Known truths: A startup’s worst enemy
The core purpose of a startup is to define a new and unique value proposition, as well as validate the potential for a truly scalable business model. Steve Blank captured this well in what is now one of the most widely used definitions of a startup, “a temporary organisation designed to search for a repeatable and scalable business model.”
On the other hand, the core purpose of a company is to consistently deliver a unique value proposition and execute a scalable business model.
Somewhere along the way, the core purpose of a startup, and the reason why startups have the potential to deliver huge economic and societal value by eventually becoming large companies, has been lost.
A fictional example of this is a startup whose pitch is “the Uber for dogs mining Bitcoin on Mars.” A real-life example may be something that more closely represents a group messaging application. In these examples, the startup is either delivering a solution to a pain or gain that clearly doesn’t exist, or is trying to enter an over-served market with an offering that hardly differs from the competition.
An example of where this hasn’t been lost is Liquidity Nanotech, a startup helping solve the world’s largest health problem: Microbe-contaminated water.
I recently wrote that the only thing that matters for a startup (or any new venture/initiative) is finding a high-value underserved problem worth solving. This takes precedence, even over attaining the ever-elusive product-market fit, as it is the catalyst that sparks a venture’s initial motion and is the core of the vision, strategy and tactics.
Libertarian, contrarian, entrepreneur, investor and philanthropist, Peter Thiel has written about this extensively in his book, Zero to One.
Thiel comes at this from a slightly different angle, explaining that ‘secrets’ are the key to business success, and that great moments in business happen only once. He defines a secret as something that is a truth yet to be uncovered. (A detailed explanation of Thiel’s take on secrets can be found here.)
Thiel’s favorite interview question is this: “Tell me something you believe to be true or false about the world that nobody else does?”
Thiel’s experience and success has led him to believe that knowing something about a market or customer segment that nobody else does, or having a secret, is core to creating an extremely impactful business. It also helps to determine originality.
In another example, Donald Rumsfeld famously (or infamously) explained that there are known knowns, known unknowns and unknown unknowns. What this means is that there are things we know we know, there are things we know we don’t know and there are things we don’t know we don’t know.
The latter is by far the most interesting yet difficult to explore.
The point? A very large portion of early-stage ventures that are classified as startups are focusing on known knowns (people need sustenance and like having food delivered to them to help simplify their busy lives. Sprig is working on this); a small portion of this cohort is focusing on known unknowns (we know that every life has a beginning and an end, yet have no idea how to make meaningful extensions to the lifespans of carbon beings. Calico, a Google company, is working on this); and a minute portion of this cohort is focusing on unknown unknowns (funny, I can’t give any examples here as they are unknown, but this doesn’t mean that constant searching won’t lead us to answers in this space).
Expending time and energy on a known truth, or something that you and everybody else in the world already believes to be true (and is likely proven), is a sure way to accelerate towards the path of severe mediocrity.
In fact, I would go as far as to say that building a business around a concept or value proposition that is a known truth isn’t far short of a terrible idea. Your potential to differentiate, deliver unique value to customers and create any defensible barriers is almost non-existent.
In an example we all understand, it’s like competing against Google with your new search engine that ranks pages and content for relevance by capturing lots of data on a user and trying to contextualise or even predict search results.
However, DuckDuckGo, a search engine that enables users to search completely anonymously, is gaining traction due to its highly differentiated value proposition. Most internet users, at least up until recently, didn’t really understand the value of their data assets, and certainly didn’t understand the extent at which these assets were exploited for commercial gain.
DuckDuckGo identified their version of a secret: the fact that many people would accept a less personalised search experience as a tradeoff for privacy. This has since become a fairly active and vocal movement.
Taking a page out of Thiel’s book, startups need to focus on going from zero-to-one, not from one-to-many. Or put another way, turning a unique insight (a secret) or a high-value underserved problem worth solving into a new product and company.
Startups need to make use of their temporary and exploratory state to identify a high value pain or gain that is yet to be targeted and/or radically differentiate through business model innovation.
This then needs to be validated through a process that enables the startup to prove how effectively a proposed solution will resonate with early adopters (Customer Development, Design Doing etc.), and eventually, after identifying a genuine problem worth solving, the startup will double-down its focus towards attaining product-market fit, consolidating their repeatable and scalable business model.
At this point, the startup transitions to a company whose primary purpose is to deliver that value proposition with consistently high-quality at scale, delivering value to both the customers, business and of course the shareholders in the process.
This is all good and well on paper; however, the process of uncovering a secret, or finding a high-value underserved problem worth solving obviously isn’t easy. Perhaps this is one of the reasons that deep industry expertise is something that the venture capital community values highly.
Time in market gives an entrepreneur the opportunity to synthesise market forces, technical progression, adoption cycles, as well as articulated and unarticulated customer pains and gains to determine the moves that need to be made to build something that is new, uniquely useful and valued highly by a large group of paying customers.
Novel ideas, new insights, or problems worth solving are rarely stumbled upon in moments of inspiration. Rather, they are the result of constant testing, validation and iteration in search of the things you don’t know you don’t know; the secret truths.
Image: The Minerva offices. Credit. Ike Edeani. Source: The Atlantic.