October 24, 2012 by startupengineering.
One way to think of companies is that they fall into three phases depending on what it is they need to kill.
To be successful, a large company needs to kill what the customers don’t want. Clayton Christensen mentions this in The Innovator’s Dilemma. He says that when you examine very successful companies, what you see are these very effective execution methods for exactly this. Not hard to see why – a large company with significant resources can easily head off into tangents, spending money on things that either don’t add value or that add value for small customers whose trade can’t move the revenue or profitability needle.
Small, growing companies, in contrast, need to kill whatever distracts them from their goals. When Rodney Perkins founded Resound, he started with a revolutionary invention that substantially improved the functionality of hearing aids. Instead of amplifying all sounds, the first Resound hearing aids amplified selectively, so that people heard voice more clearly, while background noises faded into the background. Perkins was (and is) a true innovator, and just as Resound’s products were gaining traction, he came up with an even more revolutionary idea – miniaturized hearing aids that would fit entirely inside the ear. This innovation would not only keep resound ahead of the market, it would vastly expand the market, to people with moderate hearing loss who didn’t want to suffer the stigma of wearing a visible hearing aid. Eugene Kleiner, on Resound’s board, nixed the idea. His view was that the company had traction toward becoming the market leader in an existing market, and that combining traction and focus would lead to success.
In an important way, startups aren’t really companies at all, they are, in the famous phrase, temporary organizations designed to discovery a valid business model. What startups need to kill is lies. If you can’t prove it, it’s not true. Try like hell to prove it, but if you can’t move away from it asap. Or if you can’t move away, then accept that you’re living with a lie (aka a risk) and bound it as best you can. When you’re trying to discovery customers, look at it this way – if the customer moves away from it, it ain’t true. True product market fit means a product that the customers cannot not buy. Customer discovery is a bit like Michelangelo’s line about chipping away all of the pieces of the block of stone that weren’t David. What remains, is what you can sell.
Startups die easily when they act like small growing companies and relentlessly kill distractions. Small growing companies die when they kill everything the customer doesn’t want. Resound had a huge potential market with in-ear hearing aids. If they had already been the market leader, it would have made perfect sense to go after that market. But Kleiner was right that the distraction would probably have killed them.
And here’s where we come full circle to Clay Christensen: What ultimately kills large successful companies is that they can’t act like startups. For a variety of structural reasons, it’s incredibly hard for them to force themselves to move away from what ain’t true. If you know from the certainty of quarter after quarter of sales, that your customers want desktop computers, and the minnows making small, expensive laptops are a niche that won’t move the needle, then you’ll avoid that niche. Avoid it even when a smart startup would hone right in on it. And you’ll die.