Disruptors' success planning
Disruption is used in the business environment when discussing about alternatives that have the potential to challenge a well-established practice. It is perhaps not discussed enough in board rooms but that's another subject in itself. The issue I see is that oftentimes the initial disruptors are not the ones that make the disruptive ideas successful. The companies challenging the status quo in other words disappear before their disruptive ideas become big enough.
In other words great, promising, mind-blowing ideas end up causing DISRUPTION sooner or later but they do no guarantee the financial success of the DISRUPTORS. For disruptors to live long enough to see their ideas bloom a few steps must be taken.
1. BE AN HONEST VISION-DRIVEN LEADER
Leadership has to be motivating, empowering and inspiring to enable the team to put to use their different skills in order to overcome challenges in innovative ways. The leader’s key role is to sell a story about his/her vision to those who are inspired by such a vision. The first in line are the team members; one can attract “sticky” talent by promising them that they will contribute to something meaningful, by giving them a sense of purpose rather than a material promise alone. This keeps the team united and focused on their common purpose despite any failures that can occur along the way.
DO NOT then promise quick and big successes in hope to attract people on your team; they might leave you as soon as the first obstacle occurs and you can also experience conflicts between team members as they might not share close enough values. Be realistic in your communication and bank on common values and sweat equity to alleviate your financial stress.
2 FINANCIAL PLANNING
It is important to believe in your idea but this doesn’t substitute for adequate planning. Do not assume the world is ready to embrace your ideas. The reality is that we are change-resistant and there is so much information nowadays that it can really take some time for word to spread. So no matter how great your idea is, do the math and especially work on cash flow projections to understand your cash requirements or your runaway.
Learn the basics about business finances, understand the difference between profit and cash-flow and take the time to put down the main assumptions. Even if you work with a consultant you still need to ensure that the financial model build will reflect your market positioning, value proposition, distribution channels etc. In fact, a diligent consultant will be asking a lot of questions and is in your interest to provide the relevant details. The financial projections have to be a mirror of your business story so be worry of using generic template; for instance, some projections start with a total revenue estimate instead of building that revenue estimate. In the process, you should also seek to identify which variables have the greater impact on your estimates and build scenarios.
3. IF YOU LOVE YOUR IDEA GIVE OTHERS THE CHANCE TO FALL IN LOVE WITH IT.
Be prepared to face a fair amount of resistance among potential clients. The harsh reality is that many of us have an instinctive defensive response when confronted with an unexpected change. So be prepared to listen to the arguments against your innovative idea. Shut down your internal dialogue and listen to each and every word. Next thing to do? Pace your prospective client, by repeating their worries and explaining how your solution addresses that; if the worries are real then I guess you have to explain the benefits and how these are greater than the risks.
DON'T be confrontational in your pitch and watch your nonverbal communication (no rolling eyes or "whatever, you don't get it" looks). Don't let the faith you have in your idea turn you in an authoritarian disrespectful communicator. The attitude has instead to be one of genuine interest in your clients’ needs and worries; with that you can provide all the information needed so that the client can understand the value of your idea.
The higher the degree of resistance or disruption, the greater the need for pacing; in such cases, seek to gradually weaken it and choose your words carefully to maintain rapport along the way. Indeed, when bringing deeply challenging ideas to the table your first goal might be limited to establishing a relationship and "planting a seed" so that you can build on that later on. One can also use:
- case studies;
- stories - build for example on similarly disruptive changes in other sectors or on how the client's sector/company has changed over time;
- descriptive explanations of how the service/product will impact the client for the better;
- questions that nudge the interlocutor to consider your position eg "what would happen if?", “what if” etc
In a nutshell, don't be like the salespersons who rush to say "I know exactly what you need" before you get the chance to finish your sentence. If you find that you are not being understood, than take the problem in your hands and build the communication skills you need; you can't afford to blame it on clients.
4. EMBRACE LEAN STARTUP
If you haven't read about lean start-up methodology, start with this. The core of it is that you need to validate your idea sooner rather than later. That is, use simplistic ways of making sure that your product/service is filling a real and noteworthy need.
Speak to your target clients before you waste too much time building a full-blown product/service. Watch out for confirmation basis and be ready to change and adapt your idea as necessary.
If you know about lean startup already consider some of these tips here.
5. SEEK TO CREATE VALUE RATHER THAN COMPETITION
Work to build partnerships or relationships with companies that share your vision. This includes competition. In many industries, disruptors are perceived as a threat and yet they can contribute to expanding the market (Airbnb and low-cost airlines have contributed for instance to increasing the numbers of travelers) or changing it rather than taking customers from existing players; the latter have the option of repositioning, finding niches or adapting.
I believe that competition is not a zero sum game and whilst you should assess your competitors, you might also find ways of collaborating or creating value along them. The focus should be maintained on the value created and on innovation. From this perspective, the largest competitor might be the status quo not a certain company. Competition is not about rivalry, is about challenging the status quo. The more entrepreneurs acknowledge this, the more they will empower their teams to come up with creative solutions and win-win propositions. These entrepreneurs will find a market and a place for them.
6. MIND THE VALUATION GAP
A time comes for most start-ups to haunt for financing and at that stage dreams can go wild. A teaser and/or investment memorandum in drawn highlighting the opportunity that has opened for investors, the valuation of the company and the financing needed.
Here there is also likely to occur some disappointment. The founders are confident in their idea, proud of having come up with it and encouraged by the progress made and these can feed unrealistic expectations when meeting investors. This is a good reality check and before turning down proposals coming from investors or going with unrealistic expectations consider a few things:
- The execution risk is real and is big for any disruptor. Investors can't have any assurance against that so the only choice they have is making the monies available for a big enough potential return. That means a high enough discount rate if using discounted cash flow or a low multiple if using multiple valuation.
- Can you see the company value realized without them? What is the risk of failure if you do not find an investor quick enough?
- Do you expect other benefits from the partnership (eg. Knowhow, synergies, leads, reputation gains etc)?
- Have you carried stress testing to see how the value of the company changes under different scenarios? Work with key assumptions and judge the probability of those scenarios. How are your expectations now comparing to those of the investors?
- What does this project really mean for you? If your vision, your purpose is high enough then my guess is that you will narrow the valuation gap easier: firstly because moving closer to your purpose is more important that monies and secondly cause your conviction can inspire and build trust among investors.
7. CHOOSE YOUR BATTLES
Some products and services can be applicable to various markets/sectors and yet is it realistic to believe that you will succeed in attacking all at once? The experience of many companies has shown that focusing on one segment at a time is more successful:
- your language and benefits description will be more specific; when you try to cover too many sectors you might fail to get your message across
- your sales efforts will be better targeted and you avoid filling overwhelmed
- it is easier to get relevant feedback as your target clients will have similar profiles
- it is easier to set goals and track them; you need to understand the size of the Total Addressable Market (TAM), Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM) and that is easier when you look at clusters.
8. MEASURE WHAT MATTERS
Choose indicators that reflect your value proposition not merely growth. In other words, you should seek to capture the sustainability and quality of the company’s growth. Personally, I like the North Star metric concept which I discussed in more detail here.
Where applicable I also recommend cohort analysis to better understand and predict growth and funnel analysis to better understand the demand dynamics. Cohort analysis groups data into related groups which share common characteristics or experiences within a defined time-span. It is useful to measure user engagement over time and understanding whether is actually getting better over time or is only appearing to improve because of growth. Useful video here.
9. LOOKOUT FOR DIFFERENCES BETWEEN CUSTOMERS AS YOU GROW
Your early adopters might be somewhat different from the rest of your obtainable market so as you build your customer base you might need to review your marketing strategy, product features or product description to ensure that they meet the needs of the later adopters. You should seek to understand as early as possible how many different cohorts you can encounter in your market; Everett Rogers distinguishes between 5 distinct customer segments—innovators, early adopters, early majority, late majority, and laggards- and yet the product life cycle can be very different depending on the industry.
In some cases, differences might not be sizable enough to justify such a high fragmentation; for some companies, a distinction between early adopters and all the rest might be good enough. Taking this simplified scenario, early adopters are likely more flexible and option-driven whilst the later adopters are likely more risk-adverse which calls for different language: for example for the former describe the OPPORTUNITY whilst for the later one might be better off using reviews testimonials, case studies etc as evidence that the product/service adds value.
Finally, understanding where you are in the product life cycle allows you to more adequately estimate the revenue growth rate as this tends to level off after the early majority has been onboarded.