Sunday, January 24, 2010

Ambition: An Entrepreneur's Dilemma

So here is a classic dilemma. We all know that true entrepreneurs, by definition, are an ambitious bunch. And proudly so. But this "pride" sometimes turns into "hubris", which if unchecked, unfortunately leads to the demise of a company in a not-so-glorious downward spiral. This hubris is the founders' over-estimation of their own and their company's competencies by a far margin.

In many instances, hubris is not easy to detect, as it disguises itself beneath a veil of confidence. But there is one place hubris cannot hide, and that is in the company's monetization strategy (aka Business Plan).

You are suffering from a serious case of hubris if you believe:

(1) Your startup with less than 20 people can have multiple revenue streams, such as advertising and subscription revenue. When you rely on multiple competing revenue streams, that means you don't appreciate the complexity involved in making correct optimization choices when optimizing one stream will inevitably adversely impact the other, and the divisive ripple effects this would have inside your organization.

(2) You can have better conversion rates than your competition within the first 2 years of launch. Having better conversion rates is a matter of time and analytic disciplines. There is no magic formula. If your competition started 2 years before you, it is so much harder to keep up with them because they have lots more data in their analytic arsenal. And unless they sit around and do nothing, you will always be playing catch up as far as data is concerned. And at the end of the day, data is everything (read next point for the "why")!

(3) You don't think you need a dedicated analytics person/team for your Internet startup. Building an Internet application is all about delighting the users in a way that generates revenue better than your competition. And no one knows how to do that a priori. You need tons of empirical data and perform A/B tests to arrive at the solution, and then do more tests to keep up with the changing times. Hence, the need for superstar analytics talent on your team from very early on.

Do you agree? If you have encountered other tell-tale signs of hubris, please do share with us in the comments.

1 comment:

  1. 1) For a company of your user base it shouldn't take long to figure out which one is the clear winner.

    2) Seems obvious. Data is why Google search leads, and everyone else lags. The more data you have, the better analysis you can perform to make more refined search results, and the more refined results you have, the more data you'll have (since more people will use it). Ditto with advertising/behavioral data (DoubleClick), social data (Facebook), 1:many relationship data (Twitter), photo relevancy (Flickr), so on so forth.

    3) Sure, startups should hire great generalists first and fill the gaps with specialists later on. However, analytics can be excruciatingly time consuming and sometimes boring, taking away the superstar's talent to do something that could otherwise be spent to do other more challenging tasks.