Startup Life: Finding Your Inner Purpose, Part 1
Most startups are created around a technology. To succeed as companies, they need to identify and validate a vertical in which to establish themselves. They have to choose whether to explore multiple possible applications of the technology simultaneously and opportunistically, or to go deep on a single target market. I’ll argue for the advantage of doing an initial broad-but-shallow, conceptual, exploration to find the most promising opportunity, and then focus development effort on only that market.
A Solution Looking for a Problem
Almost all of the startups I encounter as an investor and startup mentor are based on a technological innovation conceived by engineers and scientists. This kind of startup can become a hugely successful company. But the path is not as direct as founders often imagine.
There’s a gap between a technological innovation and a company. A company may be based on the ability to do something better or cheaper, but it must also address a real-world problem and find a market willing to pay for its solution. As a result, almost all early stage technology companies have a solution and are looking for the problem it solves. (I know, the title says Purpose; it’s catchier, and, if you’re a company, your purpose is to solve that problem). Frequently, founders have a strong belief what their target problem and market is. Pretty much just as frequently, they turn out to be wrong at the outset, and must pivot repeatedly until they find product-market fit. Many successful companies we associate with an obvious product and market began their lives tackling a different problem from that what they’ve come to be known for doing. Ev Williams started Twitter as a kind of podcasting service; Slack was a game; and YouTube began as a dating site.
Not all startups come from a technological solution looking for a problem. Some start from an existing need and seek out means to address it. But this approach is rarely taken by technologist founders. When it is, they‘re often practitioners who have been active in a particular area, suffered from a problem, and only later identified a technology addressing it. If you’re in that kind of startup, these thoughts don’t apply to you, and you can skip the rest of this post.
For those of you still reading, and still looking for a problem for your solution, the challenge is how to survive long enough to become a going concern, which means, getting:
- customers
- market share
- revenue
- earnings
Founders looking to find an application for their technology are usually able to identify multiple potential opportunities and markets. The question is how to explore that space. Should one focus intensely on one vertical or dabble among various, opportunistically, to see which will play out? There is a strong temptation to do the latter, to try many things at once, in the hopes that one path will quickly show itself to be better than the others. There’s also the hope that, by exploring various verticals simultaneously, one will discover a rich vein of business potential close to the surface, which we’d have overlooked had we concentrated on a different area.
I think there’s a useful analogy here with traditional (deterministic) search strategies, which might explore a problem space depth-first or breadth-first. Depth-first explores one possibility until it either pans out or proves fruitless, breadth-first does a shallow exploration of multiple alternatives in close succession.
There are two reasons why I think a team looking for a market should go deep, focusing on building-out for a single vertical, until it succeeds or it’s clear it won’t.
The reasons are:
- Solutions are deep in the search tree. Opportunities for success are likely to be uncovered after substantially diving into a market, rather than obvious after a little effort. The low-hanging fruit has usually been harvested. Therefore, spending ones effort doing shallow exploration of multiple alternatives will expend resources, putting one in danger of exhausting one’s runway before a successful business opportunity can be discovered.
- Though the tech may be (mostly) applicable to all search paths, many of the other components which need to be built are more specific to each path. Building out a business to tackle a problem in a given market is made up of many efforts, all of which need to be put in place to make it work. These might include:
- Developing technology
- Acquiring domain expertise
- Establishing marketing and messaging
- Understanding and meeting regulatory requirements
- Identifying, finding, and acquiring customers
- Conceiving and testing pricing and business models
- Establishing sales channels and techniques
The path explored to address a single vertical might look like this:
We can assume that much of the technology component is applicable to all the verticals we are considering exploring, as that has been our starting point. Some customization for each will surely be needed, but most of the price of the technology innovation will be common to all markets we’ll consider, and so is paid just once independently of how many verticals we address.
The other components, though, are specific to each vertical we wish to explore deeply. They might even require different personnel and talents for each one.
The cost of exploring broadly and effectively, then, is high. Elements such as marketing, customer targeting and acquisition, networking, understanding customer’s language and issues, pricing, and regulatory issues have costs dominated by circumstances particular to each market. Spreading the effort and money among many verticals means we are bound to explore them more shallowly, and, as illustrated by the fading towards the right of the illustration, we are less likely to reach the point where a business opportunity becomes clear before running out of resources.
This argues for choosing a vertical and then putting the majority of our efforts behind it until we either succeed or we find it was a bad choice.
How do we choose a vertical?
Which leaves us with the question of how to choose the business application we will explore. It’s clear that the wrong choice of vertical will incur a huge cost and be a wasted opportunity.
To guide the initial choice (and that at subsequent pivots) one should do a broad, concept-only, exploration of various alternatives before choosing the one which appears most likely to succeed. This is an inexpensive and mostly on-paper exploration of the various possibilities and efforts involved, collecting data on them and doing an initial assessment of potential costs and benefits. This conceptual exercise is a matter of thinking out possibilities and doing a modicum of research and experimentation into the potential, costs, and characteristics of various markets, without getting too deep into either real development or the specifics of targets that one discovers to be less promising. Think of this as a shallow prototyping of the potential business without building product, personnel, or processes.
In a companion post, Startup Life: Finding Your Inner Purpose, Part 2, I dive deep into this process and present a methodology to help you narrow this search.
What if we pick the wrong vertical?
One might think that the wrong choice of vertical is as detrimental as pursuing many at once, and so exploring multiple possibilities at once is necessary as a hedge against getting some wrong. The reason I don’t believe that is the case is that a viable business, though maybe not the best possible business, is likely to appear close to the path explored during development of many well-considered applications. Partial pivots down the line of exploration can unearth pockets of opportunity at lower cost, leveraging investments already made. Once a viable business is established it can provide impetus, experience, and funding, for explorations to find a better one.
I’ve also seen how extreme focus provides astounding economies of effort, which merits a post of its own. There’ll be a link here once I write it!
A version of this article was published on Linkedin.
