Published March 22-26, 2021
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Non-consumption, not Competition
When starting off on a new idea, there are two possible approaches: to compete against incumbents with a product or service that is faster, better, cheaper; or, to look at non-consumption and unmet needs. Getting existing customers to change is not easy – the “switch pitch” must be very compelling for them to stop using what they are doing and start using a new product. Changing behaviour and products takes time (and therefore money). An alternate go-to-market strategy can be to look at customers who are non-consumers and need a product that is just about good enough for specific use cases.
Clay Christensen’s Disruption Innovation theory and W. Chan Kim and Renée Mauborgne’s Blue Ocean strategy outline the thinking around the non-consumption approach.
Disruptive Innovation (from BMC Blogs): “The theory suggests that a small organization with fewer resources has the ability to challenge their larger counterparts by focusing innovative products and services toward the low end of the market, which is often ignored by incumbents as they grow profitable. The new entrants are gradually able to improve their innovation performance to attract the high end of the market, without compromising their original qualities – such as low cost, convenience, access or security, among others – that allowed them to succeed in the underserved market segment. When incumbents fail to identify the market void and realize a small company competing for their mainstream market-share, the damage is already done and disruption has occurred through the small company’s innovation.”
Blue Ocean Strategy: “Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. It is about creating and capturing uncontested market space, thereby making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.”
When I launched IndiaWorld in 1995, I focused on Non-Resident Indians – who had limited access to Indian news and information. The Internet bridged the gap with a site which did not match up the traditional Indian newspapers and magazines but offered it to them faster and cheaper. Over time, we improved and widened the portfolio of our content offerings. By the time the mainstream Indian media woke up to the Internet opportunity, IndiaWorld’s websites had created a daily habit that was hard to break.
More recently, when we take Netcore’s email products to the US, we found only limited success – because we are offering a product similar to competitors and trying to compete in the red ocean. This is where I have been thinking about microns (micro newsletters) with a radically different pricing as compared to regular emails – as a possible disruptive innovation at the low-end and also creating a new market space for daily branded emails.
For an entrepreneur, the ideas of disruptive innovation and blue ocean are two very good starting points for thinking about the product and the target customers.
97
Rethinking Assumptions – 1
One of the reasons companies fail (and I have also gone through my share of failures) is that entrepreneurs do not reset starting assumptions against the market realities.
Entrepreneurs start off with some ideas and assumptions about the market. Once they take the product out into the market, they get feedback – about customers’ expectations and market size. It is at that time that there is a need to think about some course alteration – in case there is a mismatch. Many times, they don’t do that – working under the principle that their efforts will accelerate the market’s response towards their product. That rarely happens. What follows is disappointment.
It is never easy changing one’s assumptions quickly, especially when one has been thinking about them for a long time. But they should be exactly that – just starting assumptions.
Adam Grant is his book “Think Again”:
Intelligence is usually seen as the ability to think and learn, but in a rapidly changing world, there’s another set of cognitive skills that might matter more: the ability to rethink and unlearn. In our daily lives, too many of us favor the comfort of conviction over the discomfort of doubt. We listen to opinions that make us feel good, instead of ideas that make us think hard. We see disagreement as a threat to our egos, rather than an opportunity to learn. We surround ourselves with people who agree with our conclusions, when we should be gravitating toward those who challenge our thought process. The result is that our beliefs get brittle long before our bones. Intelligence is no cure, and it can even be a curse: there’s evidence that being good at thinking can make us worse at rethinking. The brighter we are, the blinder to our own limitations we can become.
As I’ve studied the process of rethinking, I’ve found that it often unfolds in a cycle. It starts with intellectual humility—knowing what we don’t know. We should all be able to make a long list of areas where we’re ignorant. Recognizing our shortcomings opens the door to doubt. As we question our current understanding, we become curious about what information we’re missing. That search leads us to new discoveries, which in turn maintain our humility by reinforcing how much we still have to learn. If knowledge is power, knowing what we don’t know is wisdom.
I can trace almost every one of my failures to my inability to rethink my starting assumptions and relearn based on market feedback. I did not take an empirical approach and stayed rooted in my original beliefs. Even in the face of overwhelming evidence, I clung on to hope – wishing for that one big thing that would change the game. I did not listen to feedback from others – because I thought I was wiser than them. I did not know what I did not know – and it has had bad consequences for me as an entrepreneur.
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Rethinking Assumptions – 2
It was February 2019. Kalpit (Netcore’s CEO) and I were attending SaaStr, the premier SaaS (software-as-a-service) conference in San Jose. As we sat through session after session, the realisation hit me that we had completely missed the new way of building products and taking them to market. We had been too caught up in the ways of the past – building a full-scale product and then a direct sales team to approach enterprises. This is what had got us initial success in India and SE Asia. My belief was that our products were complex and needed face-to-face persuasion which could only be done by experienced sales people.
Meanwhile, the world around had changed in multiple ways. Software developers wanted APIs that they could integrate into the code they were writing without having to talk to salespeople. For this, the product needed a self-serve and perhaps even a free trial. This needed a new approach to product development and sales. It needed targeting developers – which needed a very different approach then meeting CIO and CMOs. The SaaS way of marketing and sales was also different – a new world of SDRs (sales development representatives) and ABM (account-based marketing) was enabling companies to reach out globally without a physical presence in multiple countries. The primary metric was not annual sales but MRR (monthly recurring revenue). There was a new language of business that had fuelled a new generation of companies – and we were oblivious to both the vocabulary and the competition.
SaaStr opened my eyes to this new world. And the question that kept coming to me was – why had I not seen it earlier? A few knowledgeable colleagues had told me about the new world of SaaS – I ignored them repeatedly. I did not recognise that a new set of decision-makers were emerging in enterprises – developers, product managers. I also failed to recognise that a new class of companies was emerging – aggressive, exponentially growing startups. I was still locked to a worldview that sales and marketing of our solutions had to be via face-to-face connect in large organisations.
As Adam Grant explains in his book “Think Again”: “Scientific thinking favors humility over pride, doubt over certainty, curiosity over closure. When we shift out of scientist mode, the rethinking cycle breaks down, giving way to an overconfidence cycle. If we’re preaching, we can’t see gaps in our knowledge: we believe we’ve already found the truth. Pride breeds conviction rather than doubt, which makes us prosecutors: we might be laser-focused on changing other people’s minds, but ours is set in stone. That launches us into confirmation bias and desirability bias. We become politicians, ignoring or dismissing whatever doesn’t win the favor of our constituents—our parents, our bosses, or the high school classmates we’re still trying to impress. We become so busy putting on a show that the truth gets relegated to a backstage seat, and the resulting validation can make us arrogant. We fall victim to the fat-cat syndrome, resting on our laurels instead of pressure-testing our beliefs.” I was trapped in an overconfidence cycle.
While we did change the organisation direction on our return to India, we lost a few crucial years of growth. When I look back, I wish I had more humility and openness to listen to others, a better recognition of what I did not know so I could have reset my initial assumptions. I should have fast-tracked my rethinking and done it much earlier.
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20 Mile March
As part of the readings for the Great Company course based on Jim Collins’ books, I read about the 20 Mile March. It is discussed in “Great By Choice.” The basic concept, in the words of Jim Collins, is this: “Companies that thrive in a turbulent world self-impose rigorous performance marks to hit with relentless consistency—like walking across a gigantic continent by marching at least twenty miles a day, every day, regardless of conditions. The march imposes order amidst disorder, discipline amidst chaos, and consistency amidst uncertainty. For most organizations, a one-year 20 Mile March cycle works well, although it could be shorter or longer. But whatever the cycle, the 20 Mile March requires both short-term focus (you have to hit the march this cycle) and long-term building (you have to hit the march every subsequent cycle for years to decades). As such, it’s a rarified form of disciplined action that correlates strongly with achieving breakthrough performance and sustaining flywheel momentum.”
As I read it, I realised that this gave a name and put into words what my philosophy has been at Netcore for a long time! Netcore’s high margin business (email and marketing automation) has demonstrated exactly this growth over a decade.
Except for one year where we were flat, we have maintained the 20 Mile March discipline – under three CEOs. Even during the past year disrupted by the impact of the pandemic, we have grown 30% over the previous year. It is this discipline which is the hallmark of proficorns.
For a proficorn, there is no growth capital other than the profits made from the business. So, if one has to expand, one has to generate profits which can then be reinvested for future growth. In the early years, Netcore’s SMS business delivered the profits which we reinvested into the email business. As the email business grew, it delivered the profits which enabled us to invest in marketing automation, international expansion and tuck-in tech acquisitions to add personalisation and product experience to our martech suite.
Building a business to operate with this discipline over long periods of time is not easy. It has meant that we have had to stay from bet-it-all acquisitions which could have gone either way. It has meant that we have had to sequence our international expansion – learning in SE Asia, and then foraying into US, and now Europe.
All of this was made possible by the fanatic discipline of the 20 Mile March. Day after day, month after month, quarter after quarter, year after year. And it all compounds over a decade into the great growth chart you see.
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A Century
Little did I know when I started the Proficorn series on my blog a year ago that I would end up with a hundred posts! And yet – here we are. A 20 Mile March of my own – driven by the decision to write daily. While the writings have covered diverse topics in marketing and India’s political economy, the proficorn series where I have written about my experiences as an entrepreneur is the one which has been a consistent theme. I have dug deep into my past for stories and learnings to share – hopefully these can help others given that it’s coming from a practitioner who has failed many times more than has succeeded. I have written as candidly as I can so that there are meaningful takeaways and actionable insights.
Entrepreneurship is on the rise in India. As success stories abound, there are many who want to walk down the path of setting up their own business. While there is a great romantic view of entrepreneurship, what I have tried to also present is the reality of the entrepreneur’s journey. The freedom that comes from running one’s company has to be also seen with the rocky life that startups (and their founders) experience. Worries cannot be left at 6 pm – they continuously stir the mind of the entrepreneur. Rarely a day goes by that goes according to plan – new fires arise even before old ones are extinguished. And in all this, one has to, in the words of Dan Bricklin, “like the feeling.” My hope is that these writings bring to life what an entrepreneur goes through.
I have thus far not raised any external capital through my nearly three decades of running diverse ventures. I have tried many times without success. This forced me down the path of focusing on profits as the only way to grow the business. In doing so, I built two proficorns (a word I coined) – companies that were private, profitable, promoter-funded and valuable. I also had success with a non-tech venture in the form of Niti Digital which helped the BJP achieve a majority in the 2014 Lok Sabha elections – guess that can also count as a proficorn of sorts!
Today, with easier access to capital, the temptation for a new entrepreneur is to raise money early and constantly. My pitch is that there is a different path also available to build a business – and one that is the default for most entrepreneurs. It is just that we do not read or hear stories of such entrepreneurs. They are the true unsung heroes and also need to be celebrated. To risk everything one has, to devote years of one’s life in the search for making the world a better place, entrepreneurs who choose to not raise capital are fighting far greater odds stacked against them. There is no “other people’s money” to lose – it is all their own.
It is definitely doable – not raising external capital and building a valuable business. While the option of not raising capital may not be available to everyone, if one has a choice, tread the path to being a proficorn. The time not spent with investors will be spent with customers. The time not spent on making MIS reports will be spent on imagining tomorrow’s world. The time not spent chasing valuation will be spent in building a company to last. The time not spent burning cash and rushing for the next round will be spent in a more peaceful frame of mind without the pressure of finding an exit for the angels and Series A VCs.
I hope I have made the case for a proficorn stronger through this century of posts. It is not a path for the faint-hearted. But is a path that will leave you freer and more fulfilled. Because if you do not control your destiny, the investors will.