Day 3 Afternoon - Blueprint To Growth Tony Bailetti

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Blueprint to grow a local startup: Create 6+ knowledge jobs

July 30, 2009

Tony Bailetti

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Agenda

• Challenges

• Blueprint to grow a local startup

• Growth formulas for tech startups

• Growth formulas that are not day 1 entrepreneurial plays

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Challenges

• Serious consequences of economic downturn and transition to creative economy

• Unpreparedness caused fear, uncertainty and doubt

• Difficult to exploit opportunities of new economy:– Lack of venture capital and other requisite resources

– Poor leadership and lack of political will

– Unable to harness talented and creative people

• If you fail to grow, you will lose company or be fired by investors

• Formulas, foundation, tools, processes and norms that help start ups profitably grow revenue are not well understood

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Agenda

• Challenges

• Blueprint to grow a local startup

• Growth formulas for tech startups

• Growth formulas that are not day 1 entrepreneurial plays

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To profitably grow and create 6+ knowledge jobs

6+ Growth

Get house in order10. Attract, harness, enable and retain talent at all levels11. Be easy to partner and do business with 12. Get legal, cash governance, IP, and personal affairs on right start

Secure commitment5. Provide evidence of your ability to grow6. Flawlessly execute plan to which first customers, channel partners and allies buy into7. Work with suppliers, customers and investors who share your risks and investment

Innovate8. Bootstrap 9. Build options for future

Harden opportunity and strengthen business model1. Deliver what really matters to customers and channel partners2. Invest in differentiators for which customers will pay3. Aggressively engage sources of cash and legitimacy4. Exploit growth markets your resources allow you to reach

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3. Aggressively engage sources of cash and legitimacy

• Attract un-served customers, steal customers from weak competitors, and sell more to existing customers

• Charge for services that groups in large companies deliver internally or help customers stretch their infrastructures

• Allocate market spending to initiatives that offer profitable revenue in short term

• Push results based, subscription, and “À la carte” pricing

• Contribute to community, align with leaders, give more

• Exploit branding and advertising opportunities

• Issue public messages that cast startup in a favorable light, and respond to critical incidents or crises

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5. Provide evidence of your company’s ability to grow

• Define and execute growth formula

• Sustain strong value propositions for customers

• Provide incentives for channel partners

• Show how you will overcome realities of being a local startup

• Be clear on strategic objectives

• Engage marquee customers and “big brother” allies

• Grow in adjacent markets only when returns justify it

• Create mind share around your market offers

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8. Bootstrap

• Fully lever government programs (e.g., IRAP, SR&ED tax credits), open source projects (e.g., Eclipse), academic institutions (e.g., interns, labs) and business development associations (e.g., relationships)

• Obtain information at source, not via intermediaries• Drive self sustaining processes to accomplish significant

outcomes without need of funding • Enable teams with “can do” attitude and to implement new

ways of doing things• Spend more time satisfying customers vs. investors• Encourage financial discipline • Learn how to do things yourselves so you can better

delegate later

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9. Build options for future

• Harness creative people worldwide and enable them to solve your customers’ problems

• Drive roadmap for key solutions

• Apply disruptive technology to solve important customer problems and implement points of difference for which customers are willing to pay

• Innovate to grow in adjacent markets

• Assess partnerships, suppliers and customers in terms of their capability to innovate

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11. Be easy to partner and do business with

• Simplify, one view of solution, one statement of work, one contract

• Eliminate complex agreements, piecemeal with add on costs, many statements of work, various contracts

• Find partners who work in a like manner and establish the basis of cooperation

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Agenda

• Challenges

• Blueprint to grow a local startup

• Growth formulas for tech startups

• Growth formulas that are not day 1 entrepreneurial plays

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Define and implement growth formula for startup

• Growth formula is a guide to replicate behaviour that makes a company money

• Ties and aligns work of people

• Lodged in company’s experience

Benefits

• Makes it easier to make decisions that deliver growth

• Fosters discipline

• Provides strategic clarity

• Reduces complexity

• Learn through repeatability

• New employees become productive faster

Manage growth with same discipline used to manage costs

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Inventory of growth formulas for tech startups

• Help strong customers grow and then expand to others• Sell services to niche first and then use knowledge,

relationships and cash gained to develop and sell product• Grow by selling services to a narrow niche, cross sell, then

fill higher order needs• Bring innovation to market as complementary offer to a

small number of strong players’ offers • Make competition irrelevant by enabling customers to do

something that they could not do before• Sell to customers in mature markets abandoned by

incumbents• Apply good technology developed by others to different

markets

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Inventory of growth formulas for tech startups (continued)

• Fill gaps that occur when migrating from an old to new system

• Resell services in geographies that are too expensive for other service providers

• Demonstrate offer works, sell to first customers, and identify profitable business model at the price first customers are willing to pay

• Demonstrate that offers provides value to users and economic benefits to customers and can be delivered at a profit

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Grow by helping strong customers grow and then expand to others

• Example: STMicroelectronics manufacturers of wireless handsets to adopt its leading technology in power management for microprocessors into their plans for growth

• Increases stickiness with stronger customers

1. Track strongest customers’ expansion plans and anticipate their needs

2. Deliver market offer that builds on your company’s and partners’ capabilities and contributes to strong customers’ growth plans

3. Introduce market offer to new market segment using insights gained in step 2

4. Expand into new geographical areas

5. Repeat 1-4 again

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Sell services to niche first and then develop and sell product

1. Establish credibility with customer on the basis of billable hours – they want you working for them

2. Gain inside, first hand knowledge of the key customer pain points

3. Target those pain points precisely using the customers’ own language

Example: DataDirect – sold services first, then they built storage products

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Grow by selling services to a narrow niche, cross sell, then fill higher order needs

• Example: Olam, a Nigerian startup now based in Singapore, that grew to a $1.9 billion multinational in 13 years

• From securing cashews from producers in one geography to delivering marketing reports

1. Deliver one market offer produced in one geography into one market segment

2. Deliver same offer produced in different geographies into similar market segments

3. Introduce adjacent products and services into same segments

4. Control channel to market

5. Fill higher order customer needs (e.g., move from selling product or service to improving customers’ economics)

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Bring innovation to market as complementary offer to few players

1. Define end game– Decide on end-game you want,

implement only those actions that will get you there

2. Design market offer and go to market plan to incorporate changes quickly

3. Position offer as a complementary offer to those of most influential players and seek access to as many players as possible

4. Motivate strongest and most innovate players to switch to your offer

5. Adapt to market changes

• Example: Adobe Acrobat PDF software

• Best for innovative networked products, not standalone products

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Make competition irrelevant, enable customers to do something new

• Recognize existing market is overcrowded with competitors

• Concurrently

– Differentiate to add 2X customer value

– Reduce costs by 50%

• Repeat 1-2 with another customer

• Examples: Ford Model T; IBM System 360; Apple iPod; Google maps

• Difficult to imitate quickly

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Sell customers in mature markets abandoned by incumbents

1. Target mature market being abandoned by large incumbents

2. Offer customers of incumbents a compelling capital and grow solution based on current and future solution capabilities

3. Offer package to replace incumbent’s equipment – Offer includes product and

services to remove, engineer and support

4. Overturn what locks customers to old ways and migrate them to new ways which offer greater performance

• Best for mature products

• Example: telecom equipment suppliers

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Apply expensive technology developed by others to new markets

1. Recognize the cross-domain fit

2. Bring to an underserved or technology averse space

3. Overcome the technology aversion through solution offers that hide any complexity

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Fill gaps that occur when migrating from old system to new one

1. Acquire deep understanding of current mode of operation

2. Gain experience with target mode of operation

3. Deliver value by eliminating down-time and cost of migration mistakes

4. Deliver on timetable

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Resell services provided by large infrastructures in distant geographies

• Identify service provider or product vendors that have strong and/or innovative/compelling offer but which not operating in your geographic region

• Negotiate reseller/OEM/channel partner agreement

• Resell product and service regionally

• Develop knowledge of the market and leverage to develop value add/upsell offers that are complementary

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Demonstrate offer works first

1. Demonstrate offer works

2. Sell to first customers

3. Identify profitable business model at the price first customers are willing to pay

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Demonstrate that offer provides value to users

1. Demonstrate that offers provides value to users that is significant relative to current solutions

2. Demonstrate offer provides economic benefits to customers, e.g. operational cost reduction, time savings, quality savings, revenue growth

3. Establish an offer can be delivered at a profit

4. Leverage “marquee customers” and “big brother alliances” to reference sell

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Moment of truth

• Identify your company’s growth formula

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Agenda

• Challenges

• Blueprint to grow a local startup

• Growth formulas for tech startups

• Growth formulas that are not day 1 entrepreneurial plays

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Growth formulas that are not day 1 entrepreneurial plays

• Indirectly assault incumbents in attractive markets

• Lever brand and then control channel to market

• Lever hidden capabilities to address higher order needs

• Compete aggressively

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Grow by indirectly assaulting incumbents in attractive markets

1. Target attractive market

2. Carve out beachhead that incumbents either find difficult to respond to or choose to ignore

• Enter by competing based on incumbents’ weakest points

• Do not directly challenge incumbents, go after mainstream customers or be part of crowded channels

3. Enhance capabilities to (i) deliver differentiated value and (ii) scale

4. Attack incumbents’ strongholds by going after their customers

• Combine two of three approaches without confronting incumbents

I. Lever your and complementors’ resources

II. Change value chain to deliver greater customer value

III. Secure beachhead first and then expand to mainstream customers

• More indirect is the attack on incumbent, greater is likelihood of success

• Formula depends on whether you can reconfigure value chain, find a niche or leverage existing resources

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Examples of indirect assault formula

Formula combining approaches Example

II. Change value chain to reduce cost of market offer

III. Secure beachhead of price sensitive buyers and then expand

Skype allowed users to make inexpensive calls over Internet and then gained credibility and scale

II. Reconfigure value chain in two ways: (i) changed new product development process and (ii) market channel

Usana Health Sciences used another industry’s new product development process and sold via 140k distributors, not retailers

I. Leverage supplier’s and partners’ existing assets

II. Reconfigure distribution channel

Wal-Mart levered its shelf space and hub-spoke distribution system with Cott’s capability to manufacture and distribute low cost alternatives to Coke and Pepsi

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Examples of indirect assault formula (continued)Formula combining approaches Example

I. Leverage suppliers’ existing assets

II. Reconfigure distribution channel

Costco levered its brand, process used to attract 20 million members and warehouses to offer premium home furnishings at a discount

I. Leverage suppliers’ existing assets

III. Secure beachhead in children’s apparel industry

Toys R Us levered its brand, store locations, relationships with real estate developers, and its distribution capabilities to introduce Babies R Us

III. Secure beachhead in shoe industry and then expand into jogging and running shoes

Skechers introduced a logger boot to serve a hip crowd in 1993. Once it built organizational capability Skechers expanded into jogging and running shoes

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Grow by levering brand and then controlling channel to market

1. Introduce product with high brand recognition into a market segment

2. Dominate segment

3. Introduce high profit margin products and services into segment you dominate

4. Control channel to market

5. Repeat 1- 4 in another geographical area

• Example: Nike entered golf market in 1995; used same formula in jogging, volleyball, tennis, soccer, and basketball

• Nike pulled away from Reebok as leader in sporting goods in 2002

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Grow by levering hidden capabilities to address higher order needs

1. Identify existing customers’ unmet higher order needs (i.e., improve customer’s economics)

2. Use hidden capabilities to satisfy higher order needs

3. Strengthen hidden capabilities by combining them with tangible assets, partnerships and licensing to create unique and profitable market position

4. Use market position addressing high order needs to design and deliver new products and services

• Example: McDonalds serves 48 million customers/day; Oracles has broad set of horizontal and vertical application development partners; Boeing has installed base > 13,000 commercial airlines

• Hidden capabilities are assets and capabilities developed to create and deliver core products and services and include customer and channel relationships, strategic real estate, networks and information

• Low risk because you are deploying assets with which you are familiar

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Grow by competing aggressively

• Examples: Toyota vs Big Three, Dell vs HP, Walmart vs Rubbermaid

1. Relative to rivals’ offers, enhance points of difference for which customers are willing to pay and secure points of parity

2. Devastate places where rivals’ make money

3. Raise rivals’ costs (e.g., buy key supplier, release code as open source, redefine value chain)

4. Confuse rivals with fake moves

5. Attack rivals with overwhelming force

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References

• Bryce, D. J. and Dyer, J. H. (2007) Strategies to crack well guarded markets. Harvard Business Review. May: 84-92.

• Chakravorti, B. (2004) The new rules for bringing innovation to market. Harvard Business Review. March: 58-67.

• Chan K. W. and Mauborgne, R. (2004) Blue ocean strategy. Harvard Business Review. October: 76-84.

• McGrath, G. and MacMillan, I. C. (2005) Market busting strategies for exceptional business growth. Harvard Business Review. March: 81-89.

• Slywotzky, A.J. and Wise R. (2002) The growth crisis and how to escape it. Harvard Business Review. July: 5-15.

• Stalk, G. Jr. and Lachenaeur, R. (2004) Hardball: Five killer strategies for trouncing the competition. Harvard Business Review. April: 62-71.

• Thompson, D. G. (2005) Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth. Wiley.

• Zook, C. and Allen, J. (2003) Growth outside the core. Harvard Business Review. December: 66-73.