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CHAPTER 1
A COMPELLING PURPOSE
Great companies have great purposes.
— John Mackey, co-founder and co-CEO, Whole Foods Market
The power is in your purpose. Purpose answers the question: Why build your company?
A powerful purpose is imbued with enthusiasm, meaning, and relevance. A successful entrepreneur is enthusiastic about what his company proposes to do. What the company intends to do gives meaning to both the founder and the employees and is relevant to customers and the marketplace. Enthusiasm, meaning, and relevance combine to create a compelling purpose.
Although purpose is best discovered before the company is incorporated, entrepreneurs are often in love with their ideas but blind to a company's highest purpose, which can be a disadvantage in the search for backers. Venture capitalists are eager to invest in businesses with stellar products, customers, and teams, but what they are really searching for are game-changing companies capable of generating billion-dollar valuations. Which companies are game changers? Those with a powerful purpose.
A business is worth pursuing only if it has a big, compelling purpose. Developing an inexpensive, rechargeable, long-running, nonpolluting power source for use in electric cars is a compelling purpose, but forming another company to make and sell gasoline-powered automobiles is not.
Articulating your business's purpose allows it to realize its full potential. If you fail to identify the big purpose and communicate it clearly to your team, you may build a $100 million business but miss the billion-dollar opportunity. You will attract a team capable of building a $100 million business but not one capable of changing the world. Generally, the best people are inspired only by meaningful, game-changing work — the kind that arises from a compelling purpose.
Enthusiasm
To be successful as the founder, you have to relish the job of building the company that answers your "why" question. You must love your company's purpose and your role as its leader because a genuinely enthusiastic founder who loves his job can promote his company and its benefits to almost anyone. Your competitive advantage increases and your sales expand in proportion to the heart-to-heart connections you make with your customers.
Enthusiasm is a closer. When faced with a choice between buying a product from a salesman who loves what he's selling and one who merely likes it, the customer will almost always buy from the most enthusiastic person, even if the other product is better. Genuine enthusiasm drives sales.
Leading a startup company is a difficult job. Being passionate about your work helps you bear with grace the enormity of the responsibilities and the constant challenges. The founder who loves his job generates the enthusiasm needed to stay the course.
Passion with a Purpose: Cobalt Networks
The founders of Cobalt Networks provide an example. They were not completely enamored of their initial idea to provide in-flight entertainment. They made no lasting impression when they first presented it to investors because they lacked enthusiasm. Why? Because in-flight entertainment held a small purpose.
Nevertheless venture capitalist Gordon Campbell recognized the Cobalt team's great potential and challenged it to come up with another, more compelling idea. Cobalt's founders then identified a game-changing business opportunity in the computer server market, in which very expensive gear impeded the growth of the Internet. To add capacity an Internet service provider (ISP) was forced to buy $75,000 servers from vendors such as Sun Microsystems. Buying the equipment ate up scarce operating capital, and the ISPs got more capacity than they needed.
Cobalt solved this problem by developing an easy-to-use server appliance that cost just $1,000. Suddenly, the world of Internet access exploded. Cobalt seized an opportunity to create a paradigm shift by delivering products that were orders of magnitude less expensive than what were then available in the server market. The big purpose behind Cobalt's new idea, called the Qube, was to help democratize the Internet by making access available to everyone.
After Cobalt's founders came up with the Qube, their enthusiasm was boundless. The team was animated by their shared belief in the new purpose, and they devoted themselves to expanding Internet access worldwide. Their second product, a server formatted for server racks and also priced at $1,000, allowed ISPs to economically scale capacity as needed.
Sun Microsystems took note of Cobalt's newly ignited big purpose and the game-changing competition it represented. Sun bought Cobalt for $2 billion only four years after it was incorporated. A big purpose gives impetus to the possibility of building a billion-dollar business.
Meaning
Happiness comes from doing work that matters.
— Rajendra Sisodia, co-founder and chair, Conscious Capitalism Institute
People crave meaningful work. In Abraham Maslow's hierarchy of needs, as described in his book Motivation and Personality, the need for meaningful work is seen as an expression of people's need for self-actualization, or realizing one's full potential. Successful startups meet their employees' basic financial needs by paying them for their work but forge an even deeper bond by providing them with work that is truly meaningful. People work harder, are more productive, and feel happier when they do work that makes a difference. The simplest way to provide meaning is to articulate a company's highest purpose.
Three Components of Meaning: Ken Wilcox
Ken Wilcox, Chairman of Silicon Valley Bank, based in Santa Clara, California, explains what employees want out of work. "Essentially, people have three basic drives regarding the workplace and its culture," he says.
The need to belong. "People want to be part of a tribelike group," says Wilcox. Studies have shown that the ideal factory size is between 50 and 75 people. When a group surpasses 200, its members are less engaged and happy. When people are put together in small enough groups and allowed to freely express themselves, they'll naturally create a tribal family spirit on their own.
"Successful tribes have rituals," Wilcox continues. "Every year Silicon Valley Bank takes about 100 people on a team-building retreat with lectures and small-group discussions. Invariably, we end up on a scavenger hunt in groups of five or six. At the beginning the people are strangers because Silicon Valley Bank has 1,400 employees, but after a few hours together this group transforms into a small tribe that has developed its own rituals and slogan, like 'We're the Wolverines. We always win.' People love saying these slogans to each other because they give them a feeling of belonging."
The need to win. People want to win. Winning helps them feel accomplished and important. "Competitive people want to win," says Wilcox, "but if they are the collaborative type, it's not about beating the competition but about team success. They want to be part of a group that accomplishes something great. If they are in business, they want to do something meaningful for the shareholders, their families, and the world."
The need to celebrate. People want to celebrate their accomplishments. "When they succeed, they have a deep-seated need to put down their weapons," says Wilcox. "They want to eat and drink, celebrate, whoop and holler, pat each other on the back, and jump up and down for joy."
Relevance
Your company's purpose has to be compelling to both its customers and its marketplace. To be meaningful to customers, the purpose must be related to solving a customer need because that's why customers buy products in the first place.
Mark Zawacki, the founder and managing partner of Milestone Group, shares five rules of relevancy that he believes will refine a company's purpose in ways that will make customers love the product enough to buy it.
"The five things that make early-stage companies relevant," says Zawacki, "are an addressable market, finding a voice, partnerships and alliances, picking the right ecosystem, and focus." His criteria are very different from the standard venture capitalist's refrain, which Zawacki describes as "'Show me a great management team and your unfair competitive advantage.' Those things are necessary, but a company needs to be relevant to succeed."
Five Rules of Relevancy: Mark Zawacki
1. A startup needs to be relevant and stay relevant. An early-stage company must first discover and understand its addressable market, which is not the same as the target market that venture capitalists will ask about. The typical early-stage business isn't aware of its addressable market or its customers' needs. Too many startups aren't in tune with, and therefore can't address, real customer pain. They build features, not companies, thus creating a stage full of bit players because they never solve real problems.
The tech industry is the easiest industry to enter. It would be easy to start a Web 2.0 video search company. You could be in business tomorrow; but unless you have done your homework, you would be inviting a train wreck. Not understanding the size of your addressable market and the customer's pain point is a recipe for disaster. The world doesn't need its seventy-ninth video search company. YouTube has already cornered the market.
2. A startup needs to find a voice relevant to its ecosystem. The fledgling startup must first identify and foster a community that will support its business. Most startups are too quick to begin selling when they should be educating targeted supporters. It's better to take the opposite approach.
Selling too early is counterproductive because it triggers people's defenses and drives them away. Everyone hates being sold to; we all prefer to buy. A company that focuses on educating sets itself up to be a powerful presence in its community.
An educated group of journalists, partners, and venture capitalists can provide a startup with a much-needed voice in its chosen milieu. With a bit of legwork, you identify journalists with an interest in your company and its purpose and acquaint them with your product or service. If a company does a good job educating journalists about its market, it can become a source for quotes and comments that will appear in published articles.
Although educating requires more time and effort than selling, developing solid relationships can help sustain a company in the long run. Building a community today sets the stage for a customer order tomorrow. If your company gives Rebecca Buckman at the Wall Street Journal insights into what's happening in venture capital, she may well turn to you in the future as a knowledgeable and trustworthy source. That door has opened because your company has shown Buckman its unique point of view about its ecosystem. She may mention your company by name in her articles — and publicity like that is invaluable. A company that develops its authentic voice and creates its community will gain greater relevance than it ever could by flogging yet another video search engine in a crowded field of look-alikes.
3. A startup must gain traction. Zawacki's not talking about sales traction but rather developing the proper balance among resources, product, and customers.
An early-stage company has to balance on a three-legged stool. The first leg represents resources — financial and human — that it must assemble. The company needs money and great people who are willing to deliver every day. The second leg is product. The company must produce a winning product, take it to market, and, ultimately, sell it. The third leg represents customers, who must be recruited and educated. No company can succeed unless all three legs are even. If one leg is shorter or longer than the others, the stool will tip over. A company's resources, products, and customers must be in balance.
If a company builds its products without getting customer input, it will soon regret its mistake when customers choose a competitor's offering that contains all the features they want, based on customer feedback. If a company builds products without adequate financial resources, it risks bankruptcy sooner rather than later. Even if a company raises up-front capital, it still needs to build products and find customers. Companies often spend too much time recruiting customers when they don't have a product to deliver. All three dimensions must remain in balance.
4. A startup must form partnerships and alliances within its ecosystem. Companies often pay lip service to strategic partnerships, but if they don't follow through by building them, they put themselves at risk. Today's ultracompetitive global environment demands that you make alliances. In the technology industry, partnerships within ecosystems have created a zero sum game. Three platforms — SAP's NetWeaver, Microsoft.net, and Oracle's Fusion middleware — have overtaken the market. If a company is writing software, it must place a bet on one of these three platforms. It can't choose to work with two, let alone all three.
A business needs to identify which ecosystem and partner strategy will work best for it. The company should develop the strategy that fits its long-term vision and execute it flawlessly.
A client of ours recently received two acquisition offers, and he asked us for an introduction to SAP as another potential buyer. The introduction would have been a waste of time because our client hadn't created a strategic partnership with SAP and shared no common customers. Without a common customer, there was no integration with SAP's platform and no commitment to NetWeaver and SAP's ecosystem.
The right partnership strategy can make a company relevant. If it starts getting traction with a strategic partner, it will get a lot of support from a Microsoft or a Google or a Salesforce.com. If a partner sees a company gaining traction within its ecosystem, it will take care of that company. Properly structured alliances are a great way to help grow a business.
5. A startup must maintain focus. Too many early-stage companies are so desperate for customers and customer traction that they operate in a frantic sales mode. They get 10 customers but without any discernable pattern. There's nothing unique about their business, they're selling into too many different verticals, and their customer case studies are so different as to be nonsensical. Apparently, the vice president of sales had a good contact list and sold through his friends and family, but what's next? Where will he find customers 11 and beyond?
Most startups are not focused tightly enough on a primary market and are pursuing too many vertical markets. A company can't develop a repeatable, scalable sales process if its efforts are scattershot.
If there are three potential vertical markets, smart companies will focus on just one. Perhaps for now the focus will be on financial services. It's a logical place to start because financial services spend the most on information technology (IT). The best companies will focus even more narrowly — midsized commercial banks, for example — a segment that is well defined.
About 100,000 software companies exist in the world, each of which has five or more employees trying to sell into financial services. All want to call on Wells Fargo Bank, Credit Suisse First Boston, J.P. Morgan Chase, Bank of America, and so on. It's easy to imagine that those on the receiving end would like to hide under their desks when they see another salesperson coming.
The glut of salespeople makes focus particularly important to early-stage companies — and not just those trying to sell to the big banks — because they can rarely sell to more than one vertical market. If a startup tries to sell into too many markets, its sales team won't have enough relevant examples to credibly show how its solution fits into the customer's context. The new kid on the block will likely have a hard time understanding every potential customer's business process if too many unrelated vertical markets are included.
The sales story will not hold together if, for example, a company tries to sell simultaneously into manufacturing, pharmaceuticals, and financial services. Customers want to know what a company has done in their niche. Even though a company might have a horizontal application, the customer wants a relevant case study in its own vertical.
Summary
A corporation's ultimate purpose creates a powerful unifier by providing people with meaningful work.
A compelling purpose has three components:
• Enthusiasm for the purpose and the job of fulfilling it
• Meaning, which is critical to providing work that gives people a sense of belonging, allows them to win, and gives them a reason to celebrate
• Relevancy, which gives a startup an addressable market, a voice that educates the customer, strategic alliances, a chosen ecosystem, and a laser focus on its target customers
(Continues…)
Excerpted from "Great from the Start"
by .
Copyright © 2012 John B. Montgomery.
Excerpted by permission of Morgan James Publishing.
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