Four Nuggets of Startup Wisdom

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Ankur Sharda is busy working on tuggle.io, but took time out to share some of the things he’s learned from reading the Startup Masters.

If you are trying to build a startup company (or not-for-profit), you’ll notice that there’s a lot of advice out there.

The trick is finding the advice that is both non-obvious, and relevant. Here are a few nuggets that will help you on your way.

Do things that don’t scale

Paul Graham is a founder of YCombinator, a company that fundamentally changed the way startups were invested in. Prior to that he founded and sold Viaweb to Yahoo in the first dot-com boom of the late 90s.

That life, no doubt gave him a wealth of experience to draw upon and infuse into his famous essays (http://paulgraham.com/articles.html). Paul’s essays are arguably the most startup-lesson-rich content available online.

Perhaps the most counter intuitive bit of startup advice anyone has to offer is: do things that don’t scale.

When you’re plotting your own success, and you see companies like Pinterest or AirBNB with their millions of users and many millions of revenue, it easy to fool yourself into thinking you must ‘automate everything’ or do things at “internet scale”.

Except that’s not how either Pinterest or AirBNB got started.

When the founders of AirBNB had a few users per day, they noticed a trend. Better photography meant more sales. So they invested their own time and money to take professional photographs of the properties they were listing. Today there’s a whole industry that does this and AirBNB just sits back and takes a cut on the sale. But in the early days they did the leg work themselves, to make their product to be as good as it needed to be, even if they knew the model was sustainable in the long term.

Pinterest was similar. The founder Ben Silverman, personally visited meetups with people who had special interests. He would then personally show them how to use Pinterest to record their interests. It was slow going for sure. But eventually the content they posted lead to more people joining, and at some point, new users started joining with the hand-holding..

The lesson is, if in the beginning you have to molly-coddle your users/customers, that’s ok. It doesn’t invalidate the idea of having a highly scalable business model, further down the track.

Competition is for Losers, Build a Monopoly

As one of the founders of PayPal and an early investor in Facebook, Peter Thiel is one of the people with some of the keenest insights on startups.

His key takeaway is simple. Competition is for losers. Build a monopoly (lecture here).

All the great companies are virtual monopolies, if they weren’t they’d have to compete on price, and when that happens, the profit ends up being competed away and the company fails to achieve greatness.

But telling people to build a monopoly is easy. Obviously the hard part is doing it. That’s why the next related piece advice is crucial.

The insight is, if you want a monopoly, start with a small one, then pivot into bigger monopolies along the way. Once grown up, the highly successful startups, like Google, Facebook, Apple and others, have big monopolies, they make billions in revenues and profits every year. But they didn’t start with big, broad monopolies.

For example AirBNB was actually called AirBedAndBreakfast, and they only did ‘airbed in a living room’ rental, not entire rooms or houses. The particular niche they found, was when a large conference came to town, often all the hotel rooms would be booked. But local homeowners were happy to roll out an AirBedAndBreakfast and potential conference attendees were happy to not miss the conference.

Uber was only for luxurious town cars and was a premium product started by two multimillionaires who needed a convenient way to get home after a night out in San Francisco. Today Uber and it’s competitors are the easiest and cheapest way to get from A to B in city after city around the world.

Facebook was only for University students, at Harvard! A monopoly for sure, but a damn small one. Today there are 1.86 billion active Facebook users. If its users were one country, it would be the most populous on earth.

Start with a small monopoly and pivot to something bigger. But first get the small monopoly.

Timing is the most important factor

Before the current era, which we could probably date from the day Google became a verb. Bill Gross’ IdeaLab was arguably a first version of YCombinator (although also quite different in some key ways). The point is he’s seen a lot of startups grow or fail in front of his eyes.

In a Ted talk (here) he answers the question “What is the key factor in a startup’s success?” The answer he found was surprising: timing.

This is interesting, because in the pre-Google era that Bill comes from, perhaps even the pre-Facebook era, investors and startup gurus would routinely trumpet obvious factors that lead to startup success: the Team, the Size of the Market and sometimes the Problem being Solved.

That all those should be subservient to timing, is interesting.

Be like a cockroach

It’s even more interesting joined with another of Paul Graham’s gems. Be like a cockroach (http://paulgraham.com/badeconomy.html). It is said, after a nuclear explosion only the cockroaches survive, they’re just plain hard to kill.

Be hard to kill. They way you do that is by keeping overheads low, and focussing your energies on the things that will push your business forward. Most startups fail because they run out of cash before finding ‘product market fit’ and according to Bill Gross the most important factor in getting that fit is the external environment – timing. The more cockroach-like (hard to kill) you are the more likely you’ll be alive when the right time comes around.

Putting it all together

These four nuggets of wisdom not only stand on their own, but combine to create a kind of startup success playbook.

When you combine:

  • Do things that don’t scale
  • Create a monopoly, starting with a small one
  • Marketing timing is the key success factor
  • Be like a cockroach, be hard to kill

You get a recipe that you can follow to your bright future.