Wednesday Oct 3, 2012 by Jon Auerbach - General Partner, Charles River Ventures
One of the truisms of entrepreneurial startups is the importance of focus. Starting a company to compete against huge, well-capitalized companies is daunting enough. So focus on a well-defined problem set is usually a recipe for success (or at least not as clear as a recipe for failure as the alternative).
I recently met with an exciting young team of entrepreneurs that is going after a big problem at the intersection of mobile and social networking. The team was relevant and hungry. They had given a lot of thought to the product.
After we had covered all the product strengths, I asked one of the founders what he is bad at (excuse the bad grammar). Understandably, he was puzzled and a bit defensive.
My friend Frances Frei over at Harvard Business School has done some great research work in the area of product offering and customer service. One of her powerful themes is that for companies to figure out how to be great, they must first understand what they are going to purposefully do poorly.
One of the examples from Frei’s research is IKEA. For decades (centuries, even) the conventional wisdom was that to succeed in retailing you needed to do two things right: pick a good location and put the customer first. But IKEA decided to be terrible on these two vectors. Their stores were miles from their customers. And there was little, if no, customer service (anyone who’s ever been to Ikea knows what I mean). Why? Because IKEA decided it was going to be GREAT at price and margins. Picking locations far away from customers kept store costs down (cheaper and larger real estate, access to railroads or water terminals). Then IKEA asked the customer to assemble his/own furniture. That cuts down on assembly and shipping costs.
IKEA’s success is well documented. The approach allowed them to attack new markets with a disruptive product and service offering. Furniture is no longer passed along through generations. IKEA has made it disposable. And they did it partially by being terrible at the two things that most retailers try to be great at.
Frei’s other great example is Commerce Bank. While other banks had chosen to optimize product offerings, Commerce Bank chose to compete on opening hours and customer service. The bank chose not to have the best rates in the business — in Frei’s words, this was where they wanted to be bad. Instead, Commerce chose to be open nights and weekends and have the friendliest staff in town. They accomplished the latter by hiring tellers who “smile in a resting state.” This means they chose people for whom smiling came naturally. The thinking was that if a teller had to smile at customers 8 hours a day, it would be easier if they smiled naturally (Commerce called it people with the “smiley gene”).
For early-stage startups full of passion and ideas, it is all too easy to fall into the trap of doing everything well. But if we look at some of the most successful startups of the last few years, many of the breakouts started with product offerings that could be called limited. Three of our investments, Twitter, Yammer and HubSpot, all began with a relatively narrow feature set. Twitter chose to be great at simple 140 character messaging, ignoring key features of other communications platforms, namely search and monetization. Yammer rolled out a simple enterprise communications tool, but in the early days ignored integration with other features and services that some users (especially older ones) thought were key. And HubSpot focused on the top of the sales funnel, lead generation, and chose not to focus on conversion and engagement. These focused approaches allowed all three companies to achieve greatness. And the greatness gave them the ability to expand down the road and be great at other things. Twitter now has rich search and monetization. Yammer ultimately integrated many other offerings. And Hubspot is now deep down the funnel with a huge list of happy customers.
I highly recommend a read of Frei’s new book, Uncommon Service: How to Win by Putting Customers at the Core of Your Business.
And for startups just getting going, make sure you take the time to understand what you want to be bad at.
Jon Auerbach is a General Partner at Charles River Ventures. You can find this post, as well as additional content, on his blog called vcjon. You can follow Jon on Twitter (@jgauerbach) by clicking here.