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.