When reviewing the innovative and pleasantly disruptive unicorn startups of Silicon Valley, we
Here's what you can learn from Silicon Valley, wherever you're building your business.
1. First Movers and Fast Followers
Massive, overwhelming and uncertain circumstances often give startups significant advantage over larger public companies. How and why does this happen? Well, lack of certainty or guaranteed return is a red flag for larger established firms, particularly those firms with stockholders. Entrepreneurs accept that they will never have enough information when starting out -- about their market, what customers want, and why they will buy
Entrepreneurs will take action despite massive uncertainty and challenge. Serial entrepreneurs and their venture
Are There Advantages to Being a First Mover?
The 123 year old company General Electric (GE) considers itself a digital industrial company while being an early adopter of new media platform exploration. GE likes to be first in digital, as an example. GE was the first brand
"Sometimes people say, are you chasing the shiny object? Maybe a little bit. But we do this for a reason
First Mover or Fast Follower?
Is it more advantageous to be a First Mover (first to market) or a Fast Follower? There are plenty of examples of companies “following” the Fast Follower notion and beating out First Movers. How does this happen?
Well, First Movers risk a number of things, such as:
Making expensive mistakes.
Not being able to predict how consumers will respond to a product, especially a product aimed to solve an ambiguous question, whereby consumers don’t know exactly what problem is solved by said solution.
Wrongly guessing the mechanism by which a business model actually works.
Being too early to market!
Fast Followers can meticulously track the “weak signals” of technology innovation created by First Movers, while involving avoiding any rival in-market mistakes. This allows startups to leapfrog ahead.
Fast Followers use experimentation to “out-innovate” First Movers.
Silicon Valley’s Facebook did not create the first ever social network -- remember Friendster and MySpace - but it did out-innovated every other social network.
Google did not invent search engines, browsers, email or advertising networks; but it did find ways to make its products more popular.
Apple was not the first company create tablets, MP3 players, smartphones or computers.
As a Fast Follower, Apple reinvented these consumer electronic categories and won hugely.
Adoption Takeaways for Your Chief Marketing Officer
CMOs need to understand that the rules
forinnovation have changed, they should take action and risk, even in the face of massive uncertainty.
CMOs should copy and cultivate the capability of successful startup fast followers who can execute and organize a go-to-market campaign and product experiment in a matter of days or weeks.
CMOs must find the ability to transform their companies into a culture of continuous experimentation and testing.
2. Staged Rounds of Funding
As a rule of thumb, Silicon Valley Startups do not usually get all the funding that they will need in a single round of capital raising. Why?
Serial entrepreneurs and experienced VCs all know that giving startups too much money, especially in early phases, can induce laziness, carelessness and stupidity. Startup founders should be focusing on one thing - traction by business stage. Traction represents uncontested evidence that the startup has targeted a problem that potential customers:
Will spend money on with an unknown company to solve
Startups in Silicon Valley in the beginning will focus on paid and unpaid “proof of concept” projects. If successful they then will focus on non-scalable (labor intensive) “minimum viable products” (MVPs). Usually startup founders will limit their efforts to a small niche market (also known as bowling pin or beachhead strategy) within a larger market
Yelp is a good example of the Bowling Pin strategy working brilliantly. When they first got started they decided to first focus on getting critical mass, market penetration in one location - San Francisco - and then expand out from there. They also focused on activities that social networking users enjoy: eating out, clubbing and shopping.
Why focus on the niche?
This niche can represent a sufficiently small and or unattractive market segment that established, well funded or public competitors may write off as not worth the effort. However, the startup is seeking to establish a dominant, unconquerable leadership position in one niche market. A dominant leadership position can earn the right to receive another round of financing - money can be used to build the products and expand to new markets. Upon winning traction in a few more markets, the startup can get another round of funding to ignite hyper growth in the mainstream market. This will entail rapid scaling through guerilla marketing, like Uber’s all out world domination, and growth hacking strategies.
A Silicon Valley Venture Capitalist's Take on Staged Funding
“Venture funding works like gears. A typical startup goes through several rounds of funding, and at each round you want to take just enough money to reach the speed where you can shift into the next gear. Few startups get it quite right. Many are underfunded. A few are
Paul Graham, of Y Combinator, Silicon Valley’s most successful accelerator.
Lessons in Staged Funding for Chief Marketing Officers
Chief Marketing Officers at established or incumbent firms should define their role as an investor who stage their funding to internal startups.
Chief Marketing Officers should fund a wide portfolio of experiments with a strategic purpose of learning about their customers shifting needs and aspirations
Chief Marketing Officers should reward internal entrepreneurs for products of successful experiments, including: traction and customer validated insights about small shifts (weak signals) among its customers.
Read Next: The 7 Deadly Sins of Venture Capital Fundraising Strategies -- and How to Avoid Them
3. Pragmatic Experimentation
Serial entrepreneurs use and often exploit the overwhelming uncertainty that usually will scare off larger public companies. Silicon Valley startups and VCs that invest in them, apply the mindset of anything is possible with a continuous stream of small, low risk experiments. They like to run these experiments in the cheapest, leanest and fastest ways possible. Startups like to tackle and “hack”
The Silicon Valley’s lean method is known for using what is known as hypothesis testing and observation, learning in ultra fast validation cycles often by using a small and select group of early beta test users -- that is, early adopters of a larger market.
Why should we experiment?
An example of this is getting an industry expert or influencers to endorse or put a stamp of approval on a product. Entrepreneurs can use a variety of tactics; such as community outreach manager, social media, viral video marketing, and even crowdsourcing to create social proof. Startups can encourage early adopters as fans, evangelists and even deputize them as brand ambassadors.
CMO's Take on Rapid Prototyping
“We should reach out to influencers who already love our products. It’s not about finding the people who are very hot at the moment. … That’s the old advertising strategy. You’ve got to find people who already love your product so that when they do speak about it, they do so authentically,”
Carole Gardner Diarra, vice president of U.S. Marketing at L’Oreal
GE is a good example of using pragmatic experimentation and Eric Ries, Lean Startup methods (the method is usually used for software development, but GE has applied it to manufacturing) to use speed testing iteration processes that will reduce the risk of building products that people will not use or buy.
GE actually teamed up with Eric Ries to create a program that is known as GE Fast Works. GE used the Fastworks program to test making a high-end refrigerator product that opened with french doors.
“You’re going to change every part the customer sees. You won’t have a lot of money. There will be a very small team. There will be a working product in 3 months. And you will have a production product in 11 or 12 months.”
Chip Blankenship, CEO of GE Appliances
When Dropbox was created, they did not invent the first file sharing product. So they needed to test their idea to raise money from VCs to build their product. They wanted to build a file sharing product, that was easy to use, worked fluidly across all platforms OSX, iOS, Windows, etc. They needed to validate that there was a demand and market for this product. So they figured out:
Persona: Tom the techie, the early adopter who works on projects that require swapping a lot of files between a shifting network of collaborators.
Problem scenario: It’s difficult to share files between a fluid network of collaborators, particularly if they’re big or numerous or change a lot.
Competitor alternatives: Many existing file-sharing products, but none of them were super compelling or widely adopted. Also, custom setup which work, but are cumbersome to setup and maintain.
Value Proposition: A file sharing service that truly feels transparent to the user across all major platforms - OSX, iOS, Windows, etc.
The Minimum Viable Product Test Solution
Lessons in Rapid Prototyping for Chief Marketing Officers
CMOs should get comfortable with running a lot of small-scale test experiments
CMOs must focus on creating early adopter beta test user segments of larger mainstream markets
CMOs should learn to use and create products and services that have been validated through “Social Proofing”
4) Agile Teamwork
Startup and tech accelerators use different methods of coordinating the actions of groups and individuals, compared to larger more established public companies. Many software product development startups will work in
Why is the "agile team" work approach so effective?
Because there is not an exact strategy or product vision that can oblige the speed of change, complexity or the interconnectedness of the age of the internet. Agile teamwork is proven startup method in hacking complex problems. Agile teamwork usually encompasses short timelines sprint projects of 1 to 2 weeks to achieve one specific goal. For much larger projects, that can incorporate multiple teams, they sometimes will work on a 45 day timeline.
How does the process typically work? Agile teams will create a project specific work cadence (5 days, 10 days, etc.), similar to the way a basketball team works together. The image above depicts how small weekly goal progressions can build strategic advantage over competitors, and in some instances, even disrupt a market.
An example of a Silicon Valley Startup that used Agile Teamwork, is Yammer, an enterprise social networking tool (which Microsoft acquired) that used agile teamwork, MVP and rapid iterations, to figure out what changes should be made more quickly to their product.
“With Yammer we make small assumptions, we have hypotheses and we are able to test them quickly over weeks instead of months or years, and that way we can steer our ship and make sure that Yammer is directionally meeting the needs of our customers and that we are not working on something or delivering a feature that is ultimately not going to achieve the value that we are trying to create.”
Brian Murray, Director of Enterprise Strategy, Yammer
CMO's Take on using Agile Teamwork
"Marketing will focus on the user experience. It will be a mission between marketing, the CIO and the CTO of the company, looking holistically at the user experience. We are working together on this front with these three teams, developing strategies and getting user-experience experts to collaborate -- not just for the digital experience, but on product design and the entire user experience, across hardware and software. This will rise in importance of marketing teams."
Eduardo Conrado, senior VP-marketing and IT at Motorola Solutions
Agile Workflow Takeaways for Chief Marketing Officers
CMOs should learn to create a culture of speed, continuous experimentation, and cooperation amongst multiple teams in a company
Learn how to effectively lead a team of smaller, agile teams who will run sprints lasting days a couple of weeks
CMOs should have a focus on achieving weekly goal progressions with a larger strategic goal in mind.
First Movers and Fast Followers
The Digital Economy is often “winner” takes all.
This can give advantages to both First Movers and Fast Followers.
many mature established companies wait way too long to enter into a new market. To
The winners are often a company that builds a product or services that attracts a rabid fan base of early users and adopters.
A way for big companies to “innovate at scale” is for
to think of themselves as an investor in startups. CMO
You should provide staged funding for a number of portfolio startup projects.
Use staged funding to motivate teams to act like startups.
The traction achieved at each stage should determine if there is a next round of financing.
Pragmatic Experimentation Methods
Big company CMOs can win and innovate new products at scale by running a series of small scale, low-consequence experiments.
Ultra fast iteration and validation cycles can bring on a targeted group of early users and adopters.
Using the psychology behind “social Proof” is an active ingredient in creating popular winning products.
Influential fan bases in the early adopter segments can drive hyper growth and eventual category disruption.
used early adopter Bay Area techie advocacy. Uber
Running effective networks of small, agile teams can drive success in this internet economy.
By taking the approach of tackling big, complex problems in small chunks.
The agile marketing framework is built on focusing on small sprint projects and measurable progressions.
The weekly measurement of progress creates a rhythm and momentum among your teams.
These small progressions are managed into an overall product development roadmap with a strategic eye to quickly
creatinga product or service capable of market disruption and hyper growth.