One of the mistakes I see entrepreneurs make is they move to
business model before locking down strategy. The way I like to think
about this is get the product right first, then lock down the strategy
of the business, then figure out the business model.
Getting product right means finding product market fit. It does not
mean launching the product. It means getting to the point where the
market accepts your product and wants more of it. That means different
things in consumer, saas, infrastructure, hardware, etc, but in every
case you must get to product market fit before thinking about anything
else. And, I believe, moving to business model before finding product market fit can be the worst thing for your business.
Once you find product market fit and start thinking about business
model, I suggest you take a step back and work with your team (and
investors) to develop a crisp and well formed strategy for your
business. Investors, at least good investors, are very helpful with this
stage. If you watched the John Doerr interview I posted yesterday,
you hear him talk about strategy a lot (Intel, Amazon, Google, etc).
The best VCs are very strategic, have seen strategies that work and ones
that don't, and can be a great partner to develop a straetgy with. This
is one of my favorite things to do with entrepreneurs.
I remember back to the 2009 time period at Twitter. The service had
most certainly found product market fit. And the team turned its
attention to business model. There were all sorts of discussions of paid
accounts, subscriptions, a data business, and many more ideas. At the
same time, Ev Williams was articulating a strategy that had Twitter
becoming the "an information network that people use to discover what
they care about." And so the strategy required getting as many sources
of information on to Twitter and as many users accessing it. It was all
about network size.
That strategy required a business model that kept
the service free for everyone and open to all comers. That led to the
promoted suite business model. Twitter executed product > strategy
> business model very well.
We have also had many portfolio companies build revenue models that
did not line up well with the strategic direction. And in some cases,
the companies really did not have a well articulated strategic direction
at all. That led to a lot of wasted energy building a team and a
customer base that ultimately was not of value to the business. We have
seen teams walk away from parts of their business because of such
mistakes.
These kinds of mistakes are usually not fatal. Not finding product
market fit is fatal. But going down the wrong path in terms of strategy
and business model can be fixed. But it is painful, costly, dilutive,
and sometimes can lead to a change in management.
So my advice is not to rush into business model without first finding
product market fit and then taking the time to lock down on a crisp,
clear, and smart strategy for your business. From there business model
will flow quite naturally and you will be on your way to success
Fred Wilson is a VC and principal of
Union Square Ventures.
Assembling a winning team is every manager’s dream. But what do we know about what it takes to get there?
I’ve
studied this question quite a bit in the context of sports, and in
particular the world of soccer (or, as it is known outside the US,
football). As a business school professor, I’m interested not just in
what makes for winning teams on the field, but also which ones are most
fortunate off the field. Both results are needed to ensure
lasting success, which seems so elusive in a world in which one lucky
goal (or worse, one bad call by a referee) can make all the difference.
Acquiring stars
One
approach is to focus on attracting superstars in their prime, and build
a team around those accomplished professionals. In soccer, clubs like
Real Madrid and, more recently, Manchester City live and die by what I
call a “superstar-acquisition” model. Having stars on your team improves
the odds of winning matches, of course, but it also can be tough to
manage team dynamics, and it certainly does not guarantee championships.
Tellingly, both Real Madrid and Manchester City lost out on their
domestic league titles this year.
But what betting on stars does
seem to ensure, my research shows, is an increase in revenues. Having
one or more of the very top players on board strengthens the club’s
brand as a top-notch soccer club, which fuels a variety of revenue
streams, from ticket sales to television rights, sponsorship, and
merchandising. That capital, in turn, puts the club in a better position
to compete for the next big player. Real Madrid is a case in point: it
currently is the world’s most valuable sports franchise, and it got
there largely because of investments in superstars that appealed to fans
across the globe.
Developing talent
Many
teams don’t have the means to participate in the arm’s race for talent,
especially those in smaller markets. Smart clubs that find themselves in
that predicament take the opposite approach: they develop talented
players, teach them the skills they value, integrate them into their
team over time, and maybe even embrace the fact that they will some day
leave for greener pastures. In soccer, teams like Boca Juniors in
Argentina and Ajax in the Netherlands are known for having such a
“talent-development” model.
They recruit promising youth players,
often before they are teenagers, and have much-touted systems in place
to develop those players into superstars. Some stay at the club and make
it into the first team. Ultimately, though, a select few top players
will be sold to wealthier clubs. The resulting transfer money –
sometimes tens of millions of dollars -- is fed back into the club to
fund the talent factory. The club’s cachet of having its players reach
the top of their profession helps build its brand as a developer,
allowing it to again recruit the most talented youngsters, and so the
process repeats itself.
A talent-development strategy can pay
off, too – on and off the field. Ajax won its third Dutch league title
in a row last week, and it has seen its financial performance improve
accordingly. The club knows it could see its best players leave this
summer, as happened last year, but new talent is already waiting in the
wings, and the turnover is actually helpful for them. Yet it is hard to
imagine that even the best talent developers from smaller countries can
consistently beat their wealthier rivals on the field in (more
lucrative) international competitions. The gap between the elite soccer
clubs and the rest of the field seems to be widening.
Caught in the middle
Many
clubs fall somewhere in the middle of the spectrum between the two
models, of course, and they can do extremely well, too – for instance,
FC Barcelona and Manchester United have combined developing young
players and betting on established stars to great effect over the years.
Both teams secured domestic trophies this season, and both are strong
global brands in the business of sports. (I'll dive into this model in
an upcoming post, I promise.)
Three rules
In the end, it’s not the type
of model that necessarily dictates success on all fronts. Instead, it's
the execution of each model that matters most. Three simple rules about
managing talent go a long way -- in soccer and beyond:
1. Pick a
talent strategy. It is vital to make a clear decision about how you
intent to compete. In other words, make a call about which talent model
will be yours.
2. Be consistent. As with any strategy, frequently
changing course can be problematic. Successful teams stick with one
approach over an extended period, and grow stronger over time.
3.
Make sure that your talent strategy fits your overall business model. If
you are relying on talent development, structure your business in such a
way that you benefit when the talent you have nurtured leaves, for
example by having the right contracts in place. Similarly, if you
concentrate on acquiring superstars, ensure that you are set up to
collect the associated rewards, too, for instance by building a strong
merchandising arm.
Anita Elberse is the Lincoln Filene Professor of Business Administration at the Harvard Business School. Last year, she wrote an acclaimed case study on Sir Alex Ferguson, British soccer’s most successful manager ever, who traveled to Boston to speak in her class. In October, she will release her first book, “Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment.”
