There were search engines before
As of 11/11/2019, 01:18pm EST
, social networks before Facebook, and lending platforms before
. So how did these latecomers win? I find the answer interesting.
One word: Execution.
. Lending Club was at best the third online consumer lending platform when it arrived on the scene in 2007, but it grew into the market leader through its awesome execution of a clear vision, and it is now poised for what will likely be a blockbuster initial public offering.
Three years ago when I started our company, there were dozens (some say hundreds) of sites with the same idea: facilitate online investments into private companies. Today, it’s clear to me why so many of these early market participants are no longer in existence, or have stalled out in their growth—they failed to execute.
You see it everywhere. Right across the street from our headquarters in San Francisco, I’ve been watching the difference between flawless and floundering execution for eight months.
Starbucks’ headquarters building in Seattle. (Photo credit: Wikipedia)
As of 11/11/2019, 01:18pm EST
gutted a space and was serving lattes in 30 days. That’s the kind of execution that explains why Starbucks has more than 11,000 stores across the United States and $15 billion in annual revenue. Meanwhile, Noodles & Co. has had a nearly identical-sized space under construction since early this year—literally across the street. It took them 8 months to do what Starbucks did in 30 days. The final 2 weeks before Noodles opened? Training. True, Starbucks is mostly beverage and Noodles is fast casual—but this doesn’t account for the 7 month gap. Execution does.
It’s easy to spot companies that execute: they are the Lending Clubs, the Kickstarters, the Ubers, the Googles.
So what does it mean to execute? Here are my four rules of execution:
1. Have a stellar team: The better team will always win. Hiring smart people who understand collaboration and focus is essential. Often the better team will beat companies that have raised far more money or have already been around for years.
2. Have a clear vision: What is the company’s value proposition? What problem does the product or service solve? The leadership has to have a clear vision of what their company stands for, and it has to convey that vision to everyone in the company. If everyone—from marketing to product development to finance—understands the vision and values, the company is more likely to stay on course. All of those online private investing platforms that have stalled out? A common trait is most didn’t have a clear vision articulated on what problems they were solving. That’s a lack of vision.
Kickstarter has become the largest crowd funding site because its founders understood that people looking to support cool concepts did not want to rummage through mountains of bad ideas. The company set clear rules and took the controversial path of using community managers to review and curate projects. The earlier crowdfunding competitor is still in existence but each day loses ground to the now larger Kickstarter.
Meanwhile, Lending Club founder and CEO Renaud Laplanche recognized that the value proposition in peer-to-peer lending was not about individuals just lending a hand to other individuals. It was about providing a platform for investors to find attractive risk-adjusted returns. Lending Club brought borrowers and lender-investors together at a time when traditional banks were providing minuscule yields to depositors and charging double-digit interest rates to borrowers.
3. Put the vision in the product: The clear vision has to be reflected in the product. This is where the rock star team and the clear vision converge.
In consumer products, companies live and die based on how well they focus on the product. Take packaging. Effective packaging identifies the purchase criteria and is designed around that. Remember when toy manufacturers started putting a hole in their packages so kids could push the button to experience the lights and sounds of action toys? Successful packaging starts by asking, why is a consumer buying this product? If it’s a food product, is it low-sodium, all-natural, gluten-free, low-priced? At successful companies, the brand teams identify those factors and ensure they are reflected in the packaging. Otherwise the product, regardless of how good it is, may never move off the shelf.
Companies that execute well have a laser focus on making products that matter to consumers. They use data, research and testing, and maybe some gut instinct, to determine what the consumer wants, and then they build it.
Companies that claim “Consumers don’t know they want this, yet” will likely discover consumers had a perfectly valid reason for not wanting the product.
As of 11/11/2019, 01:18pm EST
pulled this off brilliantly, but visionaries like Steve Jobs are the rare exception.
Those companies that do succeed in taking risks in product development, follow lean startup principles. They develop a minimum viable product (MVP), for example, setting milestones, prioritizing work and measuring progress. Experimentation can be great. But it has to be experimentation focused on delivering the company’s core value proposition.
4. Unit economics must pencil out. Execution around an idea that doesn’t scale will quickly hit a dead end. That’s why the great growth companies of our time stay focused on unit economics that scale. If the unit economics are bad early on, I’m always skeptical they can improve later on. There are plenty of examples of great ideas that will never become good businesses because the unit economics don’t pencil out.
I recently had dinner with the lead partner at one of our largest investors. I asked him why he passed on the other online equity investing platforms – as basically all of the Top 5 had pitched their firm. He talked about several things including the attractive unit economics that CircleUp had- and referenced the unit economics discussion I had with him and his team 12 months prior.
Every entrepreneur is passionate about his or her idea. But time and again we see dozens of startups with the same good idea. Ideas are not enough. Who remembers Magellan, Lycos, Excite, Infoseek, Go, AltaVista, Snap or AOL Search? Each of these companies sought its own path toward the development of the best search engine. Their success turned on their execution. One executed this shared goal the best.
You know who it is, and even if you don’t, you can Google it.