Is This a Star Business?

Is the Novo Medical Center a Star Business?

2012-01-17T18:28:00.000-08:00

The Novo Medical Centers is a venture funded business which provides day care surgeries in India.

Is this a star business?

Positives:
Revenues - They can probably grow revenues faster than 15% a year for the next several years.
Market Leadership - They are creating a whole new category by dividing the surgery business into day care surgery (laproscopy, arthroscopy, D and C, biopsy etc.) and longer care surgery (requiring a longer period of post-operative care.) They are the leaders in short stay surgeries.
Scalability - Because the space needed for their business model is relatively lesser than the average hospital, they can find real estate to expand in India pretty easily.
Sales channels - Doctors are the ones who tell their patients about Novo medical centers and get them to come in to Novo.
Ability for competition to enter the space - The existing competition is from small and large hospitals. However, once a chain of Novo Medical Centers is set up it will take a lot of work for competition to replicate what Novo is doing.
Value of brand and mind share - If the brand is established all across India, in 20 years this company can become a dominant player. It will offer standardization of services to patients.

Negatives:
Government regulation - The medical business is heavily regulated.
Exposure to black swans - This is what is most disturbing to me. The company is vulnerable to black swans. It is too easy for a procedure to go wrong causing bad press, legal liability or a clamp down by Government.
Vendor power - Their "vendors" are super-specialist doctors who are typically associated with large hospitals. To get these doctors to come and work at their facilities requires Novo Medical to share a large part of revenues with their doctors. Some doctors may choose Novo for convenience and responsiveness (ease of scheduling surgeries, better facilities, more proactive management etc.) but in the end, it will be the money that drives doctors to choose Novo versus other hospitals. In this case, the profitability of Novo may be under question.

Google's "Cool" Problem

2012-01-03T06:41:00.000-08:00

If you've read this blog for awhile, you may begin to think that I'm biased against Google. In reality, I have nothing personal against Google. I use their search, browser, blog and email services almost everyday. The reason why I pick on them is because they are a big, well-known business run by seemingly intelligent people who seem to be making classical positioning and differentiation errors.

Today's rant however, is about another aspect of Google's management policy ... that of killing products.

In the last few years, Google has killed several products such as Google Answers, Google Wave and Google Gears.

While this strategy may appear "cool", it has several problems. It dents the confidence of users in Google products. And developers will think twice about developing on Google platforms and building businesses around them. It also affects morale of Google employees. Finally, competitors begin to believe that Google is not invincible and that it can be beaten ... perhaps even in its core search and advertising businesses.

Most projects have a U-shaped curve with time on the X-Axis and confidence of team members on the Y-Axis. You start with hope at the start of the project, you run into a valley of despair and after some struggle you emerge on the other side feeling confident. Google seems to be killing products as soon as they run into the valley of despair. It seems to be forgetting that it's core search business took years to become profitable.

Google management may argue and say that they kill products if the products don't gain traction. But this is a little like a chicken and egg problem. How do your products gain traction if you don't tweak and improve upon them? Also, by virtue of the concept of the "mere exposure effect", products that have been around for a while tend to become accepted and used.

Google management will do well to learn from the Microsoft method which is to never give up and to try, try and try again until you succeed. In fact, part of the allure of having a stable cash-generating core business is that it allows you the luxury of resources and time to keep pursuing projects even if they appear to be flailing in the initial stages.

Google management needs to recognize that if you develop a culture of iterating until you succeed, it will force your top management to really do their homework before launching new products. At present, Google engineers seem to be treating product development like a weekend cooking project. While this may seem cool and sexy, it leads to all kinds of problems in the long run.

Google will do well to become a little more like a staid old-world company which is slow to launch products and slow to kill them as well. It may not be sexy but it works in the long run.

The Decision-Free Star Business

2011-12-25T02:58:00.000-08:00

Most businesses consume too much of management effort. By management effort I refer to the following:

1. The number of day-to-day decisions that managers need to make
2. The amount of attention that managers need to invest in understanding non-traditional patterns
3 The amount of emotional energy and will power that managers need to put forth in order to get things done

If you need to think about hiring a new person, that's a decision. If you need to pay attention to a hacking attack happening on your website, that's a decision. If you need to motivate your people to work harder or for lesser salaries, that's expenditure of emotional energy. If you need to launch a new product, that's emotional energy.

The best businesses are those which have reduced the number of decisions that need to be made on a daily basis.

At Mc Donald's managers don't make decisions about business models, positioning, branding, product line, etc. Even franchisees have very limited decisions to make. Most of the core decisions have been made and bridges have been burned (Mc. Donald's will never try to become a full service restaurant chain.) This freeing up of emotional energy (decision energy) frees up managers to focus on a few things such as new locations, fulfillment, quality control, training, etc.

Richard Koch in his earlier book - 'The 80/20 Principle' speaks about Return on Management Effort - the results that are obtained from a given output of management style work. I propose a slightly different measurement method - Return on Decision (or ROD).

Return on Decision refers to the results from each decision that you make:

For example, if you hire a person and you get returns which are equal to the person's lifetime output less the person's lifetime salary. On the other hand if you clearly define what kind of people your company hires and if you are able to pass on the job of hiring to other's then you've created a system that will probably have a higher return on decision made.

Of course, creating systems so that your managers have fewer decisions to make is hard in businesses that are changing significantly. That is why start-ups need to have people who can take on multiple roles, be willing to learn and change their job profiles. This is even more important if your start-up "pivots" into a new business either to stave off a threat or take advantage of a new opportunity.

While the standard way to move towards "decision-free status" is to introduce processes and systems (ISO, CMM, etc.) I believe that most companies fail to focus on the most important element which will reduce the number of decisions that they and their managers will need to make. And this is the company's positioning. If the positioning is right, then managers will have vastly lesser decisions to make. And they'll be able to really focus their emotional energy on the minutiae of the business (the second source of long term competitive advantage after powerful positioning.)

Taggle Fails

2011-12-08T03:04:00.000-08:00

A few months ago I'd predicted that Taggle would fail mainly because it was a question mark (a follower in a fast growing market.)

Today (Dec. 8, 2011), I discovered that it had become reality.

It's sad. But it further validates the star principle.

The Curse of Creativity

2011-12-08T02:55:00.000-08:00

Google engineers get 1 day a week to work on personally satisfying projects. In theory this sounds like a good idea. And it probably helps to keep superstars from leaving the company. And it has probably helped launch a few successful products.

Therefore, creativity must be good. Right?

But here's the problem.

Every time a Google engineer works on a non-search problem, the company moves away from it's core position. So you land up with nonsense products like Google Wave and Google Plus. By itself, such small failures for a company like Google don't matter in the short run. But in the long run two problems develop:

1. People begin to think of Google as just another technology company and not a search company.
2. More importantly, when other companies see Google products failing it removes the veneer of invincibility. Other companies begin to think that they can even beat Google in the search game. They develop the will to try and beat Google in it's core business and this is a dangerous thing.

What should Google actually have done?

They should have practiced "constrained creativity" - coming up with creative solutions within the rigid boundaries of the company's positioning statement. They should think very much inside the box.

Does an engineer want to build a search engine for lawyers? Yes!
Does an engineer want to build a faster search engine? Yes!
Does an engineer want to build an email search tool? Yes!
Does an engineer want to build Twitter search? Yes!

Does an engineer want to build a social messaging system? Not allowed!
Does an engineer want to build a photo sharing site? Not allowed!

At the very least, such non-core ideas should be tried under different brand names with NO association with the Google brand.

At this rate, Google will be the Cisco of the future (directionless and with a brand that stands for nothing.)

So the big takeaway if you are fortunate enough to be running a star business is this.

Get your smart people to work on products that deepen your differentiation and strengthen your competitive position. Don't allow them to do "fake work" and work on non-related areas.

If they do come up with breakthrough products, run your experiments under a different brand name.

The Power of the Positioning Lens

2011-12-01T22:22:00.000-08:00

Each company occupies a specific position in the customer's mind:

- Google = Search
- Facebook = Social Networking
- Twitter = Online Coctail Party
- Virgin = Informality and a non-big business approach
- Disney = Kids
- Bacardi = Party

These companies have great power to enter new industries if they use the lens of their positioning. For example, Google can enter virtually any computer business using the lens of search (for example - they can get into doctor search, land search, local search, mobile search, desktop search, Facebook friend search, twitter search, image search, video search, audio search, music search.) But they cannot enter into "Social Networking" without the lens of search.

Or Bacardi can enter the search business with a "party search" which will search for and list all of the parties happening in your area.

Or Disney can get into kids search.

People often propose different ideas as to why Gmail succeeded. Here's the actual reason ... They brought the lens of search to email ("a Google approach to email ... don't sort your mail just search it" - was the first message that they put through when Gmail launched; the mega storage space was a consequence of the search function ... you needed mega storage in order to facilitate the search functionality and provide sufficient )

The "Google Circles Fallacy"

2011-11-09T03:09:00.000-08:00

A few months ago, Google started a Facebook competitor called Google +. At that time I predicted that it would fail.

Now it is happening. Google + is showing signs of failing.

Today, I drew another important lesson about why Google + is failing and I call this the "Google Circles Fallacy."

Google realized that Facebook had one missing feature. This was the ability to sub-divide your social circles into groups (or circles.) So Google created this as a key feature of it's Google+ social network. At first glance this ties in well with the advice given by Jack Trout who, in his book, Marketing Warfare advises firms to find an angle and make that a central feature of their strategy. The problem in this case is that Facebook simply added a variation of the circles feature to it's offering and Google's advantage disappeared overnight.

So the key lesson is that even though you find an angle, it must not be easy for your competitors to copy that angle. For example, Google Chrome has succeeded by creating a really fast browser (easy when your main competition is Microsoft's Internet Explorer!) Or Gmail succeeded by giving almost unlimited storage space on email (easy when your competitor is Microsoft's Hotmail!) But when you go to war against an entrenched gorilla with an easily copy-able feature, then you risk failure.

So what could Google have done. For starters, Google should have launched the social network under a new brand name (how about "Larry.com" or "Sergei.com"? These would be far more memorable and give the site personality.)

Next, Google should have divided the social networking market in some completely new way perhaps making search a central feature. This would have played to it's competitive advantage and Google may have had a chance.

So when you build your own start-up, remember not to indulge in the "Google Circles Fallacy".

Strategy Checklist aka The Most Important Article You'll Ever Read if You are an Entrepreneur

2011-11-05T19:39:00.000-07:00

Special thanks to my friend - Chetan Dhruve - from whom I've learnt many of these principles.

1. Competition
All strategic thinking starts with an analysis of competition and how your offering fits into the competitive landscape.

2. The 5 Second Test
Can you describe what your company does in 5 seconds or less?

3. Clarity
You describe what you do to somebody at a party. After a few days, that person is describing what you do to his friend. Does the message pass through without distortion or changes?

4.Focus Requires Drilling Deeper
First really understand the needs of your target market. Then provide solutions to their problems in a way that nobody else can match.

5. Be Different Not Better
Faster, cheaper, better is just not enough. You need to be different.

6. Radical Differentiation
But just different is also not enough these days. Your product needs to be radically different.

7. No Clichés
In the tagline don’t use clichéd words. Examples include social, share, innovation etc.

8. Concreteness
A concrete word in a tagline is better than an abstract word. Ex – “Rs. 1 Lakh Car” >“Low cost car”. Also ensure that the tagline is specific (Ex - "1,000 songs in your pocket" is better than "lots of songs in your pocket.")

9. The For Whom Test
The tagline should clearly indicate target market. Ex – “DIY book marketing software for authors.”

10. The For When Test
Even better, the tagline should indicate as to when the product should be used. “DIY book marketing software for authors about to launch their books”

11. Tagline Length No Problem
Longer tagline is fine if it is giving greater clarity.

12. Segment a market with a lens
Ex - Apple segmenting MP3 market with the lens of Design or Tata segmenting jewellery market with the lens of trust (Tanishq)

13. Company Branding
The company’s brand should not be vague (example “inspired by values”) but specific and concrete. Use of the company’s brand name on the product name should give the product additional power. Imaginary example – If Google (which is “Search”) comes out with “Julius – a search engine for journalists”, it will be very powerful.

14. Tagline is Most Important
It sets the direction of the company

15. Say “NO”
Even with focus, there will be plenty of temptations. Say NO to most projects. Take on very few projects and execute on those with great attention to detail and finishing.

16. Build a Moat
Ensure that competitors cannot easily copy your offerings. Build brand or build network effects into your product. Raise the barriers to entry. Create a virtuous cycle.

17. Create a Category
Create a whole new category (by dividing target market, problem and solution in a whole new way.) Don’t just create a product.

18. Advertising is Wasteful
In general, advertising is a waste of money. Enabling word of mouth potential is the best. Next best option is PR. Then comes educating the market After all that is done properly, you can think of building a sales force.

19. Category
It’s tempting to enter an existing market (category.) Don’t do it. If you do, you play by “their rules and in their game.” Instead create your own category. Name it. And get others to enter it!

20. Gap in the market. Market in the gap.
In trying for uniqueness it is possible to break out so much that there is no market for your product. Ensure that there is indeed a gap. In essence, this is what you’re looking for:

21. Overall Industry Growth Rate
A rising tide raises all boats. Ensure that you are in an industry which is experiencing rapid change and growth thus allowing for the emergency of new leaders.

How to Choose a Star Business Employer

2011-07-20T05:59:00.000-07:00

The best thing that can happen to you is to get an opportunity to work at a star business. Even if you don't get stock and associated riches, you get the opportunity to be part of a success story. The reputation and confidence that you get when your company succeeds will be more than worth it.
So how do you identify star business? Here are some clues:

1. Differentiation - Is the company's offerings unique? Are there any others offering stuff similar to what the company is offering? If yes, then run away. It's either a question mark or a dog.

2. Industry Growth Rate - Is the industry in which the business operates growing at more than 15% per annum? If yes, the company has a chance to grow even faster.

3. Niche Leadership - Is the company claiming to be a leader of a niche inside the fast growing industry? Is the company creating and growing a whole new sub-category? For example, if a company is in the area of social networking (a fast growing category) but offers social networking for black people or new mothers (niche leadership) then this is a good sign.

4. Market in the Gap - The company that you have identified may have identified a gap in the market. But is there a market in the gap? Can your customers afford the products being offered by the company? Do they need it real bad?

5. Industry Structure - Think about the structure of the industry. Is there cut throat competition driving prices down? Are there substitutes poised to take over the company's market? What about customers? Do they have a lot of choice? What about customer affordability? Can customers afford to pay a good price for the goods offered by all of the competing firms put together? Or are all of the competitors fighting for a share of a shrinking wallet?

6. Business Model - Differentiation, Industry Growth Rate and Niche Leadership are important things but what about the business model of the company in question? Is there a clear plan towards revenues and profitability? Do you know who the users for the products are? Who pays for the product? When do they pay? Do they pay on a monthly subscription basis? Or do they pay at the end of the usage cycle? What are the risks for the revenues? Can revenues dry up quickly and suddenly?

7. Cash Position - Does the company have enough cash to survive until it hits a cash flow positive state? Usually if it is a star business, it will be able to line up investors. But even the best of the best positioned companies can go bankrupt during bad times. Does the company have the headroom to survive a negative black swan event?

8. Simplicity / Clarity - The best business (as Richard Koch says in his earlier book - the 80/20 principle) is one which is big and simple. In other words, it has fewer products, fewer customer types, fewer vendors, fewer employees, fewer investors. Is the business you're evaluating a complex business with many products, many types of customers (big corporations, small businesses etc.) and many types of business models? Then this is a danger sign. Management may get overwhelmed with the complexity. Tread carefully.

Good luck with your job hunt!

The For-When Test

2011-07-04T02:45:00.000-07:00

One way to create even more focus for a company is to focus on the For-When test.

Entrepreneurs are very familiar with defining their target market. The For-When test sub-divides the target market and asks the entrepreneur to define when exactly will their target market use their offering.

For example, one entrepreneur may set up a company that offers a cola like beverage (undifferentiated and likely to be killed by Coke / Pepsi). Another entrepreneur may create a cola like beverage and say that the beverage is to be drunk while you are driving. This drives the thinking behind product design. Perhaps the bottle will be designed to avoid spillage. Or will have some kind of substance that is scientifically proven to improve concentration among drivers.

You can even combine some 80/20 thinking to bring laser sharp focus with much higher profits if you apply the for-when test. For example, one entrepreneur might start a business that offers book marketing and promotion services and products to authors. Another might start one to cater only to those authors who are launching their books. It is well known that authors spend the bulk of their marketing dollars within the first few months of their book launch. In this case, the second entrepreneur will be able to capture more of the authors' share of wallet.

Why Every Star Business Should Eventually Become Like Berkshire Hathaway

2011-07-04T02:35:00.000-07:00

Google started out as a search company. They did better than anybody's wildest expectations. With the free cash flows and the smart people on their rolls, they've been getting into many different areas. Some of these are successes (like Gmail.) Others are failures.

But here's the problem.

With every success of a non-search item, Google looks less and less like a Search company (well-differentiated) and more and more like a technology company (undifferentiated.) With every failure, Google's sheen of invincibility becomes a little muddied. Competitors begin to think that Google can be defeated. Eventually, somebody will challenge Google's core business.

What could the alternative have been?

Google succeeds in search. Google then uses the funds being generated to set up a separate investment fund with a separate brand name and identity. This fund backs ideas that Google employees come up with in their 20% time. Each of these ideas (after they pass through an initial evaluation and vetting phase) are set up as separate new companies with distinct non-Google brand identities. The companies will share resources including employee time, some common departments (such as HR, payroll, accounting, procurement etc.) and will need to become survive or thrive on their own or die within a set time frame.

The advantage of this method is that even if one day Google's core search business dies, the investment fund will have backed one or two big businesses that will continue to throw up enough cash.

Every star business will eventually come up with opportunities that are worth pursuing. The trick is to avoid diluting the company's core positioning and do it under a separate brand name. Setting up a Berkshire Hathaway like business structure is one way to do this.

Entrepreneurial Headroom

2011-07-04T02:17:00.000-07:00

This is a short post covering an idea that is still baking in my head. The idea is that companies must cultivate entrepreneurial headroom. This is defined as a measure of the company's reserves and adaptive capacity.

Let's take two companies doing similar businesses with nearly identical revenues, net profits and balance sheet numbers. The first company is able to generate those numbers with very little management effort. In other words, management is mostly spending their time playing golf and evaluating (and mostly rejecting) new opportunities. In the second company, management is stretched to the limit. They work 12 hour days, partly because they tend to go after many opportunities and partly because they have fewer systems in place.

Which is a better company?

I'd argue that the first company is a better company since they have more entrepreneurial headroom. If the next big opportunity comes along or the next big crisis comes along, they have the reserves (of cash and manpower) to handle it.

Examples of companies with entrepreneurial headroom include Google where employees work only 4 good days a week and Berkshire Hathaway which has a very small central office in relation to the scale of its operations. Another example is Microsoft in mid-nineties when it was able to shift into Internet mode and take advantage of opportunities within months.

In Richard Koch's earlier book - The 80/20 Principle, Richard speaks about Return on Management Effort or ROME. Is a company with Entrepreneurial Headroom the same as a high ROME company? Probably. At any rate, a company with high EH has the resources and the adaptive capacity to pursue new entrepreneurial opportunities.

So how do you build a high EH company?

1. Evaluate many opportunities but pursue very few of those.

2. Pursue activities that deepen your company's differentiation and focus.

3. Ensure that employees have time on their hands to pursue non-urgent tasks so that if a need arises, they can be shifted around to pursue a new opportunity.

Why Google + Project Will Fail

2011-06-30T22:46:00.000-07:00

A lot of people are going gaga over Google+

Here's why I think it will fail:

1. Fails the "5 Second Test" - It's hard for a person to describe the service to another person inside 5 seconds. People have a challenge in telling how it is different from Facebook.

2. Fails "For Whom Test" - It's not clear as to whom the service is targeted at. Every technology needs its early adopters. Facebook had Harvard college students. Who is the initial target market for Google+?

3. Fails "For When Test" - It's not clear as to when you'd use the service. Is it for when you need to find a new friend? Is it for when you need to share something?

4. Feature Fatigue - Sure the interface looks slick and there is some jaw dropping technology in the back-end. But there are too many features in there that are diluting what the service is all about. Each of those features (Circles, Hangouts, Instant Upload, Huddle) could be stand-alone products. At present it looks like a Swiss army knife.

5. Brand Extension - Google is extending its brand name too much. This is like Kenny Rogers trying to stay current by making rap music. In most consumers' minds, Google is still "Search." Doing anything else should be under a different brand.

6. Name Problem - Google+ is generic. It does not roll of your tongue like a noun. Worse still, Google already stands for search.

Does making a lot of money and being successful, reduce your IQ? Looks like it based on this brand new Google project.

Lumosity is a Star Business

2011-03-24T23:24:00.000-07:00

Lumosity provides brain training solutions using video games. Here's why I think it's a star business:

- Target market (of baby boomers) is growing very rapidly and will need to rely on such solutions to stave off problems like Alzheimer's, dementia etc.
- As they collect more and more data about their players they get into a very powerful position and the monopoly effects become more pronounced.
- There is potential for new markets (school children, cancer patients, executives etc.) and new devices (iPod, iPhone, Android, Nintendo Wii etc.)
- They are relying on a large scale trend of more and more people playing video games ... except that it is with a twist (play video games while actually triggering meaningful improvements in your mental capacity.)

Of course, they seem to be doing a lot of things right (name is good, positioning is clear, differentiation is becoming deeper with more games being added)

A brilliant star business with excellent long term potential. Even Warren Buffet may actually invest in this business.

Getting to Plan B - A Book Recap

2011-03-09T23:23:00.001-08:00

This is a recap of the excellent book - Getting to Plan B (by John Mullins and Randy Komisar) that I read recently. It is an excellent companion book to the Star Principle by Richard Ko. There are many ideas that I can apply for my own business - www.bookbuzzr.com:

Most businesses need to change directions midway in order to survive. You need to move from Plan A to Plan B, C, D or even Z before you find success. This book shows you how.
The idea is to iterate relentlessly but systematically and to keep iterating till you succeed big time and continue doing so thereafter.
The day you stop systematically iterating is the day that your competitors will begin catching up with you.
You can tinker with 5 parts of your business model. These are the revenue model, the gross margin model, the operating model, the working capital model and the investment model.
The revenue model asks the questions as to who your customers are, how much they'll pay, how often, when will they pay etc.
The gross margin model refers to the cost of goods sold (i.e. the direct costs of the service or product that you're selling.)
The operating model refers to the other costs such as administrative and general expenses.
The working capital model refers to how early you can get customers to pay and how late can you pay your vendors.
The investment model refers to how much cash you must spend at the beginning before enough customers give you enough business to cover your costs.
Dashboards are a systematic way to test your assumptions. On a a dashboard, you would record relevant analogs (i.e. indicative numbers from other businesses in the same industry or other industries), antilogs (i.e. things that you want to do differently from other businesses in the same industry or other industry), leaps of faith (the unknowns which you will systematically test) and your hypotheses that will prove or refute your leaps of faith.
Less capital or later capital can be better for a business.
Don't create business plans, create learning plans.
Don't try to create a plan B when you are creating plan A as it could be as flawed as your plan A. It is better to give all of your resources and energy to Plan A without trying to second guess yourself.
A particularly important part of the book is the prototype dashboard for testing hypotheses under each leap of Faith. This is reproduced below as it is probably the most critical part of the book:

Leap of Faith - Commuters will stop and buy a refreshing drink

[hypotheses] - Ex: "at least 10 customers per day"
[metrics] - Ex: "Customer count"
[actual period 1] - Ex: "2 customers"
[actual period 2] - Ex: "0 customers; rainy day"
[actual period 3] - Ex: "3 customers"
[insights obtained, course corrections needed] - Ex: no point in setting up if it rains; demand lower than predicted

While this is an excellent way to think there is one to be aware of with dashboarding. This is the classical "correlation is not causation" issue. In other words, just because you observe something during a particular period, you cannot make a particular conclusion ... there may be other causes or it may just be plain randomness. And often entrepreneurs struggle with very small sample sizes to actual derive any kind of signal and separate it from the noise (anybody who has set up an A/B test on a web-page that has just a few hundred visitors a day probably knows this.)
In spite of the above problem, the idea of dashboarding is worth it for every start-up out there.

Understanding Radical Differentiation

2011-02-17T15:10:00.000-08:00

There is differentiation and then there is Radical Differentiation.

What's the difference between the two? This article explains it.

There are three things that you think about when you design a new business. These are:

1. Target market
2. Problem
3. Solution

Differentiation (or Simple Differentiation)
If you go after an existing target market and an existing problem with a new kind of solution, it is simple differentiation. For example, if you came up with a new kind of Tablet to compete with the iPad (as has happened with India's iPad competitor Notion Ink), then it would be differentiation. Other examples of products that are differentiated include:

Taco Bell - same target market and problem as Mc Donalds. Differentiated solution with the tag line "Think outside the bun."

Flip Video Cameras - same target market and problem as Sony Handycam. Differentiated solution with the ideas of simplicity and sleekness.

Radical Differentiation:
If you go after a completely new, hitherto unsegmented, target market, tackling a completely new problem for that market and offer a solution that, by definition lands up being completely novel and new for that particular market, then it is radical differentiation. Examples include:

Cirque Du Soleil - Circuses for adults (completely new target market.)
Disney Phone - Cellphones for kids (available only in Japan; completely new target market)

The danger of Radical Differentiation is that the new target market may not be ready to embrace your product (gap in the market versus market in the gap) or the market may take too long to develop. But if it clicks, then you become the undisputed leader with very little that the competition can do to dethrone you!

Now one might argue that products that are not radically different have been runaway successes. Examples include:

1. iPod (was not radically different from MP3 players.)
2. Microsoft Excel (was not radically different from Visicalc)

The counter to this argument is this. If you are an existing mega business with an existing beach-head (in terms of customer base, branding, existing technology platform etc.) you can afford to do simple differentiation and still succeed because you can leverage your existing resources. But if you are a start-up starting from zero, then you will find your business going nowhere with simple differentiation. For example, if you said that you're going to start a Facebook with better privacy controls, you may not succeed that well. But if you said that you're starting a social networking site for millionaire's you may have a better chance at success.

Radical differentiation is particularly important in the online world where winners in a category take all. It's less important in fragmented industries (for example, you can be an architect, a lawyer, a lawn mover or a taco bell truck operator and still get business without radical differentiation.)

The Three D's of a Sustainable Business

2011-02-08T17:24:00.000-08:00

Every business that survives and thrives in the long run depends upon three D's. These are:

1. Differentiation - The products and services offered by the business need to be completely different from anything else out there. Most successful long lived businesses were so different that they created whole new categories.

2. Depth - Most entrepreneurs don't go deep enough into the problem that they are trying to solve. They try to go broad and fall into a classical trap.

For example, let us say that you come up with course evaluation software. The obvious competitor would be a company that offers a suite of broad learning management products (which includes a course evaluation module.) If you need to compete with only course evaluation software, you need to go very deep into the domain of course evaluation. Perhaps you need to have built-in survey instruments that have been validated with past data. Perhaps you need to offer a phone based course evaluation system. Or maybe you need to offer an add-on service that processes the data and churns out a completed reports to enable decision makers to understand trends.

3. Details - Visit Disneyland and you will be struck with the attention to details provided to every aspect of the parks. From the names given to workers at the parks (they are referred to as "cast members"), to the detailing on the rides, you will realize that an enormous amount of time and resources have been spent on polishing their product. Most entrepreneurs are flitting from project to project and opportunity to opportunity. So they are unable to spend time on looking at their current offerings (both processes and products) to ensure that the details have been taken care of. Examples of shoddy attention to details and insufficient polish include buggy software (because entrepreneurs enjoy working on new features versus polishing existing features), poor customer service or inefficient payment processing systems.

The problem with each of these 3 D's is that the results are not immediately visible. They take time to show up. But when they do show up, the results will be spectacular.

The Eiffel Tower Effect

2010-12-20T00:53:00.000-08:00

When the Eiffel Tower was first built, it was much criticised by the public, with many calling it an eyesore. Newspapers of the day were filled with angry letters from the arts community of Paris. One letter said, "And during twenty years we shall see, stretching over the entire city, still thrilling with the genius of so many centuries, we shall see stretching out like a black blot the odious shadow of the odious column built up of riveted iron plates." Signers of this letter included Jean-Louis-Ernest Meissonier, Charles Gounod, Charles Garnier, Jean-Léon Gérôme, William-Adolphe Bouguereau, and Alexandre Dumas.

Novelist Guy de Maupassant—who claimed to hate the tower supposedly ate lunch in the Tower's restaurant every day. When asked why, he answered that it was the one place in Paris where one could not see the structure.

Yet, twenty years later, when it was supposed to be torn down as per the original plan, the French people decided to retain it.

Today, the Eiffel Tower is the most-visited, paid monument in the world.

What changed? How can a monument that was initially hated become an enduring icon?

In their insightful book, 'Switch', Chip and Dan Heath, refer to this as the "mere exposure effect." In other words, simply by becoming accustomed to something new, people begin to accept it and even like it.

So how does this apply to entrepreneurs?

There are two key insights:

1. Build something unique. Radically different even.
2. Persist with it long enough. Exposure creates acceptance and eventually admiration.

Cuil is Dead as Predicted

2010-12-17T18:37:00.000-08:00

The Star Principle is really powerful. Using this framework, I'd predicted that the business would not work in an earlier blog post. Now I learned that they've shut down. It's scary but affirms the power of the ideas contained in the Star Principle book.

Solving the Chicken and Egg Problem in Network-Effect Sites

2010-12-03T18:59:00.000-08:00

A network-effect site is one where the more people you have joining the site, the more people you will have joining the site. Sites such as Facebook, YouTube, Flickr, Linked-in etc. Or even sites like iStockPhoto or eBay where the more sellers you have the more buyers you are likely to have. Or games like Farmville which tend to attract users simply because it improves the gaming experience for existing players (earn more points, have neighbors etc.)

Once setup well, such sites are dream cash machines and throw off cash at an increasing pace with minimal increases in costs. But the challenge lies in the initial stages when you are trying to get the network off the ground. You run into a chicken and egg problem ... i.e. without anybody being there, it's hard to entice everybody else to join.

Here are 5 ways to crack the chicken and egg problem ... i.e. to get the initial base of users using the system on a committed basis. The first method is not personally palatable to me ... but are legitimate ways of building a network-effects based business.

Porn / Piracy and the promotion of illegal activities or content - Several sites and technologies such as Scribd, Napster, Pirate Bay etc. got their initial viral explosion through these methods.
Provide a new technology - for example, YouTube initially provided a new way for people to share their videos without worrying about video formats and conversions.
Provide unique seed content - One can also kick-start such a site by offering initial seed content that draws traffic which in turn attracts other content owners and creators. For example - justin.tv started out as a place where one person (Justin) was broadcasting his life. At some point after garnering enough interest they allowed others to start their own lifecasts and the site solved the chicken and egg problem.
Start from a niche and expand - Another method is to start from a niche area and expand. The niche could be geographic or topic specific.

Instapaper - A Startup with Star Potential

2010-11-23T05:17:00.000-08:00

Instapaper is a business with star potential. Here's why:

1. It's creating a new category which I would describe as the "Save Now for Later Reading" business. It's target market would be everybody who comes across some interesting web-page etc. and want to save for later reading.

2. It's value proposition is clear and simple. It's tag-line is understandable. They've not messed up their positioning with any other "social" features.

3. I also like the name which takes generic words (Instant + Paper) to arrive at a noun like company name.

The only thing that I consider as a negative is the fact that they've begun to act a little like Yahoo by offering a section called "editors picks" on the home page. While they've probably been clever and have used some software to automatically generate the editor's picks, I still think that this is probably diluting their basic value proposition and begs the question:

Is Instapaper a provider of a time-management technology or a content website?

Of course, they need to solve other problems like revenue model (advertising?), handling competition, handling VC's (if they raise VC money) etc.

But overall, it's an interesting business with potential.

What Can Change In Your Company's Strategy

2010-08-30T23:41:00.001-07:00

Every company attacks a problem for a particular target market with a specific solution. Together, these three things comprise the positioning of the company. When the company starts out and is trying to create a beach-head in the brain of the customer, it attacks the problem with a differentiated solution. If it is a star-business, it soon becomes a market leader and creates a new category.

With time however, competitors enter the space and the company is forced to innovate to further differentiate itself. It may also want to expand it's offerings to take care of new market opportunities.

So does this mean that the company changes it's strategy?
What can change in the company's strategy and direction?

While examples like Nokia abound (which completely changed the problem, solution and target market with it's entry into mobile phones), most companies with average luck will do well to focus on the target market and the problem. In other words, the pain that you are trying to fix and the specific group of people with shared characteristics for whom you are trying to solve the pain remain unchanged. What can change is the solution.

For example, let's say you are a company that has a drug (solution) for people with diabetes (target market and problem). And let's say you became the market leader in this space as a result of some new innovation. So you become the category leader in the market defined as "diabetes care and management." Now, you can come up with a number of new medicines, drugs, testing systems, hospitals, preventative care, educational videos, social networking site for diabetics and more. But you cannot change the problem that you are trying to solve. Nor can you move away from the core group of people (diabetics) for whom you are trying to solve the problem.

What if, during the course of business, your research team comes up with a new kind of solution that helps menopausal women? Do you lump it under your original brand?
No!
The target market is different. The problem is different. Therefore, you need a separate brand and preferably a separate or at the very least a separate division to handle this new opportunity.

Your solution can change. But your problem and target market remain unchanged forever during the life of your company.

The Flip Video Camera is a Star Business

2010-07-27T22:49:00.000-07:00

The Flip Video Camera is a simple easy to use video camera. It is a star business because:

1. They took the video camera market and sliced it in a new way. While most digital cameras are extremely complicated with lots of different features, The Flip is a stripped down version with no big screen, no photo-taking ability, no settings, no video light, no special effects, no optical zoom. And they priced it below $200.

2. They've created a whole new category called, "the $200 digital camcorder category." While I would not refer to a priced based segmentation as a new category, the real value lies in the simplicity and ease of use and the minimalistic approach. So ideally their tag-line should be "Video Cameras for the Rest of Us"

So even though there are competitors entering the space, it will be difficult to dislodge these guys as long as they don't make any major positioning errors.

The Transplanted Star Business

2010-07-07T23:32:00.000-07:00

Sometimes you can start a star business by simply taking an idea that has worked in one country and moving it to another country.

One example that comes to mind Taco Bell India. Taco Bell in Bangalore, India has been a runaway success. While it's possible that people are flocking to Taco Bell because it's a new concept there may be another reason for it's success. Indians like spicy tastes and the Mexican taste may be an interesting variation for them. And the relatively low prices are another reason for their success.

On the other hand, if the transplanted star business has a very low barrier of entry you may land-up in a situation where you have too much competition to have a high probability of becoming a market leader (one of the requirements for a star business.)

One example is group buying. Groupon and woot.com seem to have succeeded with the idea of group buying in the US. So a host of new start-ups in India have simply copied the idea and brought it to India. Examples include Taggle, Lootmore, Snapon, MyDala etc. Check out this Plugged.in article for more examples.

While the category certainly looks very appealing, it will be hard for these start-ups to claim market leadership in terms of revenues. The only way for them to succeed is to differentiate themselves in some way by slicing the market in a whole new way. For example, they can focus on a particular niche (say hotel rooms, restaurants, airline tickets or spa experiences or by a single geography) or they can turn the model on it's head and become aggregators of these aggregators (i.e. think of a start-up that scours all these sites and lists all of the deals from all of these group buying sites) or even a search engine that simply indexes these websites.

The danger in the case of implementing generic group buying for the Indian market is that your business might become a question mark (a follower in a fast growing market.)

The Chief No Officer

2010-06-28T04:33:00.000-07:00

Ambitious managers and entrepreneurs have a fatal flaw.

They want to do too many things.

They take on new projects, pursue new joint ventures and partnerships, want to hire more people, want to add new products, introduce new processes, expand into new markets and more! While this is great, it can also reduce your venture's source of being truly different.
Each new move you make can either deepen your differentiation or make you look like other companies in your space. But on the other hand, if you shut yourself off from all new initiatives, you also shut yourself off from emerging opportunities.

So what's the solution?
Actually it has two parts:
Part 1 - Do whatever it takes to have new ideas and opportunities bubble up in your company. Encourage people to think outside the box and come up with new variations of your core product or services. Encourage them to find new markets. Encourage them to innovate like Edison. But let most of the innovation be on paper as thought experiments.

Part 2 - Have a "Chief No Officer" (CNO) whose job is to keep the company focused on the straight and narrow statement that sticks to the positioning originally decided upon. The CNO should ideally be saying no to 99 of the 100 ideas that come to his attention. The 1% of initiatives that he says yes to, should deepen differentiation or speed up growth without diluting the company's positioning statement. And you should put most of your money behind these one or two initiatives.

If new opportunities in adjacent markets or with new positioning statements come up, the n they can be pursued under a separate new brand name.

So who should be the CNO?

Ideally it should be a person who is not involved in the day-to-day affairs of the company. It could be an advisor, board director or consultant. If the CNO is somebody who is involved in the day-to-day affairs, he or she will tend to bring emotion and ego into the decision making.

The worst mistake is to add so many things to a brand that it becomes obfuscated.

Cupidtino.com - A Star Business

2010-06-18T01:18:00.001-07:00

Cupidtino.com describes itself as the first (and only) "Mac-inspired" dating site for Apple fans. I believe that this is a fantastic star business for the following reasons:

1. Name - is a made-up noun (a play on Cupertino where Apple is headquartered), indicative of what the site does and is not a generic word.
2. Tag line - anytime a tag-line has the words "first", "only" or "biggest", I get excited. This means that it's creating a whole new category. In particular, this venture has taken the massive dating market and re-segmented it in a whole new way!
3. Real business model - Unlike many other dot-com ventures, this venture has a real business model that charges $4.79 per month. Further, Apple users are generally comfortable about making purchases of digital goods (iTunes; iPhone Apps)
4. Newsworthiness - The potential to get into mainstream news is very high. Apple itself is a highly newsworthy company. And this company leverages on the Apple brand.
5. High engagement levels - Apple fans are rabid about their love for their gadgets. Users are likely to spend hours interacting with others on the site.
6. Opportunity to differentiate even more over time - The site can deepen differentiation by introducing Apple specific dating features.
7. Market growth rate - Apple is growing at more than 10% ... so a site built on top of the Apple brand is also likely to grow at more than 10% per annum.

Zuora - a Star Business

2010-06-16T04:42:00.000-07:00

Zuora is a star business. They are a leader in subscription billing and payment solutions. According to their website, "Just as Amazon makes it easy to become an online retailer, Google makes it easy for anyone to advertise online, and PayPal makes it easy to accept online payments, Zuora makes it easy for any company to build, manage, and grow a subscription business."

Here's why:

Name - is quite unique and is not a generic name
Positioning and Market - They've taken a large market (online payment processing) and cut that market in a new way (subscription billing) and are claiming leadership of that niche. The subscription market is definitely growing at more than 10% a year.
Capital - They've raised a huge amount of capital from well-connected and experienced individuals and institutions (Benchmark and Marc Benioff.)

Good luck to Zuora!

Commitment Phobia Among Entrepreneurs

2010-06-15T06:30:00.000-07:00

A year ago, Slideshare.net was a well-positioned business. As soon as you landed on the home page, it was clear as to what the site stood for. You used the technology to share your PowerPoint presentations more effectively. The site description was, "Slideshare - A place to share and discover presentations and slideshows." For the lay person, Slideshare was "Like YouTube but for PowerPoint presentations."

Now, if you visit the site, you will notice that the site has expanded it's offerings. The site description now reads, "Upload and share your PowerPoint & Keynote presentations, Word & PDF documents and professional videos on SlideShare. Add audio to make a webinar. Capture leads with your presentations."

What this means is that they have simultaneously gone to war against multiple, powerful competitors.

Share Video = YouTube
Webinar = Webex, DimDim
Capture Leads = Salesforce.com
Share Documents = Scribd

My guess is that they will probably see an immediate surge in users because of the variety in their offerings. Then, if a well-positioned, competitor focusing on sharing slide-decks comes along, they will be have a hard time retaining their category leader status in the "share slide-shows" category.

Why do some entrepreneurs do this?
For the same reason that some young people put off getting married.
Commitment Phobia!

The best decision is to focus on a narrow area that is growing fast and become the category leader.
The next best decision is to slip up and focus on a narrow area that is probably not growing fast. So even though you're not category leader, you'll never grow to become Microsoft or Google.
The worst decision is to try and become all things to all people.

This may happen out of fear (what if the niche I've selected is not big enough?)
Or it may happen out of greed (If I can be number one in multiple areas, then my company will be a billion dollar, conglomerate!)

Commitment phobia usually results in tag-lines with the words "Total Solutions for ..." or "One Stop Shop ..." Or they result in long tag lines with lots of commas (technology to help you share videos, audios, photos, presentations & documents ...)

Yet another thing for entrepreneurs to be ever-vigilant about.

Brand Attribute Fatigue (aka the Google Problem)

2010-05-18T04:26:00.000-07:00

A brand is a proper noun. And it should ideally stand for something unique and be different from anything else that is out there. And a brand should have just one or two attributes.

For example, the brand Google is fantastic. It stands for "search." It gives the best search results.

But as Google has become successful, it has launched a number of new offerings that are not in the search space. It tried Google Video, Google Talk, Gmail, Google Wave, Chrome, Android etc. In short, it's trying to become less different. It's moving away from being a search company to becoming yet another technology company (albeit with a huge amount of smart engineers and money.)

Our minds like clarity and clear hierarchies in product categories. And minds get fatigued if a brand has too many attributes. Now our brains are becoming fatigued by all the things that Google stands for (search? video? phone operating system?)

Granted that Google is sitting pretty today with all the billions that it is making. But will it still be able to retain it's leadership position in search after 10 years if it continues to go in so many different directions all at once? What if a different kind of search engine comes along that is focused on any one type of search? Will Google lose market share? I bet it will. And the reason will be not because of better technology but because Google created brand attribute fatigue by putting its label on too many ideas.

Mixr - An Example of a Well Positioned, Differentiated, Focused and Clear Business

2010-03-28T21:53:00.000-07:00

Mixr is an example of a well positioned, differentiated, focused and clear tag line. It is clearly targetted towards DJ's. It describes itself thus:

"It's a DJ Mixing application for the iPad. We hope for mixr to become the first ever professional DJ application for iPad. With Mixr, causal mixing and professional mixing merge to become a new form of mixng your music. Features core functionality, cross-fading, equalizing, cue, drag & drop tracks, and full effects such as delays and auto filter. Mixr gives you a DJ experience unlike anything you've ever touched before."

Is the business a star business? Let's see:

1. It's creating a new category in a market that is likely to grow at faster than 10% per annum.

2. It's the market leader in that category.

So yes. I think it's a star business.

The Seven Most Dreaded Words for a Startup Business

2010-03-28T21:15:00.001-07:00

This is a short-post.

If you ever hear the following words coming from a start-up founder run as fast as you can. The words are:

"But it can do so much more!"

A new product almost always has to compete on one dimension. It can never, ever compete on breadth of features or attributes.

It has to do one thing and one thing only better than any other product or service in the world.

This video on YouTube introduces a new concept called Text 2.0. The idea is great (basically, the text you are reading knows that it is being read by tracking your eye movement with some very cool technology.)

Unfortunately, they run into two problems:

1. They don't know who is the target audience. They don't address who are likely to be the early adopters for the technology.

2. They don't know what to offer to this early adopter set. So they throw out as many features and attributes as possible hoping that something will stick.

Looks like a bunch of very smart engineers in need of some positioning help :)

DC Design - A Star Business

2010-03-24T22:41:00.000-07:00

DC Design soups up your average car and makes it look like it jumped out of a Batman movie. They have 300 employees. And they do up the interiors of trailers belonging to movie stars.

They've launched a Rs. 4.5 lakh ($10,000) mass customizable product aimed at owners of SUV's like the Toyota Innova. The beauty of their positioning is that they've compared their offering to a First Class seat on a plane or a Rolly Royce interior. I believe that this is a star business due to the following reasons:

1. Clear target market - owners of SUV's who want to upgrade their interiors and enjoy a new level of luxury.

2. Creation of an entirely new category - This is not the automobile category. This is a new category that DC is creating in the Indian market. The category can be summarized as "Bringing the Movie Star Trailer experience to upper middle class Indians." It's clear, specific and different. And there is no comparable competitor in the space.

There are a few negatives such as longer cycle times (since the customizations need to be done individually) and the fact that they've chosen to make a set of initials (DC) into a brand.

But the concept definitely has star business potential.

The Speed Fallacy (AKA "Half Assed Product? No Problem! Half Assed Positioning? Big Problem!")

2010-03-19T03:33:00.000-07:00

Many 'dynamic' entrepreneurs, CEO's and their VC's talk about 'speed-to-market.' They suggest that you work hard and fast to rush something out of the door.

"Release Early! Release Often!" they say.

"Just put something out there and see what sticks." They advise you.

"Allow the market to lead you to it's sweet spot." They declare.

Or they quote Shakespeare - "There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures."

To me, creating an unnecessary sense of urgency smacks of fear-based thinking. Agreed, sometimes you do need to catch the tide. For example, if you are Steve Case and you're trying to merge your business with a much larger business using your hyper-inflated share price at the peak of the dot-com boom, it does make sense to rush into execution.

But when you are starting a new business, this sense of urgency can be misplaced.

Here's why:

Your most precious and limited resources are your management effort, attention, time, energy, confidence and enthusiasm. The second most important resource is the morale of your team-members.

If you squander these precious resources on an ill-conceived, ill-positioned, me-too kind of product, you may land-up in a challenging situation. Every move you make either takes you away from your positioning statement (and makes you look more like your competitor) or deepens your differentiation. Not only that, when you launch a half-thought through product, you will land up accumulating early-adopter clients. While these people are likely to be quite forgiving, you will still need to maintain them and keep them reasonably satisfied. If you decide to change your positioning and go after a different target market or create a new product, you will land up dividing your attention with the first product and the new initiative. And you'll land up fighting multiple battles with multiple competitors.

A Fool Moves. A Wise Man Travels.

So what should you do?

Understand that there is no rush in coming out with a product. Do it at your pace. And in your own time.

What happens if somebody else beats you to it?
Nothing!

If you understand differentiation, you realize that there are an infinite number of ways that you can position your product to an infinite number of target customer segments. For example, even though Coke launched about a hundred years before Jolt, Jolt was still able to gain market share with it's tag-line "All the sugar and twice the caffeine." or the de-facto tag-line "The soft drink of the elite hacker." Or consider that Google launched it's search service years after everybody had declared search to be a closed game.

In other words, if you do things right, only one of two things can happen:

- The stars line up right and you win big (a black swan event that you do not control)
- Somebody else wins big but you at least win (which can also mean a sizable exit for you.)

But if you hurry up to launch a me-too, undifferentiated competitor, then you land up with a business that takes enormous will-power and effort to sustain or differentiate (evolve into a Star business.)

Also, remember that understanding your customers and the competitive landscape and developing a unique perspective is far more important than working on the nitty gritties of product development, raising finance or hiring people.

When you are launching a new product or service, you need to keep reducing the scope of your offerings to the point where only your differentiating feature remains. For example, if you are launching a new search engine to compete against Google, you need to think of only one thing that Google does not do well and focus all of your efforts on doing that one thing really well. For example, Google does not have a good record for user anonymity. It is known to record everything about everybody using it's services. If I were creating a competing search service, I would say that my search service does not record anything about anybody and make a big story about the fact that Google can endanger your future by recording your search history. With this approach, even though my search service may not get 100% of the search market, we may get 1% of the search market. And this 1% of the market may even forgive the fact that our search results are not on par with Google since they care so much more about privacy and anonymity.

Another thing to remember is to get the order of activities right. You should not worry about hiring people or raising finance if your positioning and differentiation has not been thought through. Your goal should be to create a new category by conceptually dividing the market in an entirely new way.

Success Factors - How Not To Position Your Company

2010-03-17T02:24:00.000-07:00

If you look at the company called Success Factors, you learn a number of lessons about what not to do when you set up a business. Here are the things that are wrong with the company:

1. Name - The name Success Factors is a generic phrase. In other words, when I say "Success Factors" (proper noun), you hear "success factors." Therefore, I'm forced to append, the words, "the company" before I can mention the company name. Good brand names are normally real-life proper nouns (such as Craig's List or Martha Stewart.) Or they are made up new names such as Microsoft.

2. Tagline - The tagline for the company is "Business Execution Software." This is meaningless. Are they selling ERP? Or CRM? Or BPM? Or is it some HR related software. I can see why they made the choice "Business Execution Software" ... they were probably trying to escalate the importance of their product upto the CEO level and therefore needed an important sounding tag-line. But this has caused them to come up with an unclear, ambiguous sounding tagline.

3. Explanation of Tagline - Even their explanation of the tag-line sounds unintelligible and cliched. Their explanation goes like this: "What is business execution? It's how businesses get things done." I could use that explanation in front of any enterprise software company.

The middling success they've achieved is probably because of good outsider funding, absence of competitors who understand positioning and enormous hard-work from the management team.

The "For Whom" Test

2010-03-07T21:33:00.001-08:00

All star businesses are very clear about who their core target market is and tend to identify their target market in the tagline of the company.

The problem with many businesses is that they are not focused enough to leap out at the intended audience. For example, the tag-line for Maxim the magazine is - "The best thing that ever happened to men … after women!" The tag-line is clever and makes it clear that the magazine is for heterosexual men. But it's less clear about how it's different from all the other men's magazine's out there. Is it for college students? Is it for older men? Is it for men on holiday? Can you carry it to your work-place?

One example of a good tag-line is from Slashdot. Their tag line says, "News for nerds. Stuff that matters." It's very clear who the target audience is.

The key-word when defining your target market is sacrifice. You need to be willing to sacrifice 99% of the market in order to appeal to your 1%. For example, the folks at Slashdot probably realized that they were losing out on the universe of people who were looking at the business side of technology. But no matter. By being focused on a narrow niche, they increase their appeal to that narrow niche. In fact, nerds are probably happy that the website does not appeal to non-nerds.

Why Advertising is a Bad Idea if You're Not a Star Business

2010-03-03T05:26:00.001-08:00

Advertising in an old category is sometimes a good idea since it allows you to take away small chunks of market-share from the leader. For example, if you came up with a new brand of cola and advertised you'd probably be able to get at least some consumers to try your cola.

However, if you are a follower in a fast growing industry (i.e. a question mark), advertising your business may be a very, very bad idea. This is because you will be educating your customer who will, in all likelihood choose your competitor which will be the leader in your segment. This is especially true of big ticket items such as expensive electronics, enterprise software, hybrid cars etc. The process will probably run like this:

You run an advertisement advertising your product. Part of your advertisement educates your customer about the benefits of the product. The customer considers buying the product but decides to check out what other companies offer a similar or competing product. Consumer realizes that there is indeed a market leader in the segment and decides to purchase from the market leader.

Result? You just made a sale on behalf of your competitor :)

One example of such a scenario is a hospital called Narayana Hrudayalaya which is primarily known for it's heart care specialty trying to break into the fast growing field of stem cell preservation and banking. They've been advertising on the radio but all that advertising is driving business to the market leader - Lifecell after educating customers about the product.

So what should you do?

Dramatize the difference of your product. In other words, figure out what is different about your product (when compared to the market leader) and then think up a creative way to show up that difference in a way that your consumer will understand. If your product is not different in any way from the market leader in your category, then carefully evaluate your offering. You need to either think of a way to make your offering different or you may run out of money before you beat your competitor.

When to Hold and When to Fold

2010-03-01T21:02:00.000-08:00

An entrepreneur's life is filled with a significant degree of uncertainty. One of the questions that an entrepreneur will need to answer in the course of the life of his business is if he should shut down / sell the business and do something else. The 'Rocky Balboa' type entrepreneur will persist in the face of constant failures and a future that looks bleak. On the other hand the conservative, mercenary type entrepreneur who is looking to make a quick buck may land-up quitting just before the venture becomes successful. This post attempts to dissect the reasons for entrepreneurial failure with a view to understanding when to hold and when to fold.

A venture can fail due to three reasons:

1. Poorly differentiated, poorly positioned, poorly focused from the outset:
If you don't know where you're going any road will take you there. If your venture 'caters to everybody', provides software services and sells ice-cream on the side, and cannot be distinguished from other, similar businesses then your venture is doomed to a lifetime of struggle with periods of middling results. If you are in a services type, fragmented industry such as consulting, design services or outsourcing it is possible to get-by or even thrive. But the effort will be great. And quality, efficiency, contacts or cost becomes your method of survival.

What do you do in this case?

If you are in a fragmented industry, the question is harder to answer. You will need to ask yourself if you are willing to work at building something that has a low chance of survival if you quit. But your best-bet is to quit. Or if the business is throwing off some cash, you can use that cash to build another well-differentiated, well-focused, clearly positioned business on the side (much like what the founders of 37 signals did when they used their consulting earnings to build and launch Basecamp project management software.)

2. Well positioned, focused and differentiated but not enough traction:
Let's say the year is 1905. You decide to start a sports shoe manufacturing business in Africa. Your goal is to sell sports shoes to the tribes that reside in Kenya (and protect their feet from those thorns!)You're well-positioned, focused and differentiated. But the problem is that your target market don't care about wearing shoes and even if they did, they don't have the money to pay for it. You're telling yourself that there is a gap in the market. But is there a market in the gap?

What do you do in this case?

One option is to wait and attempt to develop the market. Educate your customers. Bring down the prices of your footwear. Indulge in business development style activities at the government level so that they introduce subsidies for tribal people that buy sports shoes. Actually, that's not such a bad idea. It may take awhile but once the market develops, you will be king and no competitor will even think of touching your business. But you need to realize that this takes time and ensure that you don't run out of resources or motivation as you wait.

3. Well Positioned, Differentiated and Focused But Competition Arrives
Let's say you've started Netscape Navigator. It's a well-positioned business with traction but gorilla-type competitors arrive on the scene.

What do you do in this case?
You raise capital and you fight like hell. But continue to figure out a way to differentiate. Also know that most industries will support 2 or 3 players (Law of the Ladder as described by Jack Trout and Al Ries in their book 22 Immutable Laws of Marketing.) So being number 2 or 3 may not be too bad. But if it is a winner takes all kind of business (such as browsers, operating systems etc.), you may be better of folding the business if you have not figured out a clearly defined target audience. For example, the Apple OS has survived against Windows because of a clearly defined, passionate target market and different way of delivering the software (you can't get the software if you don't buy an Apple system.)

Why Your Company Name Should Have Its Own Positioning

2010-02-25T03:11:00.001-08:00

Most people think of brand names as being distinct from company names. The company name is for 'official' purposes such as tax returns, shareholder purposes, employee purposes etc. The brand name is what is exposed to consumers. So you have company names like Procter and Gamble and brand names like Vicks.

This is a lost opportunity.

Ideally the company name should equal something in the mind of the consumer. And all of the brands that are developed by the company should enforce the company's original positioning. The best example of this is Virgin. Virgin as a company (or group) is viewed as being fun and representing youth culture. So they are able to succeed in multiple industries such as airlines, health-clubs etc.

Another example is Disney. Disney equals kids entertainment. This allows Disney to enter multiple businesses successfully. You could have a Disney Broadway Show, a Disney Cruise, a Disney Movie and a Disney Video Game.

On the other hand, some companies start brands in so many disparate businesses segments that the company name equals nothing in the mind of the consumer. Thus the brands created by the company need to fight it out on their own against other brands. Or they land up creating or acquiring brands in seemingly related segments to the point where the company name becomes undifferentiated.

For example "Dr. Pepper Snapple Group" describes itself thus:
"DPS is the market leader in the flavored carbonated soft drinks category, a key player in the fast-growing ready-to-drink tea and juice drink markets and boasts the leading portfolio of shelf-stable mixers in the industry."

To consumers this is not too different from Coca Cola or Pepsico. So DPS cannot stick in it's name on the label of it's products to gain a competitive advantage.

Ideally, the company name should be so differentiated that a consumer should recognize it and instantly make an association. Even better, the consumer should think of the company name when looking around for a product. When a well-positioned company name is combined with a well-differentiated brand name that sticks to the company's positioning, it becomes a no brainer purchase decision for the consumer. For example, think of Gillette. Gillette equals shaving. Now when you combine a well-positioned name such as Gillette with a newly introduced, well-differentiated brand such as Fusion, you have a star business on your hands.

Note: Large parts of the above post are a result of ideas that were expressed by my friend - Chetan Dhruve.

The People Fallacy

2010-02-21T07:04:00.001-08:00

“When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” - Warren Buffet

You hear it every time you listen to a successful entrepreneur speak. "It was because of an outstanding team that we'd put together!" they say. "Our team of people was the key reason why we succeeded" they confirm.

But there are a few fallacies with this line of thought:
1. Silent Evidence -
No one talks about the thousands of businesses that started out with seemingly good people with pedigree backgrounds but failed. Think about LTCM, or the dot-coms that got started during the dot-com boom / bust.

2. Hidden Agendas -
The other thing to think about is that the entrepreneur or venture capitalist stands to gain from saying that their team is great. The entrepreneur / investors benefit from a work-force that feels appreciated in public.

But this kind of thinking is dangerous. Why? Because, you'll begin to think that if you have good people the business will take care of itself. You also tend to believe that good people will stumble onto a well-differentiated position for the business. But people with corporate experience or engineering degrees are no guarantee of attaining differentiation. A good positioning for a business arises only from the right kind of training, understanding and attitude.

I'm not saying that you don't need good people. All I'm saying is that good people are not a guarantee for business success.

So ... did the positioning come first or the people come first? It's the positioning. If you have good positioning, you'll taste early success. This will attract star employees and investors to you and put you on a virtuous cycle. So stop hunting for people and start thinking more about the positioning for your business.

Lifecell - A Star Business in the Stem Cell Banking Space

2010-02-15T02:17:00.000-08:00

A few businesses are absolute dream businesses. The insurance business is one such business. You collect money upfront and you pay up when a particular (relatively rare) event occurs.

But there is one new business that is even better than an insurance business. It's the business of preserving stem cells from the umbilical cord of new born babies. The idea is that you harvest the stem cells at the time of birth. Stem cells can be used to treat a wide variety of potential inherited (or acquired) defects and health problems such as Thalassemia.

While the medical benefits may either be laudable or debatable depending upon your point of view and personal situation, the merit of the business model is absolutely brilliant. You are being paid upfront in most cases or every year (in some cases where parents opt for a deferred payment scheme.) Your costs are fixed. Your maximum downside is if one of the people who has banked their stem cells with you asks for their stem cells to be returned.

The entire main market(of stem cell research and applications) is growing at a remarkable rate. If you can be a market leader in a sub-market in this market, you have it made. One such company is Lifecell.

It describes itself thus: "LifeCell is India's first & largest private stem cell bank and stem cells solutions provider to bring the revolutionary concept of umbilical cord stem cell banking to India. LifeCell started its operations in 2004 with cryogenic preservation of umbilical cord blood stem cells at its advanced facility in Chennai. The company has a technological collaboration & exclusive license agreement with CRYO-CELL International Inc. - the world's first and largest stem cell bank. Since 1992, Cryo-Cell has helped nearly 185,000 clients worldwide preserve their newborn's umbilical cord blood for potential use against many diseases. Along with cord blood banking, Cryo-Cell Cord Blood Bank is pioneering the way in research, to find more solutions to preserve stem cells in a noncontroversial way. This technological partnership with Cryo-Cell ensures that the stem cells are collected, processed and preserved at international quality standards & guidelines to meet future requirements, if any, which may arise after many decades.

Since inception LifeCell has grown at a consistent pace and has strongly established its leadership position in the industry. As leaders LifeCell had the responsibility of educating the public and medical fraternity on stem cell technology and through these efforts today close to 20,000 clients who have banked their baby’s cord blood stem cells with LifeCell with this number compounding every day."

When it comes to life-critical issues, people do not mind spending more money to go with the market leader. So the issue of market leadership becomes even more important and this is a winner-takes-all style business. In such a scenario, the "question marks" (businesses that are followers in a growing market) will lose money or struggle while leaders thrive beyond their wildest dreams. Additionally, as technology improves the cost of the technology will come down. But the costs will not necessarily get passed on to customers immediately (similar to the computer industry.) The company will thus have an amazing situation where costs are not rising (and probably falling), and the overall market moves from early adopters to early majority and then the late majority.

An absolute dream business this!

How to Predict a Non-Star Business

2010-02-11T05:15:00.000-08:00

It's hard to predict which business will succeed. It's easier to predict which business will fail in it's current form. Following are the pointers that predict a Non-Star Business:

1. The business is a follower of an established player in a particular space while not being significantly different from the leader (with resources being almost equal) - Example - Google Checkout which is trying to follow PayPal.

2. The positioning statement for the business uses cliched phrases and words, is not clear and cannot be described to the target market in less than 5 seconds without distortion - Example - Google Wave.

3. The business is not radically different from the market leader, does not attack the business in a new way or offers only incremental improvement over existing offerings which are perceived as 'good enough' by target market - Example - Google Buzz which is trying to do what Twitter does but in a more annoying way. Even worse people are confused as to how Google Wave is different from Google Buzz :) You know you have a problem when the press needs to write an article titled: "Google Buzz Versus Google Wave"

I have nothing personal against Google. I love it's search engine and it's brilliant engineering talent. I just wish that they had the humility to hire somebody like Jack Trout & Al Ries to advise them in positioning, branding and naming their businesses.

Of course, the other way to look at Google is that they encourage tinkering with the knowledge that unpredictable positive black swans will emerge. While this is really important, the basics of marketing should not be disregarded.

Alternatively, it's possible that Google already knows that it's a follower and needs to make these moves and build these products in order to stave off future flanking attacks from competitors (an application of Game Theory.)

Or it's possible that their desire is not to be number 1 in a market space with the knowledge and understanding that the market is big enough to support two or three players (this is the "Law of the Ladder" as described by Ries / Trout in the 22 Immutable Laws of Marketing) But at any rate these are not Star Businesses.

The Inner Game of Entrepreneurship

2009-12-06T21:39:00.000-08:00

There are a few qualities that I believe will help you become a better entrepreneur. While they are not directly related to the notion of a star-principle business, you will still find it useful to develop these qualities and nurture these attitudes.

1. Accept Randomness
Good stuff happens. Bad stuff happens. It is very hard for you to understand the causes for the stuff that happens in your life. Correlation is not causation. It's simpler if you accept that you control very little of life.

2. Resist Increases in Entropy
The degree of disorder in most systems (be it your desk, business, health etc.) increases with time. Your health begins to break down. Buildings and civilizations crumble. Businesses deteriorate towards chaos and ultimately failure.
Just because you accept randomness, does not mean that you should accept the increasing disorder in your life or in the systems that you build (be it a business, your work and living space, your family life etc.) You should act to resist this increasing disorder which seems to be inherent in nature. This means that you eat a healthy diet, get regular health check ups (so that you can nip problems in the bud), monitor your debt and finances aggressively, make sure the morale in your business is high, ensure that customer service does not suffer, introduce quality systems wherever possible etc.

3. Expose Yourself to Positive Black Swans
Some years ago, two consultants did some work for Google when it was still a struggling start-up. One of the consultants insisted on getting paid in cash upfront. The other consultant (out of kindness) agreed to take a share in the business in lieu of cash. When Google became an outrageous success the second consultant was able to retire. The first consultant (who had got paid a couple of thousand dollars in cash) continues to put in 60 hour weeks.
Following are some examples of positive black swans:
- A chance meeting with a financier who finances your business dream at very favorable terms
- A chance meeting with a publisher who offers to publish your book
- Bumping into an inventor who needs help marketing his invention which will change the world
- Getting a share of a star business
So this is more of an attitude and a mindset that looks for opportunities with finite and measurable costs and risks but potentially large payoffs.
For example, between working on sending an invoice or contract (known payoff), versus working on filing a patent (potentially large payoff with known downside and cost), you should spend your time on filing the patent. Between attending a party versus working on your accounts, you should be attending the party (where you may bump into somebody who can change your life.)

4. Focus on and Cultivate the Vital Few
There's too much of noise. Too much information. Too many choices. Too many options. Too much advice. Too many friends. Too much data. If you give equal attention to all, you will get nowhere. The smart ones are those who focus on the vital few (vital few relationships, vital few variables in a problem, vital few activities) and execute ferociously. Do fewer things. Have fewer friends. Have fewer relationships. But focus on depth.

5. Hold Intentions
I believe it was John Lennon who said that "Life is what happens when you are making plans." What this means is that most of your plans will never unfold as you originally expected them to. There will be changes and surprises. This does not mean that you don't make plans or keep goals. You keep goals and make detailed plans but recalibrate as you go along.

6. Avoid Acting Unless Absolutely Necessary
There is such a thing as negative returns on your actions.
This advice may sound contrary to what most people (especially corporate executives working 80 hours a week in order to prove themselves worthy of promotions) will tell you.
"Too much time is spent in analyzing, wishing and complaining. Learn to take action. Sometimes it can take you in the wrong direction. But that is better than not doing anything at all. Sometimes, the path ahead becomes clear after you've taken a few steps on the road. It's almost impossible to think through all of the results of your actions. So get started and don't get stuck in analysis paralysis. But this also means that you don't wait for all of the facts before moving. Once you've formed a thesis and applied a fair amount of rigorous thinking, you should move forward even if you don't have a few pieces of the puzzle in place."

But there are two problems with this kind of thinking:
a) Every action you take may take you farther away from your positioning statement and reduce or obfuscate your company's differentiation. For example, let's say you're running a not-so-successful full service airline company. You decide that your company should get into the low cost airline space and build another Southwest Airlines clone. And you act on this idea. Worse still, you name your company as a variation of your current company name (by appending "Lite" to your company name.) What you've done is reduced your company's differentiation and confused your customers.
Or let's say that you do something less radical. Let's say you get your company executives to blog. With that seemingly simple activity, you've reduced your differentiation (at least to a very small degree.)

b) Every new initiative may create the amount of work that your people do exponentially over time. For example, let's say that you begin a new policy of having a Wednesday status meeting. Now, you've created a tremendous amount of work in the long run. Your people will need to maintain agendas and minutes of the meetings. They will need to drag themselves to the meetings while also working through their current projects. And they will need to sit through the 'speeches' of their peers and other people in the company. They will also need to take revenge and prepare their reports. Perhaps you could have asked them all to send emails to each other or post on a project management site?

So what's my advice on this?
Spend time on developing understanding (do research, perform competitor analysis, industry seminars, participate in training programs.) Ruminate on the data by taking time off from work. Develop a perspective or point of view. Thinking about what you need to do to increase differentiation. Go wild with your imagination and come up with ideas. But challenge every one of those ideas and search for disconfirming evidence to prove that the ideas are not workable. Remember that you're searching for that one good idea or breakthrough thought. Make thought experiments. Build 'what-if' scenarios. Debate. But don't take action until you've really thought through the implications and are absolutely sure that the rewards are worth it and that the differentiation of your company is preserved.

7. Change Your Game Not Yourself
It's very hard to change who you are. Your original nature only grows. So if you're an angry young man, it's more likely that you will become an angry old man. If you're a late-riser, it's unlikely that you will become an early riser even if you read all the self-help books in the world. If you're a free spender and don't know how to control your finances when you're 20, it's unlikely that you will figure it out when you are 60. The best you can do is to observe yourself intently and become aware of your original nature. Understand your strengths, weaknesses, motivations and drivers. Then change the game that you're playing to one that suits you. For example, if you're the kind of person who needs regular does of stress and adrenaline, maybe you should consider a career as an options trader. If you're the kind of person who cannot get up before 12 in the afternoon, maybe you should think of starting a night-club! This also means that you surround yourself with the right kind of people. If you hate to do accounts and taxes and sending invoices, maybe you should have a full-time accountant.

8. Move From Fear to Peace
Deep in your brain is your center of fear called the amygdala. This part of your brain helped your ancestors survive lions and tigers in the jungles 10,000 years ago. It releases stress hormones and provokes the flight or fight response. However, you don't need to have this flight or fight response for your day to day life. Having this part of your brain turned on increases your stress and decreases your ability to come up with creative solutions to the challenges that you face. So figure out a way to move from fear to peace. This may be meditation or music or walking through the woods or ruminating on park benches. Figure out what works for you and actively work to move from a sense of fear to a sense of peace since you need this state of mind to solve problems. But in the rare event that you get into a situation that needs a flight or fight response (say a bar-room brawl) by all means raise your fist, punch your opponent and make a run for it. Don't try to move into a sense of peace or you will leave pieces of your nose on the floor :)

9. Bounce Through Multiple Failures and Disappointments
Michael Jordan missed thousands of shots in his career. But what separated him from others was his ability to not get scarred from his misses and failures. You would see him miss a shot and then ask for the ball the next minute with no loss off confidence or faith in himself. As an entrepreneur you can fail a hundred times and then bounce back on your next attempt. All you need is one success. So keep trying. Figure out what works for you to handle your disappointments and shrug off your failures. This could be prayer, or music or a sense of humor that allows you to laugh at your bust-ups. Then get back and take another shot without any loss of faith or confidence.

10. Take Things Lightly
Most of life is a mystery. Even to the so-called enlightened souls. So take things lightly. Don't take yourself too seriously. Don't take your knowledge too seriously. And don't get stuck in good or bad generalizations.

PawPawMail.com - A Star Business Kernel

2009-11-27T22:08:00.001-08:00

This is one of the best business ideas that I've ever come across in so many months. It's called PawPawMail. Sure, the name is not too great but the idea is fantastic. It's like the founders sat down with the "Star Principle" book and followed instructions to the letter before founding this business. They've done several things right:

1. Their tag line ("Email for Seniors") has a clear audience in mind.
2. The seniors market for technology is definitely a niche that's growing faster than 10% p.a.
3. Their product does something the main market does not do - It provides extreme simplicity to seniors who may be technologically challenged and arthritic.
4. The product does not do many of the things that main market leading products do (PawPaw mail has just 5 or 6 functions ... compared to hundreds of functions found in Outlook / Thunderbird / Gmail)
5. They exhibit profitable variation - They charge $5 per month per user ($60 per user per year!!)
6. The niche name is clear - email for seniors
7. The brand name is not too strong ... but this may not be too much of an issue.

If I were a VC, I would be in their office right now, persuading them to take my money :)

The only thing they probably lack is a strong CTO type person. This is very evident from their website in little things that you will see (such as the logo not leading to the home page, the way their Flex application loads etc.)

But all in all, it's a venture with great potential if executed properly!

Good luck to the founders!

Why Google Wave is NOT a Star Business

2009-11-06T03:57:00.000-08:00

It usually takes some time to figure out that the emperor is not wearing any clothes. But sometimes you can instantly spot the naked emperor. Google Wave is one such business.

Here's why I think it will fail:

- It fails the five second test. I've met a number of people about what Google Wave is and what it does. Nobody has been able to tell me in less than 5 seconds what it is and what it does. Even I can't describe it in less than 5 seconds even after playing with it for sometime. Actually if I had to describe it, I would say that it's instant messaging where people on the other side can see what you are typing in real time (so don't type anything unflattering or you'll lose a friend or a client :))

- It fails the "For Whom" test. It's not immediately clear as to who will benefit from the product. Every tech product needs it's early adopters. There is nobody identified for this product.

- It may fill a gap in the market but if fails to find a market in the gap. It may be important for some people (litigating ex-lovers perhaps :)) to see you typing in real time and see who said what and when but it's a huge waste of time and energy for the vast majority of people.

- There is no business model.

So I think it's time to wave Google Wave a happy and safe departure into the netherworld of dead products :)

Zynga - A Star Business and a Positive Black Swan Business

2009-11-06T03:48:00.000-08:00

Gaming on Facebook is a very fast growing category. There are a few companies that are playing in this area including Playfish and Slashkey. But the leader in the space (by revenues and by number of users) is a company called - Zynga. The interesting thing is that the company makes money when games pay real money to buy virtual goods (like virtual tractors, livestock, guns etc.)! Their revenues are said to be about $100 Million.

Their target market is non-hardcore gamers such as housewives who are looking for a relatively passive game to play. So they've taken a market (gaming market) and divided into a new way (passive, social, and requiring short bursts of time-involvement) and become the market leaders!

Zynga is also a 'positive black-swan' business. What this means is that it can fail with many games but as long as a few games succeed in a big way, investors will get a massive return on investment.

Way to go Zynga!

The Biggest Cost for a Start-Up

2009-10-11T19:03:00.000-07:00

Do you know what the biggest cost is for a start-up?

- Is it salaries?
- Is it marketing?
- Is it operations?

Actually, it's providing stuff that nobody wants. Such as features that are unnecessary or provide very little, incremental value. Or even worse, coming up with a product from scratch that users and customers are apathetic towards. The video below by Eric Ries (any connection to Al Ries) talks about this and many other ideas connect to the lean start-up.

How to Kill a Baby Star Business

2009-09-02T01:02:00.000-07:00

Start-up strategy is usually about picking a very narrow niche target market, angle or differentiator and then excelling so well in that area that you own that area. In such cases, competition loses its will to directly get into that area.

Tweetlater was one such, superbly positioned service allowing Twitter users to set up scheduled tweets. The name was clear. The agenda was clear. The strategy and direction was as sharp as a butcher's knife.

More recently, they've changed their name to "Social Oomph." I'm guessing that the founders conversation before making the decision went something like this:
Founder 1 - "Man, TweetLater is such a super-hit. We've got a sub-10,000 Alexa rank and thousands of users. Wonder how we can monetize all this traffic and reputation ..."

Founder 2 - "The problem with our company is that Twitter can easily allow this feature of scheduling tweets. If they do so, we will lose our relevance. Also, scheduling tweets appears to be getting a bad name because of all the spammer-type people out there misusing this service."

Founder 1 - "I know what we should do! Let's broaden the offering to include all social networks. Our name is too narrowly focused. Let's change it to reflect our broader vision!"

Founder 2 - "That's a neat idea. Who knows? Maybe we'll be more important than Twitter someday by allowing users to connect to Twitter, Facebook, FriendFeed and more! Let's call it SocialOomph!"

And so they go and change their name from Tweet Later to something that's nebulous, ambiguous and with no meaning to the average user.

Maybe I'm completely wrong on this one. I hope that I'm completely wrong on this one. But I can't see the new name working as well as the old name. More importantly, a name or a tag line frames the company's future thinking ... this name is likely to take this company down a dark-hole with no easy path out.

Two Questions that Star Businesses Need to Ask Before Deciding to Innovate

2009-07-16T21:57:00.000-07:00

You're the CEO of RedBull - the energy drink. Your product managers and scientists have come up with a number of ideas for strengthening your company's leadership position. Which of the following innovations would you pick:

1. RedBull Cola
2. A sugar-free, low-caffeine version of RedBull (RedBull Lite)
3. A complementary product that allows people who drink RedBull to have better sleep when they actually decide to sleep (let's call the product "Peaceful Cow":))

If you picked RedBull Cola you've gone down a classic trap of line extension. You'll be confusing future generations about what Red Bull really is and how it's different from Coke or Pepsi.

If you picked RedBull Lite, you've changed the target market from hard-core party people and super-intense scholars and geeks to slightly more elderly or health-conscious people. You've also confused your basic message since RedBull = Energy Drink (which also implies that it must be healthy.)

If you picked Peaceful Cow, you've probably done a good thing. For one, you've reinforced the message that RedBull makes you into a raging, hyper-energetic animal. You've also created a complementary product whose sales may get linked with RedBull sales. So the more RedBull's people drink, the more Peaceful Cows they will want to consume to deal with the crash that comes after the spike in energy.

Many successful companies land up with one or two stars that throw off tonnes of cash. Examples include Microsoft with Windows and Office, Google with Search, AdSense and Adwords, Coca Cola with Coke etc. Using this cash, these companies set up innovation initiatives. However, it's easy to go wrong with innovation ... For example, Xerox spent plenty of money and invented the mouse, graphical user interface etc. and all of these innovations were monetized by other companies.

Here are some rules of thumb to help in your innovation decisions:

1. Does the proposed innovation make your business more different or less different?
2. Does the proposed innovation confuse your target market about your 5 second message?

If the proposed innovation makes your business more different without confusing your target market about your 5 second message, you can go ahead with the innovation. If, however, the proposed innovation makes you more like other products in the market or if it confuses your core message, then you need to avoid making the innovation.

For example, let's say Facebook decides to add in a word-processor application ... this is obviously a bad idea since it makes it look more like Google Docs or MS Office. Now, let's say they decide to come up with an entirely new innovation - say, a Facebook Phone that integrates very nicely with Facebook and Facebook apps. Even though there are other players in the space (iPhone, Nokia, RIM), the Facebook is still likely to do well because of the following reasons:

1. There is no target market sacrifice.
2. It acts as a complementary product for Facebook and feeds off the success of Facebook while contributing to it's differentness (the only social network with a dedicated phone.)

So while it's tricky and subjective, there is still some method to the madness.

Here are a few other things to keep in mind when an innovation comes to you (either in the form of a suggestion or a breakthrough invention):

1. Does the innovation make your business more different? Then you should go ahead and implement it right away (assuming that it does not confuse your five second message.)
2. Does the innovation make your business less different and more like your main market competitors? Then you definitely don't spend your resources on this innovation (unless it's a hygiene innovation described below)
3. Sometimes, you will need to come up with hygiene innovations - things that people will not notice unless it's absent. For example, let's say you've come up with a new kind of video sharing site (say, cooking videos with recipes), you probably will not need to implement some of the social features available in YouTube. But at the very least, you will need to bring up the streaming speed of your video to YouTube standard since that is the basic level of hygiene performance that people have come to expect.
4. Some accidental innovations will help to launch a new product (ex: Viagra, Twitter, Penicillin.) In this case, you need to be very alert and aggressive and willing to put your current business plan on hold. It is possible that this "Black Swan Innovation" can give you greater success than you ever can achieve in your current business.

Is Zoho a Question Mark or a Star?

2009-07-12T01:57:00.000-07:00

Zoho has been making waves as a potential competitor to Microsoft Office. They have a number of free or low-cost alternatives to the Office suite including an online word processor, online spreadsheet, CRM system etc. They have over 700 developers working out of their office in Chennai (India.) And they are hyper-innovative, having churned out at least 25 different products in a span of a few years.

At first glance, Zoho appears to be a star business. They've taken a family of categories and sub-divided into two - browser based (dominated by Google) and non-browser based (Owned by Microsoft with few challengers such as Star Office and Open Office.) They're also attempting to commoditize software for small businesses(dominated by several specialists such as NetSuite, Salesforce, Intuit etc.) by offering very low prices.

I see several problems with this strategy:

1. They have too many products that look like me-too competitors. They are attempting to copy a model like Huawei which may have succeeded in the networking business by offering me-too products that competed with Cisco. But in software, the marginal cost (cost of offering an additional unit) tends towards zero and they are going into competition with established players.

2. They are waging war on too many fronts. Each of their products has a leader in it's space. Here are the leaders that come to mind in each of the categories:

- Online project management = Basecamp
- Online CRM = Salesforce.com
- Online Small Business Software Suite = Netsuite
- Online Word Processor and Spreadsheet = Google Docs

3. Even if one of their products lands up becoming a potential star, management attention is likely to be too divided to be able to nurture it to it's full potential.

4. All of the products are bunched under the Zoho name causing tremendous confusion. What's a Zoho? It's a spreadsheet and a chat room and an online CRM system and an invoicing system and anything else that you can think of.

5. The company claims that it's focusing on building a small business software provider. But in the meanwhile, it has also announced that it's had a major win with GE. Why is a business selling to GE if it's thinking of itself as a small business software maker?

So in my opinion, Zoho is likely to be a question mark and will gobble-up cash for it's owners. The owners (it's privately owned) claim that they have another business that is throwing off enough money to sustain Zoho's growth. But will that be enough?

The best option is for management to have a heart-searching, paradigm shifting retreat where they discuss what needs to be killed. My guess is that 99% of the products will need to be shut down. Then they need to find out the one successful business, angle or approach and re-build the company around that. They then need to move all resources to support that one business or idea. As I once heard from a person who was giving me advice, "All wood behind one arrow!"

How Star Businesses Create a Focus Strategy

2009-07-09T23:17:00.000-07:00

Everybody instinctively understands that it's important to focus. An eastern proverb says, "A man who goes after two rabbits catches neither." This is true in the context of projects or activities or meeting agendas. But when it comes to a business, it's quite easy to get misled and focus in the wrong way.

Here is the wrong way to focus while setting business strategy ...

You take a piece (or slice) out of an industry that has many built-in segments and focus on that segment without deepening differentiation and expanding your category importance. For example, let's say that you decide to launch a travel website in the hyper-competitive online travel category. In order to be different you decide to focus on only one kind of travel - say cruises. Or you decide to create a destination focused travel site and decide to offer bookings only for one destination such as Hawaai. In both cases you are likely to fail even though instinctively, you feel that you will have an edge since you're creating a best-of-breed product or service. People prefer to have lower overhead while allocating memory chunks in their brains. They like to categorize and bunch various items into categories and transact with the category leader wherever possible. So in both cases, you would stand no chance because of giants such as Expedia, Trip Advisor or Priceline.

The right way to focus would be to figure out a way to make your service or product clearly, unambiguously and specifically different while focusing on the tiny (but not insignificant) problem that you're trying to solve. So in the cruise website case, this may be a very large selection of large, medium and small ships including sailing ships, rowing ships, bare-boats and more. Or it can be the ability to book online for various on-board activities. Or perhaps you can have a reverse auction service for cruise liners where you aggregate potential travelers and shop on their behalf for a great deal with the cruise liners.

Or in the case of the Hawaai travel website, you may decide to put up videos of little known locations, beaches and islands. Or put up cameras in various locations of Hawaai and stream the images live to your website.

In both cases, we're doing more than just take a sub-segment from the market. We're expanding the market sub-category and attempting to gain a foothold in the prospect's mind by raising the importance of what we're offering.

This is how Star Businesses create a focus strategy.

The Star Business and The Black Swan

2009-07-07T00:05:00.000-07:00

Sometime ago, I read two books - 'Fooled by Randomness' and 'The Black Swan' - by Nicholas N. Taleb. They are probably among the five best books I've ever read. Of course, there are plenty of extremely important ideas in both the books that are hard to describe in a short blog (such as underestimated impact of randomness, confirmation bias, survivor bias, the expert problem and more.) But one of the major ideas is the notion of the black swan. So I decided to make a blog entry about how the notions of a black swan intersects with the notions of a star business.

First a little background about the black swan ...
For thousands of years, people in England believed that all swans were white. Then, a few hundred years ago, Australian explorers discovered a swan species that was black in color. So centuries worth of 'confirming evidence' was overturned by the discovery of a single black swan.

So black swans are rare, unexpected events usually with a very large impact. It's important to note that black swans are completely unexpected. If you've expected a black swan to occur and it occurs, then it's a 'gray swan'. Black swans can be positive or negative. Examples of negative black swans include:
- September 11
- The Sub-Prime Mortgage Crisis
- A person discovering that he has cancer
- Death of a family member
- Emergence of a vastly superior substitute product (if you're running a business)

Examples of positive black swans include:
- A chance meeting with a hot shot film director who offers you a lead role
- You buying Google stock when it IPO'd.
- An unexpected, large contract
- Winning the lottery
- An unexpected discovery (like Viagra or Penicillin)

So how is this relevant for an entrepreneur or investor looking to create a star venture?

The one important idea is to avoid making predictions for the big things in life. While you can estimate the size of the impact of an event occurring (say, a tsunami hitting New York city), it is impossible and completely futile to predict the likelihood of the event occurring. So while it's important to protect the downside and know the likely consequence of failure, you should avoid relying on financial experts and economists while making making decisions.

The other idea is to increase the likelihood of a positive accident occurring. Some ideas for doing this are:

- Live in a big city with lots of opportunities to meet new people
- Go out and attend parties (you might meet somebody who can help you in your business.)
- Make lots of tries and try a lot of different things ("trial and error means lots of tries!")
- Indulge in endless tinkering sometimes without a logical reason to do so. But make sure that your tinkering is in a general direction and complies with a point of view or perspective.
- If you have a good thing going, ride it for all it's worth.
- Indulge in activities where the downside (the worst case scenario) is a known quantity while the upside (the best case scenario) is potentially very, very large. Such activities include feature improvements, new partnerships, new markets for your product or service, etc.

So let's say that you're an entrepreneur who has started a business and you discover that the business is taking off. Ideally, you will bet big on the business and give it your all. You will raise necessary financing and resources to ensure that the business has a good chance to succeed. You will also watch out for negative black swans and take immediate remedial action if a negative black swan appears.

Now comes the tricky part. 99% of the businesses land up in a different place from where they thought that they would be. For example, Twitter was started as a side project by the engineers working at Odeo which was doing podcasting software. Viagra was a happy accident that occurred when researchers were experimenting with blood pressure medicine. Google did not come up with the adwords revenue model for years after it's launch as search business. Flickr started out as an online video game company.

So the lesson here for entrepreneurs is this:
Step 1: Start out with a well-positioned, well-thought out star business and execute with razor sharp focus. Continue down this path until you come to an intersection on the road.

If your business turns out as you expected then that's great. You're one of those few people who did not need to manufacture luck on the way. If you're like the vast majority of entrepreneurs, you may run into a crisis or a potentially new opportunity. The crisis could be in the form of a cash flow problem (forcing you to cut out initiatives, features or services), a human resources problem (forcing you to manage without a key person) or a government problem (forcing you to re-evaluate your organizational ethics.) The new opportunity could be in the form of a new product feature, a new partnership or alliance, a new kind of customer or user, a new type of use for your product or service or a new investor.

Step 2: At this point, evaluate the opportunity or crisis very carefully. Usually a crisis is an opportunity in disguise. But sometimes it may be that the crisis is genuine and all-enveloping. If the crisis does not have a clean solution, it may be better to cut your losses, shut down operations and wait to relaunch a new business in the future. After all, you don't want to be like the housefly that, not knowing of a small hole nearby, relentlessly bangs into the glass pane until it falls dead from exhaustion.

If however, your crisis reveals a new opportunity or a new opportunity comes by, then it's time to re-position your business. It's almost like starting a new businesses. It may require you to kill all of your previous business or large parts of that business so that you can give the newly emerging star it's best shot at survival and success.

The Role of The Star Principle Entrepreneur

2009-06-14T21:40:00.000-07:00

If you've ever started or run a business you know that your days can be as hectic as you want to make them. You can get caught in the trivial minutiae related to the day to day running of the business while thinking that you are being productive. But that is not how Star Principle entrepreneurs perform.

So what is the primary job of the star principle entrepreneur?

The star principle entrepreneur's role is primarily to search, consult with domain experts and conduct thought experiments. Search for what? Search for that one single stroke of insight, one single product or service differentiation, one single partnership or relationship, one single employee or contract help that will help catapult the business into the next level. With a bit of luck you will need to get only one or two breakthrough's and you will have succeeded. The rest is just the finishing touches and best left delegated to competent, motivated, well-trained experts.

Unfortunately, the creative insight or the ability to identify a great idea does not happen in isolation. It happens in the thick of battle ... in the middle of the marketplace. So it's important for the Star Principle entrepreneur to be involved in the right kind of minutiae.

So what is the right kind of minutiae?

Anything that contributes to the differentiation of your product or service (note: I said differentiates, not improves; there is a big difference between improving the product or service at a hygiene level versus making it different from anything else out there; while this distinction is blurry, it is important to bear in mind that "while the devil is in the details, the devil's boss is in the differentiation") In other words, try and hire competent experts to take care of the "hygiene issues" (the hidden issues that are taken for granted and are not noticed until they are absent.) And you focus your time on figuring out how to make your business or service more and more different.

It's also important for the Star Principle entrepreneur to consider a variety of initiatives (hiring new people, implementing a new technology, adding a new differentiating feature etc.) But more importantly, it is the star principle entrepreneur's role to say no to 99.99% of these potential initiatives. "The Law of Singularity" (from The 22 Immutable Laws of Marketing) states that "in each situation, only one move will produce substantial results."

The folks at 37 Signals narrate an incident about Steve Jobs in their free, online book - Getting Real ...

"Steve Jobs gave a small private presentation about the iTunes Music Store to some independent record label people. My favorite line of the day was when people kept raising their hand saying, "Does it do [x]?", "Do you plan to add [y]?". Finally Jobs said, "Wait wait — put your hands down. Listen: I know you have a thousand ideas for all the cool features iTunes could have. So do we. But we don't want a thousand features. That would be ugly. Innovation is not about saying yes to everything. It's about saying NO to all but the most crucial features.""

So your role (should you decide to become a star principle entrepreneur) is to say no to the thousands of potential moves that you can make and choose the one move in a particular situation that will help change your fortunes. Saying "no" blindly is not the same as saying no after rigorous research and thought experiments. So you should be spending your time on two things:

1. Generating ideas for potential moves that can help explode the success of your business.
2. Finding reasons for saying no to 99.99% of those ideas so that only one or two of those ideas stand-out as slam-dunks and so that there is enough of your resources to help nurture those ideas.

The Three Myths About a Star Principle Business

2009-06-13T00:38:00.000-07:00

There are a few misconceptions when it comes to what are the possible ingredients that can create a star business. The following are three myths that are associated with a star business:

1. Ability of the founding team determines the success of a business: Actually, beyond a basic level of competence, the ability or talent of the founding team has little impact on the success of the star-principle business.

2. Hardwork determines the success of a business: Actually, there may be negative correlation between hard-work and business success. When your team-members are working too hard, it means one of two things - either you're creating a lot of work by launching too many non-essential initiatives or you're stuck in a business that requires you to work super-human hours to stay in the same place. As Richard Koch says "When I've invested in a venture and see people there working all the hours God sends, I know it's in trouble. If it needs that much dedication and overwork, it's because it could not survive without it."
I'm personally not fully convinced about this point. I've spoken to a few successful entrepreneurs and they've mentioned that hard-work has played a part in their success since it increased their probability of having a serendipitious break-through (a chance meeting or deal, a new killer feature, etc.)

3. The right-mix of people determine the success of a business - Most successful businesses did not start out with all the right people. In fact some of them had lazy, controversial or destructive personalities and yet managed to succeed. I've personally seen situations where the best possible team could not save the business from collapsing. In fact, an A-star team leads founders and investors into a false sense of security in the belief that a world-class team will somehow succeed.

According to the Star Principle, the crucial cause of success is the positioning of the product or service. Get the positioning right and most other ingredients will fall into place. This includes attracting a top team.

The Two Ways To Segment a Market

2009-06-08T22:22:00.000-07:00

Today, there will be no post about a star business. Rather, I'd like to talk about an idea that came up when I was having a phone conversation with a friend - Chetan Dhruve. This pertains to the notion of segmentation or dividing a market to understand how you'd like to position your business for that market. There are two ways to segment a market. They are:

1. Segmentation through focus: You take a small part of a market, find out the needs of that segment and lead that segment. For example, Southwest Airlines took a small chunk of the airline industry and became a leader in that segment.

2. Segmentation through conceptual re-organization and re-positioning of the competition: This is the more interesting way to segment a market. You take a market, and cut up that market in an entirely new way conceptually. For example, Virgin Airlines conceptually reorganized the airline industry and repositioned British Airways as boring and themselves as fun and anti-establishment.

While I realize that these thoughts may be half-baked, I'd still like to put it out there since this blog is primarily a personal journal. I'll probably add to these ideas as I develop more clarity on the subject.

Build a Bear Workshop - An Enduring Star Business

2009-06-02T22:07:00.000-07:00

A few months ago, I'd taken my daughter to the Build-A-Bear Workshop at Hamleys in London. The moment you enter the store within the store, you know that you're looking at a star-business. So I decided to learn more about them and analyze the main reason for their success.

Build-A-Bear Workshop (NYSE: BBW) is an American retailer that sells customizable teddy bears and other stuffed animals. It is the largest create-your-own animal service, with the other companies in the business consisting of regional and/or locally-owned operations. It had sold 50 million stuffed animals within 10 years of launch!

The company was founded by Maxine Clark in 1997, and opened its first store in the Saint Louis Galleria. Ten years later, over 400 stores operate worldwide: in Australia, Canada, Denmark, France, Germany, Japan, South Korea, The Netherlands, Norway, the Republic of Ireland, Russia, Singapore, Sweden, Taiwan, Thailand, the United Kingdom and the United States (including Puerto Rico). While the majority of Build-A-Bear stores are in shopping malls, as of August, 2008, the company has opened five stores in Major League Baseball stadiums.

Maxine Clark while telling the story behind the company says "Every adult I asked about the idea said it would never work – why would anyone ever want to make their own stuffed animal? But every kid said "Where is it?" and "When can I do it?" My teddy bear, "Teddy", was my first best friend and helped shape who I am today, so I knew just how meaningful teddy bear friendship could be."

Build a Bear Workshop is clearly a star business. The founder - Maxine Clark - took one of the largest segments of the toy industry (stuffed animals) and divided the market in an entirely new way (ready-made stuffed animals and make-your-own stuffed animals.) She may have done this unconsciously but the process is unmistakable. Another vital thing that she did was not rely on feedback that may have been given to her by her peers (other adults.) Rather, her market research appears to have been directed at her target market of children.

Today, many other toy-makers are jumping onto the build-your-own-toy bandwagon. On a recent visit to a toy store in Orlando, I saw toys like make your own dinosaur and make your own Star-Wars light-sword. Regardless of whether these toys succeed or fail, they strengthen the position of Build a Bear Workshop since it now comes across as the original category leader (the real thing.) In other words, competition is good for the category leader (since you need to have followers in order to be a leader) as long as the competition arrives a little while after the category leader is established. Build-a-Bear has transcended being a fad by lasting for 10 years and creating an emotional connect with it's target market. Today's toddlers will be tomorrow's parents and will take their own children to a Build-a-Bear 20 years from now. So this is not just a star business but also an enduring star.

How Google Became a Star Business

2009-04-14T03:08:00.001-07:00

It's a fact. The rich get richer. Big begets big. And giant companies have a much greater chance of succeeding than small companies and start-ups (think Gillette or Microsoft.) So what do you do if you're doing a start-up? How do you position your product or service? If you read my earlier blog article - "How to Start Your Own Star Business in Seven Steps" you will recall that the first step was to take a market and to conceptually cut it up into two parts. So if you think about how Google did it when they started out, they took the crowded search space and divided it into two parts:
1. Search engines where the home page was very crowded with links, ads and news articles (because at that time search was considered a commodity and all these sites like Yahoo, Lycos, Excite etc. wanted to become 'destination sites')
2. Search engines where the start page was empty, clean and uncluttered (there was nobody here and Google decided to occupy this slot.)

Of course, Google's page rank feature was also important. But it was much harder to explain that to a customer than to show up a clean, uncluttered home page.

In trying to cut up a market, it's important to occupy a small segment of a rapidly growing niche and become the leader. When you dominate a small niche, you become the specialist and come across as the guys who really know what's happening in that particular sub-segment. And that's what Google did with search to become a mega-star business.

How to Quickly Check for a Gap in the Market

2009-04-14T02:43:00.000-07:00

A positioning statement is a short phrase that describes what your business does to customers, employees and investors. It should be unique, specific and clear. It's not necessarily the tagline of the company (although it should be.) It's what the customer perceives the company to be. And most importantly, a positioning statement is not something that marketing adds after you have launched your product or service. It's the single differentiating idea that drives everything that the company does (from the way the product is designed, to the naming of the company, to the hiring of people, setting up of vendors, office location and more.)

Used often enough in the absence of direct competition, a positioning creates an association of your company with the statement. For example:

Xerox = Copiers
HP = Printers
Apple = Cool Electronics
Google = Search
Cisco = Networking

In launching a star business it's vital to get your positioning absolutely perfect. In other words, there must not be an alternative company that comes to mind when you describe your business to somebody. For example, let's say you're at a party and somebody asks you what your new start-up is all about ... and you say that it does search on mobile phones. You are dead and you just wasted 5 seconds of your listeners time. And if you're credentials are impeccable (you went to the best engineering school and worked at a high-profile company) and if you've managed to raise VC financing, you've probably also blown up a lot of your VC's funding.

Why? Because the moment you said "search" the association went with Google. Only one train can occupy one railway track at a particular point in time. And you don't want to stand in the way of a train that's as big as Google.

So how do you check if there is a gap in the market? You run a search with the particular phrase that you want to use as your positioning statement (and make sure that the phrase is unique, specific, quantifiable in some way and clear.) See what comes up in the search results. Most likely, there are highly relevant results to your search phrase. If there are no relevant search results you probably have an opening.

For example, if you ran a search for the phrase "search" you'd get a bunch of heavyweights (MSN, Yahoo etc.) as competitors. If you ran a search for "Twitter Search" you'd probably get Twitter as your first result. But the point is there is still no clear, established search engine for Twitter (other than Twitter's own search.) So there's probably a gap in the market. Note that we still don't know if there is a market in the gap (aka "show me the money!") A revenue model can come up quite easily or it can take a long time and a fair amount of tinkering and experimentation as it happened in the case of Google. At any rate, without getting the positioning right, the rest of the steps are challenging if not downright futile.

The True Test of Good Positioning

2009-04-13T23:40:00.000-07:00

If a business is perfectly positioned, it means that there is no direct competition. In other words, it will be difficult for a customer to make an apples to apples comparison. For example, can you think of a direct competitor to the iPod? Or Twitter? Or Google? Or the Nano car in India from the Tatas?

Most well positioned products win customers through substitution. Not through direct competition. For example, Twitter has won users not by offering the same set of features that Facebook is offering or what blogs are offering. Twitter has won users by offering a substitute product and thus creating an entirely new category (micro-blogging.) Conversely, if you have a successful product or service, you should fear substitute products much more than clone-type new entrants or the moves of existing competitors.

So what is the true test of good positioning?

"Will your users still use your product or service even if your product or service is performing below expectations in certain non-core areas?"

For example, think of a highly successful restaurant in your town. And think about all the things that are wrong with that restaurant in spite of which the restaurant is successful. For example,
the service may be poor or the wait times may be too long or the location may suffer from poor parking. As another example, if you look at Twitter, the site has gone down numerous times. Or if you look at Windows you will notice that it has been infamous for it's poor speed and performance. But these products have still succeeded because their core set of functions have not been replicated or are not easily replicable by competitors or substitute products. If you are in a highly competitive business with perfect substitutes for your product, you're relying only on incremental improvements or operational effectiveness (faster, cheaper, better quality) to help you stay ahead.

Starting a business is hard-enough. You don't want to have to be in a position where your nascent customer base migrates at the slightest mistake or goof-up that your company makes. So the way to have sticky customers is to apply this one true test of good positioning.

The 3 Elements of a Strong Positioning Statement

2009-04-04T06:00:00.000-07:00

As discussed in "The Star Principle", the three most important words for a start-up are, "Positioning, Positioning and Positioning." Getting your Positioning right is vital - probably more important than hiring people, incorporating your business or anything else. So I got thinking about what makes a good positioning statement. They are:

1. Specific and Quantifiable:
Every successful business has a specific and quantifiable positioning statement. It may or may not be reflected in their tag line (which is different from the positioning of the product.) But it must be very, very specific. For example:
Twitter = What are you doing (in 140 words)
Google = Search from a non-cluttered search page
Nike = The choice of world-champions (note: Their "Just Do It" is just a tag-line.)
iPod = 10,000 songs in your pocket
Virgin = Fun and fighting for the common man
Jolt Cole = All the sugar and twice the caffeine

2. Unique:
The positioning statement must not be taken up by anybody else in the niche. For example, Cuil.com (my favorite punching bag) attempted to get into search by copying two of Google's differentiators - the empty search page and the indexing of billions of web-pages - and failed because Google already had that positioning. So, if you're an entrepreneur, you need to go back to segmenting the market in different ways until, based on your product attributes, you come up with a method of segmenting the market which makes your product positioning unique.

3. Offer a Clear Benefit to Target Market:
Let's say you came up with a purple colored cola drink. Would this be successful given that it is specific and unique? It's hard to say, but my gut says that this will not work because it does not offer a clear value proposition to end-consumers (unless you're targetting children who would enjoy getting a purple colored tongue ...) So your positioning statement must at first glance appear useful to your target market. It does not matter if it does not appeal to other segments outside of your niche. You're fine as long as you're able to make rabid evangelists out of your initial set of adopters. One successful star business is Jolt cola which appealed to it's target customers (students and young professionals) and carved a niche against the cola giants.

Good luck with building your Star Business!

Mercola.com - A Star Business in the Natural Health Business

2009-04-01T23:35:00.000-07:00

Mercola.com is a star business in the rapidly growing field of natural health and alternative health. Dr. Mercola, the site's owner has done the ultimate differentiation by creating a human-brand (how do you copy a human?) That human-brand is Dr. Mercola himself who appears in numerous YouTube videos touting the benefits of the products sold on the site. There are other human-brands in nearby niches such as Dr. Andrew Weil and Dr. Deepak Chopra. But overall, it seems that Dr. Mercola is doing a fantastic job of turning his brand in dollars. As one commenter on a discussion forum states: "Mercola mosty endorses anything he sells. He turned me off when he made a You-Tube spot selling his cookware he proudly says is made in China.
I for one don't care for his tactics myself. Mercola stands for "ME, MYSELF and I" when it comes to selling his products. All over priced as well."

On the other hand, Dr. Mercola has his legions of admirers who believe that his word is gospel. Take this forum post for example: "I love Dr. Mercola! He endorses every product he sells but none of his products are bad for you! Almost all health promoting stores like GNC or vitamin world sells unhealthy things (fat burners, carb blockers, processed foods). Dr. Mercola only sells healthy things. And, although they are highly priced, this products are all to a very high standard. I truely trust his site. In addition, he gives FREE advice! Something he probably couldn't do if he didn't raise money through selling health products. I trust everything Dr. Mercola says, even the raw milk thing."

So the important thing is that the Mercola brand stands for something. Mercola = Natural Health. This means that he alienates certain segments of the market which is what a perfect brand should be doing.

The business also boasts a natural health newsletter which is said to have over a million subscribers. Now having a million people willing to be sold your product is an absolute dream for a star business entrepreneur... isn't it?

Following are some reasons for Dr. Mercola's becoming such a big success:

1. Lots of free information that is search engine optimized (usually in Google's top 3 results.)
2. A very personal touch from Dr. Mercola. You'll see him all over the site.
3. Dr. Mercola comes across as being sincere and truthful. Even though some of his pitches sound very salesman-like, he comes across as somebody you can trust. This is reinforced by a few situations where he retracts on the advise he dispenses. He's also honest about mistakes he made in his own personal health (for example, he says that he lost his hair because of overtraining and certain dietary mistakes he made in the 70's.)
4. Dr. Mercola comes across like the little guy fighting a lone battle against big pharma and the broken healthcare system in the US.

The business is said to be worth $100 million at least (according to the book "The Wellness Revolution.") But it will be interesting to see who will want to buy it since Mercola.com without Dr. Mercola will lose it's essence of being the independent, honest voice.

RedBus.In - A Star Business

2009-03-23T06:18:00.000-07:00

RedBus.In sells bus-tickets for the Indian market online. They've reportedly grown by 100% in the last year and they're selling 2,000 bus tickets a day at Rs. 500 ($10) per bus ticket average. They've done several things correctly including:

1. Identified a fast growth market niche inside a main market (travel) and invented the niche category of selling bus tickets online.
2. Named the business right.
3. Moved fast in terms of raising capital and scaling operations in order to remain ahead of the competition.
4. Created new revenue streams including being the vendor for other sites selling complementary services (such as airline tickets and hotel rooms.)
5. Added additional differentiating innovations such as allowing users to comment on their bus-ride experiences.

Amazing positioning + Fantastic focus + Some Luck + A Little Capital = A Star Business

How To Start Your Own Star Business In Seven Steps

2009-03-22T06:37:00.000-07:00

As described earlier, a star business is one which enjoys niche market leadership (market share greater than 50%) in a fast growing niche (growing at least 10% per annum for the next many years.)

This blog post is a summary of Chapter 8 from The Star Principle by Richard Koch. You really must buy the book to begin understanding the Star Principle. But if you need to start building your own business in a hurry, this chapter can help you get started.

Creating a new business is not like creating the universe with a big bang (or constructing a building or launching a spaceship.)In other words, a star business usually evolves and changes to find it's leadership position and niche. But to get started with finding your initial positioning, the following seven steps can help:

1. Take an existing market and segment it into two: For example, let's take the highly competitive field of search which is dominated by Google. A would-be competitor (say Cuil.com) can either go head-to-head against Google (the "mine is bigger than yours" trap.) Or they can break up the search market into two conceptually. If I were doing the start-up positioning for Cuil, I would conceptually divide the search market into Non-Private Search (where your search data is recorded - the kind that Google specializes in) or Private Search (where your search data is not recorded.) When you cut up a market into two, it is okay if your niche is much smaller than the main market. What you're trying to do is to seek a dominant position of a niche.

2. Estimate if your market niche is going to grow at faster than 10%: If not, go back to step 1 and segment again. For example, you can segment the search market into "Business Search" and "Non-Business Search." Or "Fun Search" and "Not-Fun Search." What you are seeing is whether you can find a gap in the market that is likely to grow faster than 10% per annum.

3. Identify your target customers: Your target customers should be different in terms of profile compared to the main market. For example, in the earch example, if Cuil chooses the positioning statement of "Private Search", the target customers (users in this case) can be people who are conspiracy theorists or people who are distrustful of government (who can one day ask Google to submit all the user data it has been collecting.) Alternatively, the target customers can be the same as the main market but will still towards the niche because you're serving their needs in a different way. Continuing the search example, people may use Private Search when they want to keep certain searches private and they may use non-private search when they desire to get results that rely on page rank.

4. Define the benefits of the new niche: How will the new category niche (note - we're still thinking in terms of the niche category and not yet about the product directly) help your target customers? How are the benefits offered different and better from the benefits offered by the main market? For example, continuing the search example, the major benefit would be assured privacy by not recording user actions and IP addresses.

5. Ensure profitable variation: Figure out why your niche will be more profitable than the main market? If your niche is potentially not more profitable than the main market you go back to step 1 and do your segmentation again. With the search example, the Private Search category can potentially charge users for using the product. Or perhaps they can sell it to enterprises. Or perhaps advertisers will pay a premium to be associated with a 'non-evil' brand.

6. Name the niche you plan to lead: We've already done this above in the search example. But it will probably need to be refined. Doing this will help you identify who your niche competitors are - the firms that you must really worry about. The best way to be a leader of a niche is to invent and name the niche. Then if competitors enter the niche or the main market leader introduces a competitive offering, they look like followers. Massive niche leadership = Massive profitability. Ensure that your business formula (operations, marketing, pricing, business model, technology, patents) is difficult to copy. This will help you hang-on to your niche leadership for the long run. Your secret sauce will be the reasons behind your profits and growth. Keep these secret and do not boast about them. Aim to increase the depth of your offering while staying focused on your target niche. Don't aim to broaden your offering to adjacent markets however tempting it may be. As Jack Trout would say, "Differentiate or die."

7. Name the product / service: Ideally, the name of the product should appeal to your target market, it should be short, memorable, distinct and easy to associate with your niche. The interesting and important thing is to name the brand after you have completed the preceding six steps. Most entrepreneurs begin by naming their proposed venture first and then think about the other issues of positioning etc. This is really the wrong way to go about starting your venture.

Once you've done this, you're on your way to starting a star venture. Now all you've got to do is get good people on board, raise as much capital as necessary, think about potential risks (especially from substitute products) and have fun while your business takes off!

India's Netflix - BigFlix.com Versus SeventyMM.com

2009-03-08T21:23:00.000-07:00

The Indian video rental market is an attractive market. Upwardly mobile households are purchasing DVD players (whose prices are falling all the time), and the video rental market is highly fragmented. Pirated videos that you can purchase for less than a dollar are still a problem ... but the hope is that in the long run, the pirated DVD market will shrink or at least get marginalized. The market size of the video rental market is estimated at about Rs. 700 crores (say $ 140 Million) and is set to grow at over 10% every year for the next many years.

So it's hardly surprising that several players are attempting to create the Netflix.com of India. And the business that succeeds in becoming market leader will definitely be a star business.

We have two contenders in this market - BigFlix.com (owned by Anil Ambani - one of India's richest men) and Seventymm.com - which is very well financed by brand name venture capitalists.

I personally believe that BigFlix.com (which is already said to be growing at 15 to 20% per month) will succeed in becoming a star business due to the following reasons:

1. BigFlix has much deeper pockets given the financial muscle of Anil Ambani.
2. Big Flix is part of a larger business plan and includes Big Pictures which is a movie production company producing several, very successful Bollywood movies. While the market generally rewards specialists, in this case, it may actually punish the specialist - SeventyMM - because several movies may exclusively be made available only through BigFlix.
3. Big Flix has taken the effort to create physical presence in malls across many Indian cities. I personally heard about the SeventyMM service first but I signed up for the Big Flix service in a mall. Even though I'm quite Internet savvy, I chose to walk up to a physical store and sign-up for the service. However, now that I've signed-up, I have started using the service using cellphone SMS and my computer. I suspect a number of users will be like me.
4. Big Flix has a much cleaner home page. I believe that this is crucial. If you look at the SeventyMM.com home page, you will see too many calls to action, with enticements for you to click on the latest thriller, book movie tickets online through the site etc. However, if you look at the home page of BigFlix, you will see only two calls to action. One is for movie download and the other is for movie rental. So I believe that the BigFlix.com site is way more focused than the SeventyMM site.
5. Big Flix also appears to have positioned itself for a future where people may simply download movies onto their hard-drives. It has already started offering this service thereby gaining valuable experience, skills and competencies in the on-demand video rental market.

So my bet is that Big Flix becomes a star business and Seventy MM becomes a question mark with investors having to make hard-choices about whether they need to further put money into the business, change some aspects of the business to differentiate Seventy MM sufficiently from Big Flix or sell the business. Given that the investors are smart, it is likely that they will find a worthy (and fool-hardy) suitor who will acquire SeventyMM and take over the challenge.

The 5 Second Test

2009-03-04T01:52:00.000-08:00

In business school, you learn about the elevator pitch when talking about your start-up. The idea is that if you're stuck in an elevator with a VC, you should be able to describe your business or what you do in 30 to 60 seconds. The problem is that you rarely get 30 to 60 seconds to describe your idea. Further, you may not be the one describing your idea or business. More likely it will be other people (friends, VC's, customers, journalists) talking about your business to other people.

So the real question is:

Can you describe your business in 5 seconds or less? Better still, can one of your friends who hears your 5 second pitch, describe it to someone else without diluting the heart of your message?

My friend - Chetan Dhruve - refers to this as the Five Second Test.

If there's one thing that separates Star businesses from other businesses, it is that you can describe them in 5 seconds or less. For example:

Google = Search
iPod = 10,000 songs in your pocket
iTunes = 99 cents per song / unbundled albums
Fedex = Overnight delivery guaranteed

The other thing that separates Star businesses from other businesses is that when you hear the 5 second message, a clear competitor in the niche category does not emerge in your mind. This is true at least at the time when the product is launched (although competitors may come along later thus strengthening the Star business' market leadership position.)

However, entrepreneurs being the ambitious kind that they are, will attempt to convey too many ideas with their 5 second statement and so they enter gobbledygook territory. And you get words like "synergy", "success" or "social" thrown in to the 5 second description. If you get an even more ambitious entrepreneur, you will get words like "biggest" getting into the 5 second statement. The word "biggest" should never figure in your tag-line (or anywhere in your business plan for that matter.) "Big" is a consequence of a significant business differentiator. Big is NOT a differentiator. Nike does not have a tag-line that says "We're earth's biggest shoe manufacturer." Google became earth's biggest search engine as a consequence of the superior (and most importantly differentiated) product that they delivered. One exception is the case of network-type businesses such as auctions, exchanges and ad-networks where biggest is an important reason why customers will want to use the product.

So, do you have your 5 second pitch ready?

The Inelasticity of Start-Up Capital

2009-02-18T23:07:00.000-08:00

Think of an entrepreneur with 100 Million Dollars start-up capital (The 100 M Guy.) Now think of an entrepreneur with 200,000 Dollars of start-up capital (The 200 K Guy.) Both don't have any ideas for what kind of business they want to start. Both have a need to receive a return of at least 40% on their capital amount in order to feel satisfied. I say at least 40% but entrepreneurs being entrepreneurs usually want the moon (and occasionally get it.) Who is likelier to succeed in founding a star-principle business (a market leader in a fast growing niche that's likely to grow at at least 10% p.a. for the next many years)? Note: I'm not talking about businesses where land is one of the key factors to success (so that rules out industries like real-estate development, mining, oil drilling etc.)

You'd probably say that the one with the 100 Million Dollars of start-up capital would have a better chance.

Now let me add a little twist to our thought experiment. The 100M guy does not understand positioning (and I mean really understand it ... not just know it by reading a book) and the Star Principle. On the other hand, the 200K entrepreneur understands positioning, differentiation, the importance of creating a beach-head in the market, the notion of finding a gap in the market, the idea that a gap in the market may not necessarily translate into finding a market in the gap and more.

I would probably bet on the 200K entrepreneur.

First off, the 100 M entrepreneur needs to produce 40 million dollars in free cash flows every year while the 200K guy needs to produce only 80K in free cash flows. I call this the Warren Buffet problem. But it's a good problem to have. If you have such a problem, you'll most likely gravitate towards businesses that are safe (not likely to pull down your portfolio IRR through losses), established and cash cows (possibly low growth but market leaders in their sector.) But the challenge here is to build a star-principle business.

If the 100M Entrepreneur is a real go-getter and if his ambition (and confidence) exceeds his understanding of positioning, differentiation, category leadership and the star-principle, he'll probably try to build a business (or two) on his own. I've heard a few folks tell me that their approach is to throw a couple of things at the wall and see what sticks and works. Somebody whom I know started a variety of businesses almost at the same time in a bid to build a multi-national conglomerate. He was charismatic, bold, confident and the ultimate he-man. The problem was that all of the businesses were "Dogs" (followers in low-growth markets) and so the entrepreneur was deep in debt within a few years. The story has a happy ending. The entrepreneur had the courage to shut down all the bad businesses (or euthenize all the dogs :)) and after going back to the one business that he really understood was able to salvage his life and fortunes. But he sure could have done without the drama and stress.

Alternatively, the 100 M guy has been told that TEAM is everything. So he sets about building a team of the world's best engineers, designers etc. And to keep up morale, he sets up an equitable stock option plan. And then the team starts thinking about what business to build, how to build it, the differentiators etc. You have to assume that they are likely to be successful at this since an all-star team is likely to have the track-record and the experience. But even here, success is not assured. And the cost of failure can be very high. Just ask the folks at Long Term Capital Management.

Let's assume that both the 100M Entrepreneur and the 200K Entrepreneur spend their start-up capital in the most optimal manner relative to their financial circumstances. And that is to focus on the three most important words for a start-up which are "Positioning. Positioning. Positioning." Now let's look at the actual way that money gets spent. The first entrepreneur (assuming he's wise) will hire a good consultant for a couple of months to help him pick a business and define a positioning statement. However, as any of us who have gone to business school know ... 99% of the strategy consultants don't deserve what they are paid. In fact they add negative value to businesses. A pretty PowerPoint presentation packed with numbers is not the same as applying the right framework based on a sound understanding of first principles of start-up strategy. For this thought experiment let's assume that the 100 M entrepreneur has hired a good consultant who gives him the right guidance. The cost of this engagement is likely to have cost him only a couple of hundred thousand dollars.

Now let's look at the 200K entrepreneur. All he has (in addition to inner skills such as committment, passion, courage, confidence, even-temperament, flexibility etc.) is his thorough understanding of the Star Principle. So he goes out and finds a sounding board (possibly his future business partner) and selects a few areas that he understands or has an interest in. Then he searches for gaps in the market and attempts to come up (on paper) with a product that is sufficiently different from the rest of the market offerings. Then he begins test marketing his concept in order to refine it. His motto like the open-source software developers is "Release early. Release often." The idea is to ensure that there is a market in the gap and that profitable variation is actually possible. Once there's some positive feedback he begins other processes to protect his future business (such as patents) and while staying below the radar begins hunting for capital. If he's on the right path with regard to the market opportunity, additional expansion capital should come to him with ease regardless of the state of the economy. In some businesses, it's possible that internal accruals will fund future expansion and so no additional capital will be necessary.

So what's the point of the thought experiment? To prove that you don't really need too much capital to start a business. Just a few hundred thousand dollars is more than enough to start building a business. Even a big business. Think about Amazon. Jeff Bezos was no multi-millionnaire. He had no start-up success track-record. But he was able to raise financing because he was able to prove that he had a plan to become a category leader in a high-growth business.

Positioning is the great leveler. Prove that you've got the positioning right and the rest of the ingredients (team, capital, customers, fame and of course money) are yours for the taking. Start-up capital is inelastic. Just because you throw more money during the initial months of your start-up journey does not mean that you're chances of success will increase. There is no substitute for rigorous thought experiments, brainstorming and research in an effort to get your positioning right.

Fail small. Learn fast. Don't repeat the same mistakes. But if you think you're on the right path. Don't play to avoid losing. Play to win!

Cuil.com - A Botched Positioning Opportunity

2009-02-15T20:38:00.000-08:00

Cuil.com is positioned as a competitor to Google search. That's the equivalent of standing in front of a speeding train and hoping you'll survive just because you're wearing a cool (cuil?) Superman outfit.

Don't get me wrong. These guys are obviously very smart engineers with experience in companies like Google. But the guy who thought up their positioning statement really needs a kick up his pants. As somebody who has seen the light (or rather, read the book - The Star Principle), I know that Cuil's positioning is most likely to fail. As search engine guru - Danny Sullivan says, "Anybody who thought [Cuil] was this Google killer can really see now that no, that's not going to happen today — and the likelihood is that's not going to happen a year from now."

And if you look at Cuil's "About Us" section, after saying that they're the world's biggest search engine, they go on to say, "Rather than rely on superficial popularity metrics, Cuil searches for and ranks pages based on their content and relevance." Umm, is'nt that what the search engines were doing before Google came along?

So the big lesson is ... saying that you're bigger than the competition doesn't mean anything if it is not useful to your end-users.

So how would I have positioned Cuil? Well, if you scroll down their "About Us" section, you'll see a small para that says, "so we don’t collect data about you and your habits, lest we are tempted to peek. With Cuil, your search history is always private." Wow! There's your positioning statement!

"With Cuil, you're search history is always private"

Google is now viewed as this evil big brother who monitors and keeps track of user activities. Capitalizing on this, Cuil should create FUD (fear, uncertainty and doubt) in the minds of consumers about Google. The market for search engines can then be split up into two parts - with one part being "private search" and the other being "tracked search." They can start calling themselves as the leaders in private search. And suddenly you've got a competitor for Google!

Hope one of the folks at Cuil reads this and pays some attention to their positioning.

The Fad and the Star

2009-02-10T04:52:00.000-08:00

A fad is a star that fades (hmmm ... is 'fad' a short form of 'fade'?) A fad product is usually well-positioned and may be a market leader for a few years (or many years as in the case of the frisbee or rubik's cube.) However, after an initial surge in growth, alternative products may start taking market share away. Or the target market may shift their attention to a new substitute activity or product.

Now let's take a look at two businesses:

1. Perfect Pushup (www.perfectpushup.com)
2. Crossfit (www.crossfit.com)

Perfect pushup sells equipment that helps you execute the perfect pushup. The positioning is perfect. And it has a patent. And it's sold heavily through the infomercial method. But in my mind it has all the characteristics of a fad. It's likely that in a few years, competitors with slight variations on the company's patent will enter the market. And that's a good thing since perfect pushup will then be positioned in the market leader slot. But the problem arises when the market gets bored with the product and moves on to the next big thing in fitness.

Consider Crossfit on the other hand. They have all the makings of a star. They have a passionate and active community who act as evangelists. They have a unique business model where they give away 90% of their content away for free and make most of their money through workshops which are almost always sold out. They have a unique, amazing system which gives absolutely fantastic results to practitioners. And they have repeat value - a user can presumably be a Crossfit practitioner all his life.

While I understand that a fad is a legitimate way to make a lot of money, I'd personally like to be involved with stars simply because the effect of a star is so much more long-lasting.

FanFiction.Net - Is This a Star Business?

2009-02-04T01:40:00.000-08:00

FanFiction.Net (often abbreviated as FF.Net or FFN) is an automated fan fiction archive site. It was founded on October 15, 1998 by Los Angeles computer programmer Xing Li, who also runs the site. The first fics to be written were a few stories about Buffy the Vampire Slayer. As of 2005, FanFiction.Net is the largest and most popular fan fiction website in the world. It has nearly 1.3 million users, and hosts stories in over 30 languages.

Wikipedia defines fan fiction as, "Fan fiction (alternately referred to as fanfiction, fanfic, FF or fic) is a broadly-defined term for stories about characters or settings written by fans of the original work, rather than by the original creator. Works of fan fiction are rarely commissioned or authorized by the original work's owner, creator, or publisher; also, they are almost never professionally published. Fan fiction, therefore, is defined by being both related to its subject's canonical fictional universe while simultaneously existing outside that universe.[1] Most fan fiction writers assume that other fans are reading their work, so their readers have knowledge of the canon universe (created by a professional writer) in which their works are based."

Now, from what I gather, fan fiction is a growing genre of Internet publishing. It's probably growing much faster than 10% per year in a bursty manner based on the popularity of the latest sci-fi or fantasy book released. The Internet (and the cellphone in countries like Japan) makes it easy for fans to write short stories around their favorite characters and push it out for review from "beta readers" who act as unpaid editors and help improve the work.

And who is the market reader in this space? It's fanfiction.net! You run a search on Google for fan fiction and they come up as search result number 1 - ahead of the Wikipedia entry for fan fiction. And their Alexa rank is 355. So I believe that this business probably has star potential. The only issue is that if you look at their Alexa graph, it seems to show a declining trend. Perhaps a competitor has come up with a substitute offering?

About The"Is This a Star Business" Blog

2009-01-21T21:45:00.000-08:00

Sometime ago I read an amazing book by Richard Koch called the Star Principle. It's probably the best business book that I've ever read filled with some really sensible business ideas. In fact the stuff mentioned in this book is so important that it must be made into mandatory reading in all business schools. Unfortunately, the curriculum in business schools is packed with plenty of complex stuff that we hardly use in day-to-day life. And because there's so much of information thrown at us, we tend to lose track of the most basic and important lessons.

Hence, I've decided to maintain a blog in an effort to keep me focused on the basics that are covered in this book. I might digress from the Star Principle occasionally but will attempt to maintain the theme of the Star Principle. I hope to look at businesses and start-ups and classify them according to the principles of the book. This blog is being maintained more for myself than for others. If you want to understand the Star Principle it is best if you read the book. This blog is not endorsed or supported in any way by the author - Richard Koch. Any erroneous interpretations of the book that you may find on this book are my own :)

The basics of the Star Principle :
- The main idea in the book is derived from the BCG Matrix.
- The three most important words for a business are: positioning, positioning, positioning.
- Super-successful businesses are almost always positioned as leaders of a niche in a high-growth market (with sustainable growth.)
- The way to niche-leadership is by creating and defining the niche.
- It's important to identify a gap in the market before launching a business.
- It's also important to ensure that there is a market in the gap.
- Followers in a niche usually never ever catch up with the leader (think Pepsi and Coca Cola)
- Because of the power of compounding, leaders in fast-growing niches (growing at a minimum of 10% p.a.) tend to become enormously profitable over time.

Over time, I hope to categorize businesses based on the principle of this book.