This is the fourth in a series of dialogs between a new CEO and an experienced mentor in dealing with a tough business issue. Follow @2020outlook on Twitter or enter your email address in the right column to be notified each time a new dialog is available for reading and comment. Thank you for your suggestions.
“You can’t out-execute a bad market!”
Joan Herbig
CEO, Controlscan
Former CEO of Xcellenet
“Joan, I know you usually don’t mentor early stage companies like mine, and I’m glad you said yes!” Bob was CEO of a company that had gotten a seed investment from some angel investors and was now working toward an A round.
“You’re right,” said Joan, “it’s usually companies with a proven business model who need sales and marketing juice to get them to the next level. Working with a startup is new but I was impressed with your thought process at the business plan competition.”
“Guess it didn’t hurt that you’ve known my dad a long time?”
“Yes, he gave me guidance early on when I needed it. That said, I wouldn’t be doing this if that prez you built and delivered wasn’t great. So are you pursuing that plan?”
“That’s what I wanted to talk about, and thanks for taking time to get together. Once the competition was over, I drilled even deeper and found some big companies holding IP and patents much too close to what we want to do. It was a painful decision to drop that one, and at the same time, what I’m coming up with now is even more exciting. Also its originality circumvents any IP issues.”
“I’m all ears. What’s the market?”
“I’m not saying I’ve got it all figured out just yet. Actually, I’m torn between two fascinating opportunities. Maybe you can help me choose.”
Bob dove into detailed explanations of both opportunities. One was a software-as-a-service (SaaS) play for security, while the other, also SaaS, was in social media. After 45 minutes of Bob’s description with an occasional question from Joan, they’d covered the market situation, competitors, unique differentiators, complexity of technology, and availability of talent.
Joan lifted her hand. “OK, OK, I get it, and I understand your dilemma. Let’s reason it through, okay?”
“Cool. Yes. I’m totally stuck at this point.”
“This isn’t that rare a situation at big companies trying to innovate or open new markets, and they face the same classic choice between two attractive alternatives and only enough resources to pursue one. Here’s how I’d summarize the differences. The social media is a natural fit because of your experience using the tools for several years, and you have friends who want to bring their sales and marketing know-how in the space, plus several developers are willing to work for almost nothing to build out your idea. Am I on track so far?”
“Yes.”
“The security idea differs some. You didn’t have direct domain knowledge, but you’ve come up to speed quickly and you have a good friend with deep technical expertise. It’s a more mature market and you live in a city with a deep pool of talent and experience in the security space. At the same time, you’d have to find sales and marketing talent to get this lifted off the ground. Still with me?”
“Yes again.”
“So then, the market situation is really different between the two. The social media area is white hot right now, and the area you’re in is getting a lot of attention. The result is that it’s young and very fragmented across many companies who closely resemble yours and have a head start. Analysts say billions are still to be made in the market, and the trick is to be the first to market with unique capabilities. That’s difficult with all the competitors, yet you an assemble a team that could execute like crazy, right?”
“Spot on.”
“So to summarize, the security market is much more mature and better understood by customers. They know where their pains are. The social media play involves some education and patience for the market to develop and customers to begin knowing what they want to do. Given everything we’ve discussed, it boils down to two factors: market versus execution.”
“How so?”
“You’ve identified a truly unique product in the security space. Every customer and potential partner you’ve talked to has validated it and has the problem. On the other hand, you’re ready with a great team that can really execute in the social media space, the market is hot in general, and there are tons of competitors. This may surprise you and sound funny from someone like me who’s known for leading companies to execute at the highest level, but…. market trumps execution every time.”
“Really. Is it that clear cut?”
“Yes, and it’s because of what you can and can’t control. You can build a great team that can execute. You can’t make a market where there isn’t one. If you try, it doesn’t matter how well you can execute. Mediocre execution in a great market makes more money than great execution in an undefined market. You can’t out-execute a bad market!”
Bob hesitated for a few seconds, then spoke. “I understand. I mean, I get it. I’m in love with the social media space, for sure, yet the security opportunity nails a widespread customer need. I’ve already spoken to a few, and the response has been overwhelming.”
“Sounds like you’re onto something. Validating your approach before diving in with both feet is important, of course. If you want some intros to funding sources in the security space, let me know.”
