In technology, it’s only a matter of time before a startup comes along and does what you do better, faster and cheaper. You need to build enough success with a product that produces strong cash flow to provide you the opportunity to find your next cash cow.
That limited window of opportunity is one of the primary reasons Warren Buffet doesn’t like to invest in technology companies, and it’s the same reason Google continues investing in a myriad of projects unrelated to its primary business. It’s only a matter of time before companies get disrupted and find themselves fighting for survival.
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Good startup entrepreneurs look at this constant change as part of the success formula, and the great ones look to disrupt their own businesses before someone else does. Here’s what we learned over a 15-year period of disrupting ourselves:
Make sure you’re in the right business. Our first business model was a failure -- we launched our own online classified ads website during the dot com bust. We couldn’t raise any investor money and the business wasn’t generating enough revenue for us to survive. We quickly realized that we wouldn’t make it, so we took our experience developing our own website and used it to begin doing so for others.
Very few startups pick the right business model, technology, employees, or for that matter, anything the first time. Giving yourself the opportunity to experiment and fail will help you gain the experience necessary to discover where you can be successful and provide an opportunity to pivot quickly without shutting down the company.
To be successful and survive, we had to shift from our initial business plan. Since then, we’ve had to disrupt ourselves twice more and are already planning the third.
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Change the way you monetize your product. We were successful with our model of selling websites for eight years, until the Great Recession of 2008 hit and customers could no longer afford to spend $5,000 to $15,000 on their websites.
During the recession, we introduced a website leasing program. This allowed our customers to get the features they needed affordably, since banks wouldn’t finance a website and they didn’t have access to other credit. Making this change hurt because we no longer received a several thousand dollar payment up front. We took on a lot more risk and essentially gave up our previous business model. Fortunately, the leasing program was a hit during the recession and we actually grew both revenues and profits during the downturn.
If you can find creative ways to sell your product such as making it ad supported or offering financing for it when others won’t, you can be successful even though it deviates from your traditional sales model. You can also give away something you used to monetize, providing an opportunity to make it more profitable. Apple is a great example: it gives away its smartphone operating system and applications and in turn sells more hardware.
Develop a killer feature. Is there a feature you can add to your product that simplifies the lives of your customers in a unique way even if they aren’t specifically requesting it? Making the decision to invest resources that could disrupt other high priority items from getting done may allow you to find that one big thing that can be a driver of future growth for your company.
For long-term success, you have to actively look at objective ways to compete with yourself. If you’re not looking for the next way to disrupt your own business, it’s only a matter of time before someone else does.
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