Advice

Jab, jab, jab, right hook – list of essential strategies for startups

I didn’t intentionally set out to copy GaryVee’s book title; but with the McGregor Mayweather fight tonight I wanted to put up a quick post relating to strategy for startups, and the post title seemed fitting.

Strategy is inherently important to a startup’s survival; too many founders just blindly go with the wind, letting whatever variables pull them in any direction.

Below are some of my thoughts which have helped me gain control, set direction, stick to that direction and have a feeling like things are mostly under control.

P.S. be sure to check out the products I just pushed live on my shop! 🚀

Start small

Don’t try and become the next Uber overnight. Focus on one specific niche and serve it very well. And by very well, I mean so well that people will go out of their way to shout about your service, product and quality. You need a small vocal community of champions, rather than a large community of muted customers. Cast a narrow net, and really concentrate on serving those particular customers.

Aim for monopoly

Once you’ve monopolised your own, small market, you can gradually expand into related and slightly broader markets. Think Amazon. Bezos started with books, then expanded and expanded, it now truly is the “everything store”. I fall into Peter Thiel’s school of thought, in that every startup should strive to build a monopoly. And by monopoly I mean owning a market through which you can set your own prices. Monopoly companies stand to create (and maintain) lasting value for themselves. Think Google.

You have to be 10x better

It’s always a red flag when founders talk about getting 1% of a $100 billion market. Related to the point above, actively seeking out someone else’s competitive market, is not a good place to start. Proprietary technology as essential. Something that provides a 10x performance improvement over the closest substitute. Even as a startup, Amazon could offer at least ten times more books than a traditional book store, just as it could be argued that PayPal made buying and selling on eBay ten times easier. If you’re not shooting to produce something significantly better, then what’s the point?

Network effects are your friend

Each of these points I think could be expanded into posts of their own; this one specifically. When you start to unpack it, think of the startup giants of today and the network effects and “moats” that they have created. Facebook, Uber, Airbnb, WeWork, the list could go on. Any marketplace’s success is predicated upon network effects and liquidity. It’s actually in my drafts to write a post about the impact that these huge startups have had on the entire startup ecosystem — will we have another wave of smaller startups that build upon these marketplaces? Will we ever truly be able to usurp Facebook or create another one?

Create Economies of Scale

Network effects produce accelerating returns to scale. As the market grows, each customer becomes increasingly valuable, not just for what they buy, but for the value they add to the rest of the network. It is, after all, returns to scale that create outsize profits.

Think long term, compounding is your friend

“Compounding is the process by which we add interest to a fixed sum, which then earns interest on the previous sum and the newly added interest, and then earns interest on that amount, and so on ad infinitum. It is an exponential effect, rather than a linear, or additive, effect. Money is not the only thing that compounds; ideas and relationships do as well. In tangible realms, compounding is always subject to physical limits and diminishing returns; intangibles can compound more freely. Compounding also leads to the time value of money, which underlies all of modern finance.” – Farnham Street

Growth, growth, growth

Always be thinking growth; growth is the holy grail for startups. Paul Graham’s post does a much better job at summarising this than I ever could.

“A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.

If you want to start one it’s important to understand that. Startups are so hard that you can’t be pointed off to the side and hope to succeed. You have to know that growth is what you’re after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face.”