Timing is Everything

timing

This article was originally posted on Inc.com.

Timing is everything. You’ve likely heard this said many times before, but a clear explanation of why is rarely forthcoming. And, since timing is so important, how can you identify and take advantage of good timing?

New opportunities typically arise because of new innovation that either inspires or enables others to enter a market. With the web in particular, the enabler is typically a new platform that brings people together and makes it possible for entrepreneurs to monetize those crowds. For example, Goto.com introduced Pay Per Click (PPC) advertising in 1998, which led to an explosion of e-commerce activity. In 2003 Google AdSense brought about an explosion of ad-driven content websites and blogs. In 2007, Facebook created a platform for social apps and companies like Xynga were born. And in 2008, Apple introduced the app store for the iPhone, and Google followed shortly after with the Android store.

If you are an online entrepreneur, this gives you some idea of where to look, but the opportunities do not last forever. Shortly after Overture launched its paid search platform, Google launched AdWords and brought paid search to the mainstream, and the demand for this service grew quickly. Those who arrived early were able to buy traffic for pennies on the proverbial dollar and had a significant opportunity to build a new business. Competition in the AdWords auctions rose quickly however, and it wasn’t long before the costs of traffic exceeded the profit margins for many small businesses.

As for Apple’s app store, there was a clear opportunity for those who were early to provide the interactive content the market was demanding, but within only a couple years the app store had already become congested with excess content and discovery of new apps quickly became a problem for those who were not already established or who were not providing the very best and most popular content. Today, more than 700,000 apps are available in the app store and 50 percent of the revenue is generated by only 25 developers.

The Internet is unique in its ability to proliferate so many new product platforms and ecosystems so quickly, yet those opportunities are equally fleeting. Each of the platforms mentioned has gone from brand new innovation to a mature market that is difficult for new startups to enter, within just four to five years, suggesting the opportunities online move quickly and startups must be able enter the market and scale quickly, if they are to remain in the market for the long term. After all, once the market is mature, the cost of participating will be significantly higher than in the beginning, and only those who have secured the best sourcing, best talent, and distribution options, will have deep enough profit margins to participate.

To illustrate the significance of entering a market early, consider the Innovation Adoption Curve that was introduced by Everett Rogers in 1962. In this model, Rogers describes how the market slowly uptakes new innovation in the beginning but quickly accelerates towards a peak which marks maximum competition, before eventually decelerating once market consolidation sets in. If we assume the entire process of market uptake takes 10 years, that would be consistent with the observation that many of these online platforms go from new opportunity to saturated within four to five years.

In response to this challenge, a young startup might be inclined to be as early as possible in catching an opportunity. This works sometimes, but is not without it’s own risk. Sometimes the great new innovation or platform your betting on never takes off, and if you’re a young startup with limited resources, that can represent a substantial risk. It is also interesting to note that many successful companies were not the first to enter their market either – they’re often “fast followers” who were able to enter the market soon after someone else validated it, thereby avoiding R&D cost and the risk of non-adoption. This is the case for almost every major innovation in Silicon Valley: Google didn’t invent the search engine, Facebook didn’t invent the social network, and Yelp didn’t invent online reviews.

In 1991, Geoffrey Moore added to the Adoption Cure by identifying what he believed was the perfect time to enter a market, something he called the Chasm. He concluded that entering at the cusp of early adoption and early majority was ideal, because the market was sufficiently proven to reduce the risk of investment, but still provided the opportunity to scale sufficiently before consolidation set in on the back half of the curve. If applied to the online platform opportunities, that means we need to watch new emerging platforms closely and if they appear to be gaining traction, then you need to enter those markets within the next 1-2 years after its introduction.

At the end of the day, timing is merely a function of finding the right balance between supply and demand and these are merely techniques for accomplishing that goal. You need to find the sweet spot when demand exceeds supply to make your job easier and provide the runway you’ll need to take off, before a market consolidates. You can afford to get a lot of other things wrong if you get your timing right.

Critical Lessons Learned In Entrepreneurship

I have gone through the entrepreneurial route twice now, and both times I was able to build a product and sell it in the end.  My first attempt I was fairly successful in driving traffic and sales but second attempt however was more of a challenge.  In that second venture, I invested quite a bit of myself into it and I just couldn’t break through.  At some point I realized that I was a technologist principally and just not sophisticated enough as a marketer or entrepreneur to break through.

I decided to take a break after that and not try building another business until I was clear on what I did wrong and what I would do differently next time.  For many months afterward, I really did believe I had done a great job and I did nothing wrong.  It is true that I worked extremely hard and invested significantly into the project, and I still believe I built a truly World-class product.  So why did it not gain the momentum I had expected?  This began a few years of obsessive study of entrepreneurship which is why I decided to start this blog actually.  In any case,  I’ve had enough time to reflect now and I think I realize a few things I was wrong, at a more fundamental strategy level. For the sake of my own documentation and hopefully for the benefit of other entrepreneurs out there, I want to share my list:

1. Respect Timing – I was naive and didn’t realize the vertical space I chose was already in the early stages of consolidation and commoditization when I entered it.  Thus, brands were already entrenched and beginning to spend heavily to reinforce their brand.  It was going to be nearly impossible for me to get any traction without having a substantial amount of capital to spend on marketing.  This was not the right entry point for an individual entrepreneur working from a personal budget.  This was perhaps more important than any of my other mistakes and I’ve spent a lot of time pondering the issue of timing.

2. Avoid Network Effects – What further complicated adoption of my product was something Robert Metcalfe would call a network effect, whereby the value of the site was only as valuable as the nodes (or people in this case) of participating.  As the number of people multiplies, the value becomes exponentially more valuable.  In otherwords, think of a night club. The one with a line out the door will automatically attract others whereas the empty one will stay empty.  It is a dilemma that plagues most in the web 2.0 and social spaces and a real multiplier effect upon the issue of timing. You’d need either serious money for promotion or a massively disruptive innovation to break through these challenges.

3. Be Demand Focused – Another naivety on my part was thinking like an artist.  I truly fell in love with my creation and it became my work of art. As such, I was building what I want to see after a while, not what people really wanted.  Had I come from a more demand-driven perspective, perhaps I would have seen more clearly that the market was already in a mature phase and another entrant to the marketplace was not warranted.  Instead, I was focused on building a better mousetrap and just out-performing the competition.  At some level, I still believe I built a good enough product to have competed with the million-dollar companies around me, but my marketing was completely non-existent and I really under-estimated how important that was. Typical artisan mistake.

4. Lead With Marketing – I really should have focused my budget and effort on marketing, not the product.  I was firmly convinced that if I built something great, they rest would become easy. I should have been spending more time smoke testing before building the product and later, testing user interest and ROI etc, instead of spending all my time and money on product development.  That was a major strategic mistake. Had I done this correctly, I would have much more quickly realized the market conditions were not favorable.

5. Smaller Pilot Market – Back to the network effects, I think I could have stood a better chance breaking through a single geographic market instead of trying to break into the national market.  I should have proven the market and built up the network effects in one market at a time, and I think had I done that, my conversion rates would have started to spike upward and I would have achieved buzz and that feedback look would have started working in my favor. That too would have helped me to gain some traction.

5. Avoid High Sunk Cost – As an independent entrepreneur with limited personal funds, I should have been much more realistic about what business models match the funds I was working with.  Granted, I put up a sizable mount of money at a personal level to make that project fly, but it is trivial compared to the massive companies I was competing with. But equally important, that’s a lot of risk to take on up-front before the cash starts to flow in.  For this reason, I believe services-based businesses are a much better match for independent entrepreneurs, not product-based businesses.  Services require a lot less up-front risk and provide cashflow from day-one.

6.  A Great Hook Is Helpful – Just like a song, it can be wonderfully produced with amazing aural textures and harmonies, but at the end of the day, if it does have an addictive, melodic, easy-to-remember hook, its not going to take off.  This ties back into my need for more marketing focus, but is something else I should have considered.  I was trying to build a solid end-to-end product.  Instead, I would have been better off focusing my efforts around one powerful and disruptive hook, and then building around that.  I approached it backwards.

7. Avoid Java (Keep it simple) – This last one is more tactical but I must say it was a huge mistake for me to use the Java technology stack for this project.   I was a Java developer for a number of years leading up to the project and I saw this project as an opportunity to take my skills to another level with the new MVC and ORM frameworks and thought I was accomplishing two things simultaneously my doing this.  But anyone who was developed Java and PHP apps in the past, realizes the massive overhead that comes with Java and the related frameworks.  This probably slowed development to half or less of what I could have accomplished with PHP. Moreover, because of the thoroughly-composed Java architectures, it actually made “pivoting” more costly and more challenging; ugly PHP code would have trivialized this because that structure wouldn’t have gotten in the way.  Ironic that my high quality and highly maintainable cost based actually was causing such issues.  It really highlighted for me however, that there is a right time and place for every tool in the toolbox, and Java is appropriate for that second generation application once scale is necessary and the rules are well defined… NOT for early stage pivot-probably entrepreneurial efforts.

In retrospect there are a few things I did well too of course.  I feel that I built a great brand and a quality product,and really built a few truly great features that would benefit the users and create a compelling community.  But they were all product focused and supply driven. I needed to pay much more attention to market demand and should have let the demand lead product design, development, and promotion.  I would implore any young entrepreneur (particularly the engineering types) to become a student of Lean methodology, as it is a powerful study in this idea of demand-driven development.