Optionality. One of the core strategic things that most smart people get wrong is that they overvalue optionality. Businesses that value optionality will start a few different products with the hope that one of the businesses takes off ... or they may make multiple bets valuing portfolio theory over focus.
Optionality usually leads to a worse outcome than focus.
By having multiple strategies, it often means that a company isn’t investing enough in the most promising path. The best businesses are clearly focused and say “no” to almost everything. They deliberately cut off options and they publicly declare that they will not go into business lines in the future (even when businesses are adjacent to their core market).
Focus is the act of eliminating options. One should create a strategy and execute on that strategy. One should not A/B test a strategy. One should have conviction in their strategy. One should be deterministic about what path will work and follow that path. A CEO might be wrong about the path or the business might not execute. But without a deterministic path, you are leaving yourself vulnerable to the focused entrepreneur.
If you make the analogy to our personal lives, the ultimate elimination of optionality is getting married. And when marriage works, it is the single most fulfilling thing of our lives. Marry your business to a single strategy.
THE WRONG PEOPLE, hands down. All other problems are a derivative.
Almost every successful business in which I've invested has involved a pivot, a re-positioning, a strategic jiggle of some sort. The world is full of unknowns, and the risks of these unknowns to a thinly-capitalized start-up are legion. The way these unknowns are navigated is a function of company vision and leadership. Even if the environment is poor, the rock-star entrepreneur can cut costs, run lean, tap into a market need and go for revenues. When things turn up, they can raise capital and go for it. But in the meantime they haven't died. They can manage issues of weak capitalization, difficult environments and fierce competitors. So many companies I've seen with great technology and brilliant founders have failed because they lacked great leadership. I think it was John Doerr who said that he backs businesses and business models, not people. My thoughts are almost exactly the opposite. Great people with flexible minds, a customer-centric approach and nerves of steel win. Great people with high IQs and weak leadership skills need a perfect storm to win. Just my $.02.
90% of the time consumer Internet companies fail for one reason: Inability to acquire and retain a substantial number of users. In isolation the founders can articulate a reasonable value proposition, but in the real world cutting through the clutter of the 3,000 advertisements per day that the average American is bombarded by is extraordinarily difficult. There are only 24 hours in a day and most are already claimed by family obligations, work, sleep and existing entertainment options; even if you get a user's attention your new product needs to be so compelling that he is willing to forego something else he is already invested in.
To be truly successful on the Internet, you need to build something that becomes one of seven sites that a large swath of users will regularly use. Quite difficult.
Paul Alfred, Launched a Company in 1994 Called Compumercial Communications where we helped Ad Agency Clients and…
1. Most ideas are bad.
Even the best business minds have off days: Steve Jobs founded NeXT to try and sell $6.5k computers to educators [1]; Bill Gates didn't see the freakin' Internet coming [2].
As an entrepreneur you're essentially gambling on your hunch of an uncertain future, and for a healthy economy we should expect a lot of misguided ideas in the process. (The alternative - high barriers to entry - is much worse).
2. Good ideas are competitive.
Assume you have the fortune and/or skill to land on a killer idea. The free market is an assiduous beast that will soon latch onto your success. Others will want a piece of it, and for many markets, that can spell your ultimate demise. MySpace came first, but Facebook - a company born from a student's dorm - was able to conquer them in just a few years.
3. Humans are fallible
People can lie, steal, get tired, fall out, break up, sue, obsess, lose their health, mind and have their wills broken. Walt Disney didn’t get a job as a newspaper cartoonist because he apparently “lacked imagination and had no good ideas”; Henry Ford had two car companies fail before success [3]. Good thing they didn't let it stop them.
To succeed you need a good idea, better execution and to keep your head and those around you. All odds considered, I think the developed world does pretty well.