My Advice to Entrepreneurs

Occasionally, friends ask me for advices of their startup. I am flattered but shy away from giving any advice, since I just started the journey about 5 years ago myself, and I have more lessons from mistakes than tips for success to share. Now, let me give it a try (shamelessly pretending that I know this topic).

Try to Use Bad Words to Describe Your Business

It is not rare to see people describe their products, or services using many good words – the best, the cheapest, the highest in quality, or the newest… In my opinion, the chance to success with any thing more than one good word is small. Let me give you an example.

A friend of mine just started a business few months ago. He told me that they were going to deliver better service than CTRIP, and the ticket price is lower.

I could imagine a business to have worse service, but cost less, or a service with better service, and cost more. There are good opportunity to win for either model because customers’ needs are diversified, and differentiation in position can be a winning strategy. Some people prefer service (and willing to pay more), and some just care more about cost.

But for a startup with very limited resource, to optimize on two or more dimensions does not seem wise. Li Song, CEO of Zhenai.com, put it this way: “We can assume that our IQ is above average (which is often not true), but we can never assume that we are genius.” I would add that we also need to assume the competitors are at least above average, not idiots. In my friend vs CTRIP example, it is not safe to bet that CTRIP guys are stupid and everyone who have an idea can beat them in BOTH service and price.

If I hear people describe their business with one good word, but many bad words, that seems to be a winning pattern for me. For example,

“I am going to build the fastest websites, although it is ugly, lack of function, and cost more than competitor.”

I understand he/she is really serious about site speed. What do you feel if he says:

“We are going to build the fastest sites, with much more functions than any competitors, and have the best visual design, and meanwhile, it cost just 1/2 of other sites…”

If I hear that, I would comment: “You don’t know what you are building yet”.

There are many good things in this world, but you can only pick one or two at most at the same time.

A Business Model Fits Revenue and Cost

A friend of mine is doing an online content business by hiring people to translate and edit the contents. The cost is similar with an offline magazine, but revenue, even in the best case, is much lower than offline. The business model just does not fit into the current cost and revenue structure. There is no good or bad, right or wrong about how much the cost should be. The key is, the revenue has to fit to the scenario of the cost. Never create a business that cost more to deliver the same, or cost the same but deliver less, or even worth, to cost more and deliver less. At the end of the day, profit is always revenue minus cost.

Align Product and Business

Here is another type. They want to build a good function to attract users, and then leverage that to sell something else. The product and services they are building actually does not align with the business / money making efforts. If you visualize it as two arrows, they are pointing to different directions with 30 to 90 degree of angle in between.

Let me give you some examples. A friend told me that they are going to provide some useful tools like map and estimated price of real estate to attract users, then they can charge those people who list house classified on the site. It seems to me that they under estimate the difficulty to do either one really well. A real estate listing service itself is a full-time job of a large company, if you want to do it well, and house price estimation is at least equally demanding for focus, patience, and resources. In this highly competitive market, there are specialized company doing on either direction with 10x of resources. Any startup with more than one direction to go does not seem to be a good pattern to succeed.

There is Demand, Does not Mean You can Do it Well

I heard of another business model. It is like the previous “doing one thing, and monetize on the other” type. They said there are big demand on English version of map in China, and they want to build it first, and then deliver value added service (something irrelevant to map) to make money. The reason they started with map is, there is huge demand for it.

Well. There is demand does not mean that you can do it well, or there is a business around it. One extreme example is, there is huge demand to predict the up and downs of stock market, or there is even bigger demand to buy $100 bank note with $50. Everyone wants it, but there is no such a service because of a reason.

I am not discourage people to try something that no one did before, my point is, if you don’t know what makes you unique in this area, think harder.

6 thoughts on “My Advice to Entrepreneurs

  1. elliottng

    Very helpful way to think about differentiation and positioning. I had not thought about it in terms of “bad words” but its a good way to think about what is NOT important to you or your customers, and what you will decide NOT to do.

  2. Damian Holmes

    great post for startups and those thinking/planning a startup

    I recently opened my landscape architecture and urban design studio

    in Shanghai. This post gives me more confidence that I am on the right

    path.

    In relation internet site startups, I think that market differentiation is key,

    but also important is using web tools to listen and talk to your [future]

    customers for research, planning, service delivery.

    Web interfaces and business models are easy to replicate but customer

    interaction (service & delivery) online and offline is harder to copy and

    is critical to the success of any startup.

  3. DC

    after reading your previous posting I have a two cents thoughts. No matter how cheap, how fast, how great is the function… just make sure it is not BLOCK by THEM. If not there won’t be any visitors, nor potential customers :-)

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