Strategy eats cool tech and culture for its lunch

Peter Drucker is famously attributed to have said culture eats strategy for breakfast. Every time I have a discussion with my entrepreneur friends, the discussion quickly gravitates towards what we think is fundamentally important for business success. The factors usually include technical skills, marketing capabilities, culture, hiring quality, and funding. I used to think that it was the team and culture that was most important (and certainly at Wingify, we give a lot of emphasis on building the right culture). But is culture enough?

Culture is a necessary, but not sufficient

The way I see it (and many others agree), culture isn’t just free beer and gourmet lunch. (in fact, I think too many “free” things might attract the wrong sorts of folks to your team). Culture is having motivated employees who believe that by showing up at work every day, they are making the world a better place. Culture is being devoid of distracting office politics, culture is believing that morality trumps profits, culture is like a flywheel that like minded people make it self-reinforcing. Every company by definition has a culture. Getting the culture right means that two people add up to more than two people, while getting it wrong means people dragging each other down. Culture has very little to do with how fancy your office is.

Many companies get the culture right, yet they struggle. Take Yahoo – its employees rate 4+ on Indeed.com. Remember Grooveshark? The music streaming website that was shut down. Its Glassdoor reviews are telling. One says: “awesome culture” but “obviously the lack of future for the company.” I’d bet if you do a thorough review of culture at the companies that have failed, you’ll find many of them to have focused a lot on culture. Cuil, Color, Joost, Digg — all probably were great companies to work for.

Companies fail because they run out of money, or can’t see a way to make money

Earlier in my blog, I wrote that a CEO has two jobs: set vision, hire the right team to execute it. (I’ll now add the third job: make sure there’s enough money in the bank to execute it.) Amongst the three, I think the vision part is the most important job (but also the most difficult one). To explain why is that so, let me tell you an insight that was hard to come by. In early days of Wingify, I used to question the necessity for a company to grow. We were a small team of 15-20 people, profitable and very happy. Honestly, I used to find the growth-at-all-costs mindset of Silicon Valley a bit repulsive. I kept saying: “We’re happy with the slow but quality growth in team and product features.”

Now I don’t believe that with the same conviction.

I still like quality growth, but not A slow one. What changed? As foolish as it may sound, it dawned on me that a company isn’t an isolated entity in the world. It exists embedded within a constantly changing universe of new technologies, trends, consumer behavior, competitors and a whole lot of other factors. I quickly understood that a slow growth eventually means certain death. Plus, then I learnt about network effects, the blockbuster effect and the fact that big usually grow bigger.

In short, a company has to grow in order to have a high probability of surviving in future. And that necessity to grow never stops.

Survival requires revenue-growth. Revenue-growth requires strategy

In last two years, there have been a a number of transforming insights for me and among them one that stood out was that strategy is a dispassionate analysis of your advantages v/s disadvantages. Earlier I used to think strategy is a passionate analysis of how you’re going to win over the world. But the super insightful book “Good Strategy, Bad Strategy” humbled me. Then Peter Thiel in his book “Zero-to-one” taught me that competition is for losers. Strategy is not about beating competitors, it is about not having competitors at all. After that, Stratechery came along and made it clear that the Internet (somewhat ironically) makes it difficult to be a mid sized business. You either remain so small that you’re profitable in a niche or you balloon to attract all available consumer/talent/partner/brand attention/dollars. He also taught me about the power of incumbent incentives when it comes to disruption. (I highly recommend reading his blog and listening to his podcast Exponent).

So what is one supposed to do?

Be a student of trends in the constantly changing world and remain vigilant of gaps that crack open because of those trends. And constantly keep doing a dispassionate analysis of opportunities presented in those gaps. Big businesses emerge only in those cracks that the current players are not incentivized to get into. Google emerged because growing Internet demanded a quick and decent search, and existing search engines were incentivized to keep banner ads on their results. It grew because it was simple, and before incumbents noticed it was too late. Facebook emerged because there always has been a need to stay in touch with people you know, and Myspace was too busy selling ad space that made it look cluttered. Before incumbents noticed, network effects made Facebook unstoppable. iPod emerged because MP3 sharing exploded and the cost of hard drive reduced enough to make it viable in a consumer product and existing players were incentivized to keep selling upgraded models of the smaller capacity MP3 players. Similarly, before incumbents noticed, brand iPod had so much equity that it sold by itself.

As Alex on A16Z blog says,

The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.

And right strategy helps with the distribution bit. It also helps to know that you’re not smartest and others are not dumb.

Of course, companies even with the right strategy can fail. However, as a CEO or founder, a great way to increase survivability of the company should be to spot a potentially large opportunity that you can realistically and financially hope to market into. (Hopefully this should filter out a lot of ideas that seem “cool” or fancy tech that you’re itching to build). Many startups struggle not because of lack of funding or lack of talent. But perhaps the market they’ve chosen cannot allow that startup to grow.