Chapter 4 - :Key Ingredients of a Great Start-up Business
"The wise musicians are those who play what they can master" - Duke Ellington
So what makes a successful start-up business?
In this chapter I will reveal several key ingredients which I believe are the cornerstones of a great technology business.
I’d say that finding the right start-up depends both on your understanding of the specific vertical and the current scope in that field, which is something that can change quite rapidly.
In this chapter, I’ll also discuss ways to choose the business that best suits you, and also look at the important concept of scalability.
Are you in the right industry?
How do you determine if you are in the right industry?
In my opinion, the key thing here is to know yourself and what you are good at. Self-awareness of your strengths is the key to discovering whether you are in the right industry or otherwise.
In my case, I was fortunate enough to know what I was good at from young age. My forte is in understanding databases and processing information. For my entire career I have been literally doing the same thing in all the businesses that I pioneered.
While my businesses have manifested in different ways and in different forms, the fundamental industry has been the same for me. My entire plus 30-year career has revolved around understanding databases and processing data to create better information for decision making.
In the early days of my career it was about using a database to document things; I then moved on to processing data for decision making. But fundamentally it has always been about working on databases.
I did not move from one thing to another. I stayed in the same ‘industry’ of database and data processing for 30 years.
This doesn’t mean you should stick with one industry and become myopic either. You still need to change with the times and with technology to avoid becoming obsolete. You don’t ever define what area you should focus on based on the technology. You focus on the fundamental value that you deliver to the marketplace.
For example, in the 30 years that I have been in business, the technology behind the delivery of information and database management has changed dramatically. I have experienced changes from mainframes, to mini-computers, to PCs, to cloud computing and mobile. The delivery of information has also changed from text to images, and nowadays video is becoming more prevalent. The velocity and magnitude of data has taken quantum leaps.
But the fundamentals of my businesses remained the same: it’s all about data processing and making better-informed decisions. I always daydreamed about how the new technologies could improve my data processing and provide better value.
I did not define myself as a mainframe computing database provider, or a Dbase 3 programming business. If I had done that, I would have become obsolete with the changes in technology.
At the same time, I could have been easily distracted by other exciting and profitable areas of the IT industry; like communications, security and even robotics. But if I did that I think I would be in trouble because that is simply not what my strengths lie in.
Yes, I believe that I was born and have natural abilities that suited my industry. I believe that you have that same thing, too. You might be suited for a different area than I am, and when you discover what that area is, I guarantee that you will be way better than I ever could have been in that industry.
I like to use the analogy of a swimmer; if they are naturally good at swimming and instead they choose to run, they will never be the best at running. Because on a DNA level, the swimmer has not been engineered to become a top runner…they may become good, but never a world-class runner.
However, if they stick to swimming, they have every chance to become a world-class swimmer.
So the key question then becomes, “How do I discover what I’m good at?”
To be honest, it’s only in hindsight that I realise I have remained true to my natural abilities in the data processing industry. But I have always been attracted to doing data processing work and creating data processing solutions. I was never attracted to any other area of the IT industry.
I always felt that I could do better than the other businesses in this industry, to be able to create something that will set me aside and provide a good solution for customers.
Another good barometer for you is that you will feel you have no passion or confidence in fields that you were not naturally born for. You need to be able to put the money and greed factor aside, because that is the number 1 reason why people end up in industries that they are not gifted for.
Yet another great way to test if you are in the right industry, is that you realise you have to spend lots of time to understand it and internalise it. The concept and what’s required of you for the industry doesn’t gel with your nature - you are just not born with that skill.
I have also found it easy to dream up new solutions and ideas when I stick to what I’m good at. It just seems to flow much easier. When I’m asked to daydream about opportunities in different industries, it just requires much more effort and somehow the ideas that turn up are just not as good.
While this may be contrarian, I personally believe that you should not try and hone skills that you are not naturally good at. In school we are told that we need to improve on the subjects we are not so good at, and we get extra lessons and tuitions just to get better grades.
But in the start-up game, my experience is that it’s a waste of time and you should just focus on what you are good at…and be the best at it! Why row against the tide and make life unnecessarily difficult for yourself?
Put your energies on your strengths, because if you try to rectify your weaknesses, it will simply take too many resources and too much time to be worth it. Remember, you can always hire people or find partners with the necessary skills to complement your weaknesses.
Your value is in your strengths, not your weaknesses!
If you are in the right industry you will see things that others do not, you can see easily how to improve and fix things, whereas for others it is very hard for them to grasp what is happening.
The final word on this is that you need to be self-aware, and remember not to only chase money! Chasing money can distract you from your ultimate goal and can waste a lot of your time.
And that’s where your vision comes in, so you don’t end up chasing your tail and wasting valuable years of your life chasing rainbows (and short-term windfalls).
That Vision Thing
Your vision is like your compass, so that you don’t lose your way despite the many distractions and storms that will come your way as an entrepreneur.
What’s vision? There are entire books written on the subject. In my opinion though, vision is unexplainable. The best way I can explain it is that you can see what others can’t. You can see the potential of your business in a way that no one else can quite fully understand. And you have a deep conviction that your business is going to be a success, even though others around you may not believe so.
Tech visionaries can quite literally see the future, and they have a strong sense that their idea will change people’s lives.
Having a clear vision is key in your decision-making process. It will also enable you to stick to the right industry despite the many changes in the IT sector.
This is where daydreaming plays an important role, to help you get clear and know what your vision is. A clear vision will help you know where you are headed, and help you stay the course even in stormy weathers and on dark nights.
For example, my vision to be a unique value provider in the data processing game meant that I was always ready and able to evolve, from mainframe computing, to micro computing and nowadays to mobile phones. I was always on the lookout for these changes, and brought them back to my vision. I then asked, “How are these changes going to affect my decisions for my business?”
By having this vision, it gave me clarity on what game I was playing. The technology may change the rules in the game, but the game remained the same for me.
That’s how I was able to capitalise on changes to technologies and repeatedly become a leading niche player in my industry. That’s the power of a clear vision that has been fed regularly by daydreaming.
Whereas others would moan and groan about the changes in technology (and, in some cases, die-off), my vision helped me capitalise on these changes and gave my business a head-start over the rest.
I describe any new technology that impacts my business as a rule change. For example, we started off in a client server query system environment, where a PC connects to a mainframe to get data. Windows and Apple first provided a Graphic User Interface (GUI) which then became a rule change. By adopting and capitalising on this change we managed to build a successful business.
In fact, all my subsequent businesses all capitalised on rule changes. Web browsers was another key rule change in my game, because people no longer had to install new software on their computers. You could get access to data anywhere in the world by simply typing in a URL. You don’t need to install the software each time there is an upgrade anymore.
Each time there is a rule change, my vision allows me to create new capabilities and functions to customers, based on the strengths of the new technology and the new rule. This is because my vision allows me the flexibility to adapt and capitalise to these changes.
As I mentioned, I have played the same game of data processing for over 30 years. I haven’t re-invented anything that is game-changing. It’s just that every time there was a rule change I have been able to create a successful business or capitalise with the business that I was in.
All I did was develop new capabilities and functionalities based on the new technology and sell it to customers. For example, we now sell ‘big data analytics.’ But what is it, really? It’s really the same thing as data analysis of the old days, just with a bigger magnitude. It’s still the same game.
Here’s how I like to see it; each time there is a rule change, it’s like the referee just pressed the ‘reset’ button. Everyone’s score is zero again. I get excited because it’s the opportunity of a decade!
The good news is that the leaders before the rule change usually have more baggage, hence they are at a disadvantage compared to you. It becomes a great opportunity for you to surge ahead of them on the score charts.
I don’t really believe you need to write out a vision statement. The important thing is to know the essence of your vision. The essence of my personal vision was to provide great data processing solutions, and as a consequence this has guided my businesses for the past 30 years to many successes.
Spend time feeding your vision by dreaming. It will help you spot the opportunities in your industry when rules change, and help you profit greatly from it.
Observe and Listen to Your Customers
I always tell start-up entrepreneurs that they need to be adaptable to customer needs. It’s important to use technology to find creative solutions for customers. Remember, it’s only when your technology adds value to the lives of its users that it’s going to be adopted.
When I was working at Singapore Computer Systems and I was asked what I wanted to do, I said I wanted to develop products. However, I based my product development on what the customer wanted, not simply because I thought it was cool.
I spent a few months looking around and researching. And I got a lot of information from salespeople in the company. I asked them what the customers wanted and I found out the clients wanted documentation and reports. So I set out to create a product that would accomplish that for the customers.
Just for the record, this was my first year in the company. I had developed this product that eventually went international and was spun off as a separate business. I say this not to brag, but to impress upon you the importance of listening to your customers.
Apart from listening to your customers, it is important to observe them.
I suggest you observe their decision-making processes, and through that you will be able to see where the profitable opportunities lie.
For example, when people use comparison shopping websites, what are they thinking? Are they simply looking for the cheapest product? What information do they need to gather in order to take the next step?
In another company, I was providing a platform so that customers could compare products. In hindsight I probably rushed in too soon without properly observing the market and my customers, many of which, in this case, were hotels.
I was too hung up over creating this platform and providing it to the customers. I thought the way to play the game was by providing a horizontal platform for all industries.
In the end, I realised that I would have been better off focusing on a vertical solution for the hotel industry. Because those customers who adopted my product realised the importance of the solution, once they figured out the model, they ended up developing their own.
If I had observed the industry better, I would have realised the rules of the game meant that if I had provided a vertical solution where my business would be a portal providing ‘last minute’ hotel rooms to the consumer market, I would have been more successful in this industry. In the end, someone else ran with that idea and became successful.
So make sure you spend time observing your customers and how they might react to the solution you are providing. This will determine the best strategy for your business and could be the difference between a mediocre business and a wildly profitable one.
As mentioned in the previous chapter, daydreaming from the perspective of your customer avatar is also a highly profitable exercise. The more you spend time daydreaming from this perspective, the more you will gain insight and intuition about whether they will like your product.
Piggyback on Other Trending Technologies
You don’t need to be a whizz-kid, but technology should fundamentally excite you. It doesn’t matter if you don’t see a business opportunity in every technology, but once you are tuned in to technologies and how they affect people’s lives, you will automatically see a notable increase in the number of business ideas you get. A larger catchment of workable ideas means a better chance of finding what works for you.
This is where daydreaming ability and vision comes in. Like I mentioned earlier, it is all about identifying new technologies, how fast people adopt it and how you can capitalise on it.
Some questions you might want to consider include:
a) How can your technology piggyback on other trending technologies? For example, green power technologies are hot at the moment - is there something your technology can help with in that industry sector?
b) How can your technology piggyback on social media growth? For instance, there are thousands of Facebook Apps that try to piggyback on the large Facebook user base.
In 1998-99, when the Internet boom was just beginning, I realised there was a massive opportunity as online content was about to explode, and all this content needed to be integrated. So, I dreamed up and created technologies for content integration; we were able to work on this for many years and grew the business significantly with BIGIGontheNet (Business Information Gathering on the interNet).
Remember your vision and the game you are choosing to play, then you won’t be blindsided and caught up in technology.
Market Need and Repeatability
One thing that always surprises me is how little thought is given to this aspect. Of course, everybody wants to make money and some young entrepreneurs even expect to make money.
The cornerstone of having a solid and repeatable revenue model is this:
You must have clear value proposition.
Ask yourself what value are you offering? For me in my businesses it has always been ‘better decision making.’ It could be helping people to find information faster through documentation; it could be helping people find the best price; they all lead to one thing…more informed and better decision making.
A second element to this is establishing a need. Your product may seem really cool and exciting to you. But the key thing is, ‘Are there enough customers who have this need?’
If there are enough customers who are have the need and are willing to pay you for it, then you have a potentially repeatable business. Without customers who are willing to pay, there is no business in the first place.
Scalability
A third dimension is the scalability of your business. If your first product takes 6 months to install for your client, the second one 2 months to install, and the third one takes a week to install, then you have a scalable business.
Is the cost of repeating getting less and less? Each installation should cost less to complete. If not, then your business is not scalable.
For your business to grow, you need to spend time dreaming up ideas and processes on how to scale your business.
In addition, you will need to be able to find this economy of scale before the next technology surfaces and changes the rules again for your industry. You will also need to be there a bit earlier than others to give you an advantage over the competition.
You will need to be wary of short-term rule changes as well, so you don’t pin your hopes and innovation on a fad, rather than an actual rule change.
To get scalability in your business, make sure you create software, workflows and processes that lend themselves to scalability. Take the following Fintech initiative as an illustration.
One of my investee companies shifted their business model from providing software to the mobile workforce to a business that focuses on building demographic databases for market research companies that serving brand owners.
The reason for this shift is that software provision for the mobile workforce was not a highly scalable business. They identified a new need where their existing technology could be applied. In this new model the cost of acquisition scales linearly with each demographic added, but the value of the database grows non-linearly. This is because the information can be sold many times over with by slicing and dicing differently.
Essentially, this change of business model shifted them from a linearly-scalable business to a business that can be scaled exponentially. This shift allows them to grow their business much faster and with less constraints.
To scale your business, you also need to ask: “Do you have the necessary supporting technology to scale up?” For most people, you would think Google is simply just about its algorithm. But if you look deeper, it is much more than that. Can you imagine the amount of data that their servers have to handle? The need to index, refresh and decide what data to show and what not to show? That in itself requires them to develop new technologies.
It also requires Google to develop technologies to use less power than anyone else because of the sheer amount of data it has to process. All these supporting technologies make Google scalable and able to grow at the rate it has, but few people consider these things. Consider what supporting technologies you need for scaling up your business.
The Importance of Vision, Repeatability, Value and Scalability
Between early 1998 and early 2000, the Internet sector in the US earned more than 1,000 percent in returns on its stocks. During this heady and irrational phase, venture capitalists were putting their money on anything or anyone with the name ‘Internet’ on it.
Until the bubble burst.
Between 11 March and 6 April of the year 2000, nearly a trillion dollars worth of stock value on the NASDAQ vanished.
The lesson for technology firms involved in the mayhem was that you need to have the elements of providing value, repeatability and scalability. Without these, you can be blindsided by technology and get caught in the hype of the moment. After 2000, it became clear that a dotcom without these success elements was doomed to failure.
There will constantly be new technologies that have the potential to create a new wave of euphoria and over-enthusiasm. Stick to your vision and don’t let the excitement of such ‘game-changing’ technologies blindside you.
Conclusion
Hopefully this chapter has given you some insights as to what key ingredients are necessary for your technology to be successful. In the next chapter, I’d like to address what key characteristics that you, personally, as an entrepreneur and founder, require for your startup to succeed.