<Focus, focus, focus: Understanding your value stackSaturday, March 16th, 2013
by Roger Ehrenberg

Distraction and diffuse efforts are killers, especially in nascent businesses. Trying to do too much sucks valuable resources from accomplishing the core mission, but is often viewed as being important for “keeping options open” or “controlling one’s destiny.” The goal of a seed stage company shouldn’t be optionality preservation but laser-focused customer engagement, and to let the market help drive the iterative product development process rather than engineering in a vacuum and trying to solve everyone’s problem. This is the big issue of developing a general platform versus solving an important pain-point through a vertical application. Platforms can have great capabilities, but it is hard to prove the value without specific use cases. This is why UI is so important even in data-driven API-based start-ups, as potential customers need to actually SEE the value, not merely have it depicted in a spreadsheet or on a series of charts. Being able to demonstrate value is no easy task and involves several key steps. Ignore them at your peril.

Know your customer. This is especially difficult in two-sided markets, where seeding growth on both sides is often a necessary element of demonstrating value. But many B2B2C companies have similar issues. Do you need to get widespread consumer adoption before showing a clear value proposition to the enterprise? Can you be laser focused on building the consumer application and solidifying usage and deep engagement while seeding a small number of strategic enterprise relationships to illustrate the enterprise use case and prove the ability to monetize? Spend too much time with the enterprise and you risk losing focus on your user. Ignore the enterprise and you might not develop a consumer experience that benefits from enterprise engagement. It’s not easy. You simply can’t serve two masters early in the company’s life. Complexity can distract, drain resources and impact culture.
Know your source of competitive advantage. Another crushing drain on the early-stage company is trying to do too many things: not simply trying to sell to multiple constituencies, but engineering more than you need to beyond what’s truly core to the customer experience. For instance, if you’re parsing text together with numerical data to generate a “score” (for creditworthiness, influence, purchase intent and 1000 other use cases), is the value in the database where the information is stored? Perhaps it resides in the harvesting and cleansing architecture to bring in the data and put it in a usable format? Or is the value in the algorithms used to develop the signal? Or might the value be in the application that creates the engagement necessary to monetize the signal? I think it’s safe to say that the algos together with the application are where the real differentiation resides, while the database and data ingestion layers are better done by and purchased from companies whose sole mission is to be the best at these things. While there are companies that ultimately require a “full stack” solution to deliver the best customer experience and to create the deepest competitive moat, most companies can go a long way towards demonstrating and creating value by focusing on the areas where they are truly differentiated and not worrying about the less essential elements of the value stack.
Know here you are in your evolution. As mentioned above, the answers to your questions potentially vary with time. While ruthless focus on a single goal has to dominate in the earliest days, this will necessarily evolve as the business grows. When does it make sense to approach a new set of customers with a different use case? Should we built our own proprietary [key part of your stack currently subbed out goes here] because it will enable us to [more rapidly/better] serve our customers and create a turn-key solution for potential acquirers? Managing growth while managing culture (and finances, for that matter) is very challenging, and only something that should be taken on after you’ve nailed that first use case. And by all means, don’t mistake revenues for a scalable and replicable sales process. The road is littered with start-ups that confused revenue growth with product/market fit, funding rapid expansion before the repeatable machine had truly been built.
I have seen too many potentially great teams and companies make these mistakes by trying to do too much, too soon. Please do not let this be you.

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