How does one company overtake others in crowded field and turn industry leader?

How does one company overtake others in crowded field and turn industry leader?

How does that happen? How does one company overtake others in a very crowded field to become the single name that we associate with an entire industry?

There is Lyft. There is Carma and BlaBlaCar, and Getaround and Zimride. And until recently, Sidecar.

Yet when we think of ridesharing, we think of Uber.

How does that happen? How does one company overtake others in a very crowded field to become the single name that we associate with an entire industry?

In a recent paper, Rory McDonald, a professor at Harvard Business School, looks at just this phenomenon. He didn't look at it retrospectively, picking the winners in different fields and trying to figure out what set them apart. Instead, in 2007, he noticed that five different startups were trying to do essentially the same thing: Offer a new, socially-enabled investing platform where individuals could invest alongside talented amateur investors.

He followed the companies through 2010, interviewing company leaders, investors, customers, and journalists, until the field had dwindled from five to just two. By that time, he knew what had gone wrong--and right--for each company. Here's how your startup can increase its chances of being Uber, not Sidecar.

1. Forget About Being a Thought Leader

This was the first mistake made by three of the competitors McDonald studied. Startup CEOs do not have the time to try to convince people that they're bringing a whole new industry over the horizon. It's a ton of work, and it involves persuading customers of an entire existing industry--some of whom are served quite well by it--that they're missing out.

In their efforts to usher in an entirely new industry, the three companies that failed (in the paper, the company names are anonymous) collectively disparaged investment magazines, the business press, investment advisers, mutual funds, and CNBC. That didn't leave them with many friends, and their investors worried that the CEOs were burning up time and money on activities that didn't result in a better product.

The companies that succeeded aimed very narrowly: In this case, they went after mutual funds, claiming the funds had high prices and poor performance. As one of the executives at one of the more successful companies put it: "We think about creating markets as, can you solve a problem that gets a few people to use the product and stick with the service?"

2. Mind Your Story

The founding stories of the companies that failed were not terribly persuasive, and when the companies ran into trouble, they quickly tried to revise their stories. The companies that did better had stories that cleaved to their actual experiences of building their companies, and stuck to them.

All five companies started out by saying they were democratizing investing. But their initial premise--that people would want to invest alongside talented amateur investors--proved false. Amateur investors had really bad performance.

One CEO of a business that didn't do well said he founded the company because he saw that social networks were taking off, and he thought that those connections could be effectively applied across different vertical industries, such as finance. That didn't have anything to do with democratizing finance. Then it turned out that social networks weren't a great help in investing, so the company pivoted into helping people with retirement planning. But there was no way to make the founding story, which wasn't great to start with, at all relevant to this new idea.

A more successful company had a founding story based on personal experience, rather than macro trends. The founder thought his parents were getting ripped off by their financial adviser, so he tried to build an online marketplace for investing talent. When he met a partner at a major venture capital firm, they decided to turn his hobby into a startup.

When the amateur talent turned out to be underwhelming, another successful company started building a marketplace for professional investment managers. They didn't have to change their story much: They'd always been democratizing access to talent. Now they were just democratizing access to professional talent. No, it wasn't the same thing. But it was close enough.

3. Launch, and Label, on Your Own Terms

Two of the companies launched at big trade shows. They got press coverage, but it was mixed in with coverage of their competitors. In one case, the company wasn't really ready to launch but used the trade show as its deadline. The results were predictable: The company got a swarm of customers, but because the software wasn't ready for prime time, they left just as quickly as they came.

Since all five companies were doing something new, customers, analysts, and journalists looked for shorthand to describe their businesses. The companies that failed went along with these labels. The companies that succeeded fought them. One single (unsuccessful) business was variously referred to as "MySpace meets Wall Street," "Fantasy football meets the trading floor," and "Facebook running a hedge fund." The CEO of the company said those labels described his company well--unlikely, given how different they are.

One of the successful companies was described as offering "social investing." Said the CEO: "We spent a lot of time trying to not be positioned as social investing. [The press] wanted to lump us with our [competitors]."

The other successful company was tagged as "the Facebook of investing," a label which they also fought. In a comment that should echo for all the startups currently pitching themselves as "the Uber of...," an executive at that company said: "We try to avoid...'The Facebook of something'...because it can be very misleading for how you yourself think about your business."


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