7 things you can learn from old-school company builders before they disappear
Rocket Internet and similar incubator models are becoming dinosaurs and there is nothing they can do about it. This recent change is not coming out of nowhere.
Over almost a decade Europe’s elite company builders were seated on the throne with nothing to fear. They had it all: comprehensive market insights, top-notch business intelligence, excellent execution, tremendous knowledge on every single marketing channel and an almost infinite pool of talents.
And yet, all their competitive advantages are gone in just a few years — market insights and softwares are available for cheap money, the way of execution is not really bearing fruits for several years now, marketing know-how has become more and more accessible through best-of-breed solutions and digital marketing gurus, and talent turnover has remained high with the exception of no recurring talents.
Nevertheless, Rocket Internet, as did Nova Founders Capital, paved the way for many new and uprising start-ups in several locations all over the world. I am lucky to have experienced the work methods of both company builders at a time when everything was still running smooth.
My real-life experiences and what I learned from their practices are gathered in this short article. Enjoy!
1. Start with the best — learn from the best
Building companies from scratch means being resourceful, ambitious and determined at any time. These core attributes have to be reflected by the founders as well as the people in the company itself.
Company builders lay great emphasis on hiring the brightest talents and industry leaders from top-tier industries and most prestigious business schools in the world. They know that success of young companies is based on excellent minds with great people skills and a sound knowledge of the market.
The best way to build something great is to surround yourself with great people.
The principle behind building something great is hiring the best people that can teach you what you don’t know. Through additional skills, diversification of knowledge and external experience in the field of business the odds of being able to solidify and, at the end, keep the company in business are demonstrably higher.
That sounds promising but how can newly founded companies hire the best and smartest people with limited budget?
Brilliant entrepreneurs are convincing talents of their vision mixed with challenging and rewarding functions in the company as it grows. The magic is to understand the drivers behind great people.
Find the right recipe — Is it having the chance to impact other peoples’ live, responsibility from day one, freedom to co-create an own company culture, or to experience a steep learning curve?
Hereby, the difference between someone being perceived as great and not-so-great is not necessarily measured by experience, achievements or skills but strongly by attitude mixed with behavior, values and leadership. In the start-up environment you will often come across the terms “bootstrap mentality” or “get-shit-done mentality”— basically creating something by oneself with limited given resources and being persistent until succeeding.
I strongly believe having people with “bootstrap mentality”, whether or not they come from top-tier business schools or industries, makes the difference between building something good and building something distinctively great.
2. Tight your shoes and start walking
I remember the day as I joined the start-up world for the first time. After being walked through the “holy halls” of Rocket Internet, I had a briefing with the CEO of the venture I was hired to work for. It was an early stage online marketplace with no operations in the target market so far. During this briefing the expectations were clearly stated:
“Be successful by keeping all operations as simple and lean as possible.”
This was not only a goal but a hint how things are being executed here. At this point of time nobody could even say if a market for our product exists since we were heavily relying on the right timing, niche market conditions and other external factors we had no control over.
Before overthinking possible scenarios or any potential upcoming issues, we took a shot and launched the site with minimum functionalities.
Literally start walking before even knowing where the path is leading you.
The launch enabled us to get real user responses, valuable market insights and stakeholder opinions in a fairly short time period. As a result, we were able to understand where to dock on in the market and aligned our business strategy according to new findings.
Launch a minimal viable product (MVP) that needs to do only one thing — solving a small sub-issue of a bigger problem.
In a nutshell, launch your product first and get a big amount of user data and feedback as soon as possible before developing any fancy features or detailed business plans. Shouting your product to the world at an early stage enables you to realize your real strengths and weak spots before even having them on your radar. As a result, adjustments to your business model, product or target market can be done correctly, promptly and to a necessary extent. And the best thing, it saves you valuable time, resources and money.
3. Be flexible to stay in business
Once the start-up has gone “live” successfully it’s time to proof its legitimacy to exist. Start to ask the pain-in-the-ass questions. Is the business model viable? Is our product distinctive enough? Can we beat the competition?
Get out of your comfort zone and thrive on new challenges and opportunities along the path.
Down to the present day I am not aware of any case were clinging to initial business strategies led to a success story. Take for instance Amazon that started as a book e-retailer, Paypal that was originally conceived as cryptography company or almighty Google that was selling its search technology to other search engines before the breakthrough.
After you start walking follow the path wherever it might leads you.
Company builders are aware of changing market conditions, new uprising directions and opportunities that might pop up at an unexpected short time frame especially in innovative and new created markets. The ability to act and react flexibly to changing circumstances in a timely manner is absolutely essential for survival.
It is also essential to know in what business you are actually in — but it is at least equally important which business opportunities may evolve next to your original one. If you pay close attention to your environment and stay approximately flexible you might find yourself shifting from your original business model towards a new and more lucrative model.
4. Income first everything else in the second place
Following the money sounds symbolic for the exit oriented tech scene where everybody seems to be chasing the big money. Nevertheless, there is a slightly difference.
Company builders go always for the big money — usually they make use of business strategies targeting large markets to get a piece of the cake and potentially create a niche market as you can see it nowadays within the food delivery market.
A good friend and successful entrepreneur once told me to never chase the money but flow with the money.
Ideas that add value to society and, in fact, solve a real problem are opening new market spaces with new money flows due to peoples’ willingness to pay for a real solution not just for a “pain-killer”.
However, ideas alone are not helpful. It is the right execution that makes out of an idea a desirable product. Out of my experience, successful execution usually consists of the right coordination between three things: income, growth (mainly in terms of operations) and costs.
Forecast your revenue, keep operations on-going and track your spending.
Set up operations at an early stage with minimum efforts that are dripping some money into your account. Grow slowly in a profitable way by carefully balancing the ROI of every single cent you are willing to spend now and in the future.
Having said this, I came up with the following best practices.
First, start with a business cash vision. Make sure your income generation is reliable, repetitive and predictable (revenue and/or fund-raising).
Second, keep your operations on-going by any means necessary. Operations are the engine of the whole machinery — lose momentum and you won’t be able to grow your business in a sustainable way.
And last, control your costs. Without having a full overview on your spendings you will end up sooner or later on the edge of financial ruin, especially when you are not backed up by a multi-million Euro investor or incubator.
Following these points underlines that your business possesses a consistent and sustainable business model. Sustainability is a prerequisite to convince investors that your model can be profitable over time.
5. Manage growth properly
Growth is a pitfall often underestimated by many companies. It is a wide-held assumption that increasing growth rates automatically stand for proven business models or even profitability. The opposite is the case — most of the times it stands for exploding costs or new funding rounds in the near future.
In general, it is expected that start-ups grow rapidly once commencing operations in the market.
Aspiring entrepreneurs build business strategies around their vision and big dreams. With this in mind they differentiate between scalable models that can literally sky rocket in terms of growing and simple growth models that add up size.
“Successful companies have shown that the path to success isn’t all about growth — it’s about scaling.”
The challenge is to develop business models that are not only able to grow but to scale fast. The separation between growing and scaling is mainly dependend on one component — bound resources. Growing is adding more resources that generate a higher outcome at a linear rate. On the other hand, scaling means exponential growth through already existing resources in the company.
Knowing this one could think that starting to scale as early as possible is the silver bullet. This is a big mistake — premature scaling can kill startups. Before even thinking about scaling or even growing in any direction you must align internal work processes, hierarchy structures and especially IT components.
6. Expand or consolidate your position?
Ventures backed up by company builders usually focus on early expansion towards new markets, as any “Rocketer” or “Nova Founder” will tell you.
Very often new markets were “attacked” without even having a proof of concept (PoC) in the home market mainly to exploit the first mover advantage to the fullest which goes hand in hand with massive capital investments. This strategy however did not lead to expected success of any Rocket Internet portfolio venture in the past years.
The “winner takes it all” logic is progressively dying. More sustainable and consistent strategies underline new industry trends influenced by more risk-averse investors.
Recent developments in the industry show a shift of behavior towards more sustainable business strategies primarily focusing on successful market position consolidation before expending the business model to new markets.
7. Streamline the right channels
New theories on digital marketing and analytical frameworks (as e.g. AARRR metrics or lean start-up model) serve as guidelines how to cover the whole lifecycle of a user journey or how to improve the performance of different marketing channels.
However, nobody can teach you how to build a successful marketing strategy for your business because nobody can predict which channels actually succeed and which ones are doomed to fail. Well, nobody but you!
Let’s take the scenario of an early stage start-up. Conventional channels responsible for awareness creation as TV or offline marketing are not an option at the beginning since they involve high spendings with non-traceable performance measures.
Therefore, digital channels have to be prioritized first.
Each company has to find its individual “secret sauce” how to build a sustainable paid and organic marketing strategy around the right marketing channels.
Keep experimenting until you find a way that works out for you. And then — experiment again.
A common way company builders deal with this situation is “shooting in each direction”. They simply test all channels by trial and error. This method is nothing else but continuously experimenting with various channels and tools to analyze the ones who actually create traction.
After figuring out the driving forces it is time to streamline the right channels according to customer intention to buy and well performing conversion rates (always remember income first!).
Take reasonable risks, experiment different scenarios and accept short-term setbacks to keep growing at a whole.
Going back to the illustration above. I would like to explain the “new” marketing funnel with the words of a fellow friend and the author itself: “… the good performance of a channel at the bottom of the funnel will fund the development of the upper layer of channels…” , meaning that channels in high value areas near the bottleneck attract people with high barriers to drop out of the sales funnel, high intention to buy and willingness of retain.
Hence, the bottleneck is building the foundation of a solid marketing strategy. This section of the funnel has to be skimmed while streamlining digital channels to a maximum degree before shifting attention to less influential marketing channels as the ones covering awareness or interest in the upper part of the funnel.
Keep in mind that this is mainly a paid marketing perspective. Every SEO specialist will tell you that the foundation will always be organic marketing.
Summing up what we can learn from old-school internet company builders — from general things as starting with the right people, being able to find your path and taking advantage of upcoming challenges alongside up to more operational ones as prioritizing income, managing growth and adapting the right marketing channels.
All these practices are only a small fraction of what company builders actually do and what you can learn from them. However, I tried to cover the most common issues I have experienced start-ups end up dealing with especially at an early stage.
Someone once told me that you can eliminate failure up to 99% when avoiding the wrong people, wrong timing or wrong product/market. The remaining 1% is just luck!
I hope you had fun reading my first article. Please reach out and let me know what you think. I would be more than happy to have a chat on your comments.