THE BLOG
05/31/2016 10:15 am ET Updated Dec 06, 2017

From Startup to Success in a Software-Fueled Venture

I've recently published a book whose subtitle will soon become the title: "From Startup to Success." It's a tiny voice in the hurricane of books, conferences and attention paid to Innovation. Anyone doing something new that somehow involves computers and software would benefit by paying attention to this book. It identifies success patterns that aren't found elsewhere.

Software-fueled Innovation

We currently benefit from more than 150 year's worth of general-purpose innovation. Trains, planes, cars, phones, refrigerators, prepackaged ice cream, etc. The innovations are now a broad array of products and services offered by major organizations. You go to business school to learn how to run and staff such organizations.

A sizable fraction of today's innovation is built on and using computer hardware and software: the internet, smart phones, Amazon, Google, Facebook, Uber, and a host of others. The new generation of innovation is software-fueled innovation. It's still innovation, but it's different because of the software.

Software makes it different

Airplanes were invited by the Wright brothers, who were experts in bicycles. Anyone could see everything important about the device they built, and even basically understand it. The same holds true for all the innovations up to and including early computers: you could see the card readers, the plugs, and the vacuum tubes. But then things got tough.

Once complex circuits could be built on a chip, you could see the chip, but not the millions of electronic devices on it. Even worse, you can't see the software that may process billions of instructions on the way to getting something done. You can view the "source code" of a piece of software, but how many people can read it with understanding? Software has piled up over the years, so that today, new software is built on the foundation of millions of lines of code that is in older software, the foundation without which the new software could not operate. Even most modern software "experts" have never seen that code that's "under the surface" of what they write. They don't understand it and couldn't write it themselves.

Software is a new world, invisible to the majority of normal people, and only partly visible to the vast majority of people who call themselves programmers. Software is a new world, and startups that are fueled with software have new rules for success. Well, not entirely new rules. But they're different enough that most startups don't understand them. Why?  No one is teaching the rules of success for software-fueled startups -- least of all business schools!

That's why I wrote the book. I don't know all the answers. But I have figured out a bunch of them from twenty years of closely examining software-fueled startups, partly as a programmer, but mostly as a technically-oriented investor.

Applied common sense

Many of the things I point out in the book sound like simple common sense. But it's not common at all. For example, "solve a problem a customer knows he has" sounds like the dumbest of not-needed advice. But in practice, it's one of the least-commonly-followed dicta you can imagine! Here's an excerpt from the book on that subject.

Solve a problem the customer knows he has

This one is so obvious it may sound like a joke; why would a company try to sell a solution to a problem a customer doesn't know he has? It sounds insane! But it happens over and over again.

People who come up with new things are often pretty smart. They tend to be imaginative, and see past the here-and-now. They can create abstractions easily, and find the commonalities among apparently unrelated things. They'll see an obstacle or limitation in a business, or a way to make it much better. They'll put together a way to remove the obstacle, overcome the limitation or implement the enhancement. They will typically be pretty excited about what they've accomplished. Then they'll try to sell it, get frustrated, and before long they'll be venting about stupid customers who can't see past their noses, who will refuse an offer to pay a dollar to get five in return and who are otherwise mentally damaged. This is the typical result of solving a problem a customer does not know he has.

The problem and the solution may be clear to you, with your skills and ability, and having walked the path of analysis and understanding that you have. But is it clear to the average customer, without either injecting him with brain-enhancing drugs or putting him through a multi-week education course?

Should you be smarter than your customers? Maybe. But if you are so far "ahead" of them that you insist on selling them a scratching service for an itch they don't feel, maybe you're "too smart," and should get over it.

This is one of the dozens of things that are obvious in theory, but hard to get in practice. The book has lots more.

Common sense that doesn't work

On the other hand, there are some widely accepted practices that are sure-fire ways to fail at a startup. Here are a couple that are described in detail in the book:

  • Understand the market. Bad idea. The "market" is what is there today. You're building something new.
  • Make your tactics match your strategy. One of the worst commonly-accepted notions. It seems to make sense, but it leads to failure.


  • Assure that you have a sound strategy. "Strategy" is a time sink that sucks valuable resources away from the effort to win. "Step Theory" (read the book) explains why.

Conclusion

I've had an insider's view of hundreds of software-fueled startups over multiple technology cycles. One of the most striking things I've learned is the winners do things the "wrong" way in the eyes of most experts. That's how they win! Of course, it's got to be the right "wrong" way that wins, not just any old wrong way; there are plenty of wrong ways that are losers...