Wednesday 21 November 2018

Startup diary: You can learn how to thrive from the best startups

Competing on features, or the cheapest price, or being first to market are all seductive to startup founders. But few actually work, says the voxgig founder

The success of other businessses can inspire your own quest to scale new heights. Stock image
The success of other businessses can inspire your own quest to scale new heights. Stock image

Richard Rodger

I talk to a lot of startups and I always ask a few key questions pretty early on in the discussion. One of them is "what makes you different?"

A startup needs to be different to achieve scale. You can't find hyper-growth (which is the whole point of a startup), if you don't have some angle.

There are many good, solid, businesses that don't need an angle. They just need good execution. To take an example from one of my past lives: IT consultancy.

It's very hard to differentiate yourself as a builder of software systems. Only a few have managed it: Pivotal (who have an office in the CHQ building in Dublin) have a special methodology, and you have to use it when you work with them. So they can sell to you if you do, in fact, want to use their methodology.

Thoughtworks, another global firm, have established such a strong position as thought leaders that they can sell just on that basis - you get the best brains.

But, in general, IT consultancy is about delivering solid software on time. You run the business with high-touch direct sales, account managers, and people-focused engineering leaders who can figure out what clients need, rather than what they want.

And the market is so big that it can support thousands of firms, each with several hundred people.

But none of these are startups, and none of them can achieve high growth, because there is very little to differentiate between them.

What attracts me as an entrepreneur to the software-as-a-service business model is that it can scale rapidly if you can figure out a way to make yourself different in your chosen market.

So the next question is: "How can you be different?" This is probably the most important question to ask yourself when starting a business of this type. Let's look at some of the options.

Rackspace is famous for differentiating on service. They give the best technical support in cloud hosting, and it forms the core of their marketing message.

This is clearly in opposition to the 'hope and pray' support you can expect from Amazon Web Services as an ordinary client.

It's a good move, but expensive to set up: you need lots of people, and you need to invest in lots of training.

It's not an option for voxgig at this early stage of our development (nor yours, if, like us, you are pre-seed).

Stripe, the payment services company that is the darling of Silicon Valley, founded by our very own Collison brothers from Limerick, placed usability and design excellence at the heart of their differentiation.

I have had the dubious pleasure as a software developer of integrating many payment systems over the years, and I can tell you that Stripe is awesome for developers. They really did get the experience right.

This was enough to catapult them to high adoption rates using a 'backdoor' sales strategy - developers brought them into companies: "Payments? Oh yeah, that's done already using Stripe... ".

But the only reason the design was so effective was because all the other payment providers were so bad.

You can only make this move when the incumbents have lowered the standard and everybody just puts up with the pain.

Luckily for you as an entrepreneur, this is the case is many industries.

One of our recently-launched competitors in the event management software space has taken exactly this path, and is trying to be the most user-friendly system with the most tasteful design. You have to play to your strengths, and since we don't have a great designer in our founding team, we must find a competitive differentiator elsewhere.

Xing.com, the German alternative to LinkedIn, competes on geography. If you work professionally in the software industry in Germany (I did a few years back), then you need to be on Xing, just like you need to be on LinkedIn.

Focusing on a specific geography is really quite a fantastic way to compete - just look at all the Chinese and Indian companies that have replicated US online business models.

For voxgig, this is a non-starter. The technology conference industry is global, has a lingua franca, English, and needs no special provisions based on territory. We have to compete globally from day one.

Workday is one of the best enterprise management companies. Their software helps you run your company, especially the people side of the equation. Their solution has lots and lots and lots of features. It's hard to compete against them because first you have to build out all of the same features they provide, and then add some more.

That's just not possible for a startup.

And yet competing on features is one of the most common choices that startups make. I see this all the time. The founding team has come up with some new feature ideas, or a new take on an old feature, or a way to delivery a feature (on mobile!).

They just need to add in all the other boring features, and then they have a product.

Big companies are slow, and they almost never change their business models, and it takes them ages to develop new products (that's why they buy smaller companies), but big companies can develop and deploy features relatively quickly.

It might take them six months, but once it's out, your differentiator is gone.

In the consumer space, just look at what Facebook's Instagram is doing to Snapchat - relentlessly matching them feature for feature. You can't compete against that.

As an aside, this is why investors often ask founders what they will do when 'Big Company X' enters the market.

What they are really marking is the observation that features are useless as a competitive differentiator, even in the medium term.

There is no good answer to this objection, so go back to the drawing board and find something else to compete on.

Amazon Web Services (AWS) competes on price. I get emails from AWS all the time telling me how much they have reduced prices on this service or that service.

Amazon uses this tactic across its entire business, and if you have the scale that they do, it's hugely effective.

Competing on price is also one of those common entrepreneurial mistakes. It seems like such as good idea. You think it will make sales easier (it will - that's the problem), but if you're losing money on every sale, you'll just lose money faster.

It also sends a signal that you are not a premium service provider, and that will damage your brand.

Amazon has been very careful to defend against this by doing lots of work in the developer community to establish their technical credibility, and they are careful to also position their low prices as a function of scale, not quality. If you're Jeff Bezos, this is probably not an option for you.

Finally, you could look for first-mover advantage. This is really quite a seductive way to compete, because there are examples of people who have made it work.

Salesforce invented the Software-as-a-Service model, and is still the most successful example in the space. And they were first. The problem with being one of the first companies born into a space is that you are often also one of the first to die in that space.

You end up being the pathfinder for others to follow - you make all the mistakes, and they learn all the lessons.

There were many search engines before Google. If you're going into AI or Blockchain right now, be careful and don't make the mistake of thinking you have first-mover advantage - it doesn't count for much.

So how exactly is voxgig going to compete with other event management companies out there? There are over 300 of them!

That will have to be the subject of next week's article.

But as a sneak preview, here are three differentiators we will use: network effects, platform effects, and data effects. All hopefully very effective!

Newsletter update: subscribers: 1,774, open rate 16pc. The open rate is trending downwards, which is not great - we'll have to figure out why. We're launching a podcast soon, so we'll see if that help with subscriber growth.

This will the first of our new strategies to drive subscribers numbers up to 40,000, our stretch goal.

Richard Rodger is the founder of voxgig. He is a former co-founder of NearForm, a technology consultancy firm based in Waterford.

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