I was not going to make one crash crush my dream. Throughout my studies I constantly reminded myself that I wanted to get as much as I could out of each program. To increase my chances of landing a job when I graduated I decided to do an internship with KPMG advisory in my second last semester. When the internship was over KPMG offered me a job. In my last semester I wrote my final theses along with working full time at KPMG advisory and graduated in the spring of 2012.

In the autumn of 2014 I decided to go and finish my master’s degree in corporate finance. I thought it would be good to get some work experience before continuing my studies. Now I highly recommended it as my understanding of the course materials is much deeper now than before and I get more out of the courses I take. I love to keep busy and I decided to go for a full-time study along with a full-time job at KPMG advisory. The upside is that I will graduate at end of year 2015, so the extremely high work load is only for a short period of time.

What’s next? That is for me to know and for you to find out. I intend to posts weekly, sharing with you my journey to excellence.