Wednesday 26 August 2015

Google's creation of Alphabet reminds startups of an important lesson: Focus - Jim Scheinman

One of the reasons Google remains a great company well after its startup days is that, even as a massive public company, it stays true to what made it successful as a startup. For example, it's critical for startups to stay focused.
 As a small startup, that was relatively easy for Google: be the best search engine. But as the company grew, it became increasingly difficult to remain focused on the core business, especially when the founders started to pay more attention to sexier opportunities like self-driving cars, virtual reality, and space travel. Splitting the company into separate divisions with distinct leadership will enable Google to stay focused on the core search business, which is driving the bulk of revenue, while branching out to explore new future paths to success. It's a great example of why we remind our startups to remain focused.  
Every week we meet a startup that pitches us on their great business that will build products directly for the consumer (B2C) as well as for the enterprise (B2B). And, we always give the same advice...focus on one. If you try to do both, you'll likely fail at both. If you focus on just one market, you at least have a chance to build something special. It's very different building a consumer startup than an enterprise startup, so build the business that you're most passionate about and go for it! If it's not working, then you can try to pivot to the other market later.
One of the main reasons focus is so critical for early stage startups is the reality of needing to do so much with limited resources. In a traditional consumer software startup, you likely have a small team and limited capital. You simply don't have the resources to try to build a company focusing on two separate markets.

Here are three important decisions that require focus early in a startup's life:
Consumer vs Enterprise. The company culture for a startup that targets an enterprise customer is very different from one that targets an individual consumer. The engineering, sales, and business development talent you hire, the values that define the company, and even the name of your company will be different. Larger, later-stage companies might successfully build multiple divisions to accomplish this, but it’s nearly impossible to do it with a small, early-stage team.
Product. Stay focused on the core product. Don't over-build with too many features early on. Don’t try to conquer every vertical. Don’t try to test a plethora of acquisition channels at once. Pay close attention to your early adopters and study their behavior to choose which features to build and which new channels to target. Focus on what's working and make the product better for your core customers.
Revenue. For the kind of hyper-growth consumer software companies we like to invest in, we remind our founders in the early days to focus on building a great product loved by millions of customers, and not on implementing the revenue model too early. Every consumer company we invest in has a great business model, and we care deeply about building lasting businesses with real revenue. With that said, for our investments, there's a right time to “turn on” revenue and focus on monetization, and that's usually not at the very beginning. We suggest waiting until you've found product/market fit and sustainable engagement. Of course, you need the right investors to back and support you along this journey...if done right, great companies like Facebook, Instagram, and Snapchat will be built.
If the founder and early team members show enough discipline to focus when making key decisions early on, the company will have a much better chance at growth, scale, and success.

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