And a Side Order of Strategy

As I discuss business opportunities with a spectrum of hopeful young companies it’s striking how some have a clear sense of their market niche and seem to have a decent chance of success, while others don’t measure up to the fundamentals of Business Strategy 101. It’s true, everyone can think of a company or two that “made it” without ticking off every item on the strategy checklist, but why handicap yourself—and especially, why invest time and money—with a venture that doesn’t conform to time-tested guidelines for achieving rapid growth, high margins, and market dominance?

In my observation, the intuition to build a company on a strong strategic foundation isn’t highly correlated with the management team’s years of experience or even their past success. It just seems like some folks get it. Time will tell, but I’m betting that these businesses are more successful in the long run.

Let’s review a few of the basics:

· A defensible business. If you begin to succeed, human nature ensures that others will notice, envy, and copy you. How do you defend again competition? Perhaps with patent-protected intellectual property, special expertise of your staff, or a unique business structure. Without defensibility you’re left having to outspend the competition, who have the advantage of being able to learn from your mistakes.

· Product attributes that match those of target customers. One company I talked to claimed to have a very “innovative” product. Unfortunately the innovation was to offer a complicated, expensive product to a notoriously unsophisticated, cost-sensitive customer base. Sometimes when something has never been done before, there’s a good reason. The need truly to understand customer needs and capabilities can’t be overstated.

· Market expertise. On several occasions, I’ve encountered entrepreneurs with a legitimate, modest success in a niche field who decide they want to roll the dice against a larger bet. Thinking big is a great characteristic—but past results don’t guarantee future performance. If you have a new idea, especially a riskier one in a more competitive arena, make sure you bring deep knowledge to the table, not just a win sometime in the past with a completely different customer and product set.

· Understanding of the online medium. The online environment is fundamentally different from conventional offline businesses and needs to be understood on its own terms, which include the vital role of technology, the value of scale where variable costs are negligible, the unique business insights offered by the tremendous amount of data generated by audience/customer interaction with your site, and a formidable embrace of personal empowerment. If the internet is the primary platform for your business, align your strategy and products to as many of these differentiating attributes as possible.

· Innovation. Along similar lines, the internet is driving revolutionary, not evolutionary, change. To score a win in this extraordinarily competitive space, you need to lead your own revolution. Don’t just make it a bit easier for people to do something they do already—empower them to do something that previously seemed impossible: search through a large proportion of human knowledge in a fraction of a second; sell your products in Brazil without a middleman; publish a book for less than the cost of a book in a bookstore or publish your ideas online to the entire world for free; capture the exact thought process customers went through prior to purchasing your product. Not long ago these concepts were science fiction; now they’re commonplace. Expectations are high for innovation by online companies. To differentiate your business and rise above the chatter get visionary and move the bar forward by leagues, not inches.