As part of my work, I have the privilege of catching up with some pretty interesting people. I thought I’d start sharing some of these conversations with you in a new series I’m calling “Coffee Catch-ups – Bite-sized chats, Industry Experts, and Espresso”. I hope you get as much value out of this as I do!
Recently, I had an enlightening catch-up with a friend of mine. He has run several start-ups in the tech space over the past decade, with mixed results – and had a plethora of experience to share, both what to do and what not to do.
I thought I’d summarise the key points I took from the conversation and share them with you, as I think they’re valuable for anyone who is part of senior leadership (whether an owner or an executive).
1. Keep it fun.
My friend said to me that when he was in the start-up pahse, everything was new and exciting. They had flexibility to try new things, and didn’t have a great deal of stakeholders to keep happy – customer satisfaction and problem identification was the only thing that mattered.
Now that he is running a larger business, with a proven product, investors, and major customers expecting particular products and services, he finds it harder to ‘keep it fun’ in the day-to-day, particularly through COVID.
He says it’s never been more important to find the fun and reconnect with the passion that caused you to start it in the first place.
2. It takes time to find product-market fit, and even more time to find the right fit.
It took my friend over 2 years to truly find the right customers for their product. He said to me that in the first year, he has customers that spanned eight different customer profiles, all with different characteristics, and all that expressed some level of demand for his services (not a bad problem to have!).
However, having so many customer types means that it was hard to service all of them, particularly being a growing start-up. He and his team had to work out which customer segment were the right customers for their business, which leads me to the next point:
3. The right customer is more than just the one with the highest profit margin.
My friend told me that during this process, there were a number of disagreements within his executive team as to which customer segment to focus on.
They ended up selecting a segment that was not the most profitable, because there were other factors (such as the size of the segment, the ease of acquisition, increasing annual revenues, and how participants compete within the segment) that made the selected segment a far better choice for the long-term.
Since making that decision close to 5 years ago, their business has steadily and sustainably grown, indicating they made the right call.
4. Always invest resources in research, development, and innovation – and keep them separated from core business.
This was an interesting discussion and one we discussed at length during our catch-up – I’ll probably write a separate article going into more detail on this in future.
Research and development is essential to continually add value and stay ahead of competitors. We concluded that no business, once they’ve found product market fit, should ever completely remove R&D – it should be flexed depending on projected need. For example, if current and near-term demand is strong for base business, dedicate a lower percentage of funds to R&D, and vice versa.
We also realised that the type of R&D should be dependent on scenario analysis – particular situations that could unfold over the next 5, 10, 20, and 50 years. Reviewing these trends provides insight into what products might be of value (while you never know what is going to be the next big thing, your R&D efforts can cover a range of products and services that might become it).
Finally, we came to the conclusion that R&D efforts should have separation from core business activities. What has got a business to where it is today is often not what will keep it there in the future, and sometimes existing methods, thoughts, and processes will prevent true innovation from occurring. Separation is key.
These are just a few insights from the chat. What was your favourite takeaway? I’d love to get your thoughts.