Why start-ups fail
Posted by Steve Tobak
Most start-ups fail. There are lots of
reasons, but in my experience, the
most common cause is that they develop
technology and not products. Lots of
people confuse the two terms, but the
distinction is critical in start-ups.
Here's why.
According to the book Marketing High
Technology by the field's godfather,
Bill Davidow, "Marketing must
invent complete products and drive
them to commanding positions in
defensible market segments." Bill
called this the Strategic Principle.
(Credit: Mohr Davidow Ventures)
In case you've never heard of him,
Bill Davidow was senior vice president
of marketing and sales at Intel, where
he helped the Santa Clara company to
become the chip goliath it is today.
Later, he founded Mohr Davidow
Ventures, a prominent Silicon Valley
venture capital firm. The man has
credibility.
Let's break down the Strategic
Principle.
The first part means this: it's
one thing to develop technology that
does something cool, perhaps even
something that's never been done
before. It's another matter to deliver
a complete product that meets a
critical market need better than the
competition. And by "complete
product," I mean hardware, software,
infrastructure, sales channel,
promotion, customer service--the whole
nine yards.
The second part means that if your
product does not have what it takes to
be a market leader, then you might
consider segmenting the market more
narrowly. Perhaps the product will
then have a chance at sustainable
market leadership. The catch is that
the narrower segment still has to be
big enough to be of interest from a
business standpoint.
Now tell me, who can argue with Bill's
logic? What company, start-up or
otherwise, doesn't need marketing?
Apparently, most start-ups. I've
heard it dozens of times:
"We're early stage, developing
technology; we don't need marketing
yet." And then the inevitable: "Have
you read our business plan? It's all
in there."
Customers and competitors aren't
static, like a document. Markets are
dynamic; they call for processes,
analysis, occasional changes in
strategy. Technology alone will not
carry the day when it comes to
dynamic, competitive markets. That's
even more evident today than it was
when Bill wrote his breakthrough book
in 1986.
Not surprisingly, some of the most
successful technology companies owe
their lofty positions to breakout
business and marketing strategies.
Here are a few examples:
CDMA was a breakthrough, but what's
unique about Qualcomm is the business
model--instead of being a phone
company, it became in essence the
technology inside a multitude of phone
companies.
Google had trouble getting investors
for a search engine company. Its
innovative search advertising scheme
got the company to $160 billion market
cap in record time.
Instead of a one-time engineering fee
to develop IBM's operating system,
Bill Gates thought to ask for an
exclusive per-system fee.
Cisco could have been just like every
other network company, but focused its
efforts on connecting isolated
networks with multiprotocol routers.
The list goes on and on: Amazon
(e-commerce), Dell (direct sales),
eBay (online auctions), Flextronics
(supply chain outsourcing), Ingram
Micro (technology distribution), and
Yahoo (Internet portal) were all about
business and marketing, not just
technology.
Don't get me wrong; I'm not saying
technology isn't important. Why else
would they call it the technology
industry? What I am saying is this:
most start-ups confuse technology with
products, and technology alone isn't
enough to make it. Start-ups that
distinguish themselves by developing
complete products capable of
sustainable market leadership at least
have a chance.
Not only are start-ups subject to the
same market and competitive forces as
more mature companies, but they're
more vulnerable since they're
typically focused on a single product
and often navigate in uncharted
waters.
Good marketing is like a good
navigation system: It helps to
point you in the right direction and
makes corrections when you go off
track. It helps you get where you're
going faster and more efficiently.
Every high-tech company needs
marketing throughout its journey, but
contrary to popular belief, it may be
most critical at the start.
Originally posted at Train Wreck.
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