Startups often will find that their first sales person, or team, isn't successful. Here's an analysis that can help explain why.
Frequently, entrepreneurs believe that investments in sales can bring them to profitability but the problem often lies in ineffective marketing and strategy.
In the book that I'm working on, one of my primary themes is that ideas behave just like viruses or bacteria in a number of important ways. As well, the differences in pathways that they use and the impact of technology on those pathways are also important to consider.
For the last year I have been working on a book that discusses the method by which innovation occurs. My observation is that the rules of evolution, as defined by Darwin to include heredity, random mixing, and environmental pressures leading to selection and extinction, not only apply to organic innovation, but identically apply to thoughts and the creation of new ideas whether they be inventions or new business models.
I have been helping lots of startups and I often see common problems that are shared by many. Probably the most frequent problem is that of inadequate focus, that in turn, is related to understanding and selecting the right priority for the tasks at hand.
Of the leading 500 companies in Brazil in 1973, 77% no longer exist. It is no better in the United States. Of the top 25 industrial Companies in the US in 1900 only two remain there today and of the top 25 on the Fortune 500 in 1961 only 6 remain there today.
According to a KPMG CEO survey conducted in 2014, 72% of CEOs are worried that their products will no longer be relevant within 3 years. 90% are concerned that their competitors will take customers, and 83% feel that they are not innovating adequately.
Ken Burns' documentary on Cancer "the Emperor of all Maladies," was extraordinary, especially for me because most of the documented battle has occurred over my lifetime allowing me to closely identify with its twists and turns. And, with the advent of immunotherapy, it seems that the war might at last truly be nearing its end, but our hopes have been dashed before. In this essay I offer another thought that wasn't suggested in the film.
Many times I have observed successful entrepreneurs who have built great companies and yet failed at their next start-up or product. The list is long. But, I think that I understand at least three good reasons why.
This post is a continuation of a prior post in which I discussed launching a new product into a pre-existing category. In this post I will explore the issues related to building a New-Category. In my prior post I emphasized the importance of correctly ascertaining whether your product is a member of a new or pre-existing category. Getting it wrong can be catastrophic.
I just attended a conference on Robotics and was introduced to the concept of low-cost robots, like Baxter, that can replace low cost people, in highly repetitive jobs. The sales people from this industry describe these jobs as "mind-numbing" but I can't seem to stop wondering about the people who are moved out of "mind-numbing" jobs and into the position of unemployment which frankly seems worse than "mind-numbing."
For Start-ups, the challenge of marketing (and sales) is paramount to their success. Figuring out how to get your product noticed, and then purchased by customers is the single largest challenge that you will face.As I've said in prior essays, the reason for the failure of most start-ups is that their customer acquisition cost is too high, or essentially their marketing and sales are not efficient enough.
McDonald's has announced a raise in pay of at least $1 over the local minimum wage for some of their 90,000 workers, costing McDonald's about $100M or 2% of their 2014 profits of $4.7B possibly setting a trend to be followed by their franchisees who employ over 660,000 workers. Wal-Mart as well raised their minimum pay to $10 per hour for nearly 40 percent of their workers costing them around $1.6B or 6 percent of their 2014 profits of $26.9B.
I have read thousands of business plans and talked to thousands of start-ups all over the world. I have visited countless incubators filled with energetic, talented, and enthusiastic entrepreneurs who are working feverishly to change the world and make their fortune. Their idols like Gates and Zuckerberg have shown them the way to create billions in wealth. Yet, most will fail. The vast majority will not even obtain funding and in two years or less will deplete their savings, their parent's good will (and patience), or their angels gifts and be out looking for a job. Why?
When teaching entrepreneurial business models, I have frequently commented on my fascination with what I believe to be the real business model of “American Idol” a popular (although less so now) American television program. Here’s my take on the model:
I’ll bet that you think that you know what UBER is: It’s an example of our new “sharing economy.” By sharing the use of the driver’s car, he offers you a better way to get a cheaper ride as compared to a taxi and it’s way more convenient than public transportation.
You think you're pretty big, eh? Well, things are about to change.
Darwin, in his book "On the Origin of Species" describes the concept of evolution which involves the success of organisms that adapt most effectively to their environment through a process of heredity, random mixing and mutation and natural selection. Fundamental to this concept is the stability of the environment. It is only through that stability that the barrage of experiments done through random errors and mixing in reproduction can happen upon advantages that lead to dominance. Evolution describes a process of information theory where the information is contained within the DNA of the organisms that are defined by it.
When sir Isaac Newton published his Principia in 1687 he defined laws of motion and gravity that described a world that was wonderfully predictable. Every action had a reaction, the motion of every body, regardless of size, could be accurately predicted if one knew its mass, position, velocity (speed and direction) and the forces exerted upon it. But, unfortunately, Max Planck, followed by Einstein, Heisenberg and a host of others ruined the clarity by introducing us to the field of quantum mechanics in which nothing was certain anymore. Everything became related to probabilities.
If you're driving in heavy traffic and you see a red light ahead, you and the drivers in front of you all brake together and come to a stop (unless you're from Boston). But, when the the light turns green each car waits for the car in front of it before moving, so the process of getting everyone moving again takes longer. It seems like the economy works the same way.
There's a lesson to learn from studying Apple and Kodak and then thinking about how to apply it to the Swiss Watch Industry.
My two kids don't wear watches. They use their phones for the functions of timekeeping. It's kind of like a Swiss army knife, it does a lot of things. And, they don't wear all that much jewelry either; maybe they will if they make more money, or maybe not. Demographics are changing for the watch industry and it seems that the Swiss Watch industry isn't worried, should they be? I just saw that they're making a smart watch similar to Apple's.
When I was a kid I thought that it would have been more fun to have lived in the time of Edison. Back then there were lots of uninvented things and plenty of opportunity. But right now, I feel that for good reasons, which I'll describe, you couldn't have picked a better time to be an inventor.