Where Will Your Business Be When the Music Stops?

Howard Tullman

WHERE WILL YOUR BUSINESS BE WHEN THE MUSIC STOPS?

Do they still let kids play the “Musical Chairs” game or is it no longer politically correct? You know, that’s the game where the players walk around a group of chairs to music and try to sit down quickly when the music abruptly stops. The challenge is that there is always one less chair than the number of players and the one left standing is eliminated. I’ve always loved it because of its metaphorical power as much as anything else. Building a new business (or a career) is a competitive race in many ways and – especially as you progress – you quickly learn that there’s not always room at the table for everyone.  I like to say that it’s lonely at the top, but at least it’s not crowded.  Having our kids get a little slice of real life experience early on and come to understand that occasionally you might have to push or shove your way to a seat in order to succeed isn’t the worst thing in the world for anyone. 

My position on schools, teachers and parents who promote the “everyone’s a winner and trophies all around” view of the world is very clear. I think they’re killing our country’s competitiveness and mortgaging our kids’ future with a bunch of fake, feel-good, psychology that mainly lets everyone save face. And I’m not talking solely about the games they play – it’s the same problem in the classroom as it is on the playing field. It’s so much easier to administer and grade a useless multiple choice test and to inflate every kids’ grades for their college applications than it is to create challenging course work and content that excites and engages them.  (See http://www.inc.com/howard-tullman/stop-promoting-mediocrity-in-our-schools.html.)

Most teachers today are doing a crappy job of teaching our kids the critical thinking and problem-solving skill sets that it’s going to take for them to succeed in the new digital and global economy. And too many parents are just too busy or otherwise occupied to take an active interest and role in their kids’ educations. It’s much simpler to just pat your kid on the head for “trying” than it is to sit and pour over his or her homework to see what they’re learning.  (See http://www.inc.com/howard-tullman/startup-lessons-for-kids-and-entrepreneurs.html.)

So, you can readily understand why I would wonder if Musical Chairs is just another “too real” contest whose time has come and gone. But, for me, it’s also an everyday reminder of a very critical fact of life for startups that we all need to keep in mind. Most startups aren’t going to grow up to be stand-alone big businesses. A few of the best ones will find a way to get there. (See  http://www.inc.com/howard-tullman/protect-your-startup-from-big-competitors.html.) But most young businesses are going to need some serious shelter from the coming storms and they’re going to have to plan to fold their product or service into someone’s else’s success story.

There’s always a lot of talk about how technology is a “winner take all” business and it’s not wrong, it’s just a tad overstated.  Because there’s so much money sloshing around these days to fund competitors and because I think we’re going to see a likely return to more government antitrust oversight, we’re much more likely to have strong oligopolies (2 or 3 main winners) rather than monopolies in most tech-driven markets. This is slightly better news for growing startups because it increases the pool of prospective buyers. But it’s still going to be a tough road. And the early signs are already starting to show.

1.      We've had it up to here with additional apps.

             Downloads of new apps are dropping every month and the trend is accelerating. The glut is growing and - for a new entrant - it's virtually impossible to be found among the 50,000 new offerings pouring into the app stores each month. And, in case it isn’t obvious, if you can't be found, you will never be chosen. In addition, we're lazy and we're digital creatures of habit so we barely use the vast majority of the apps already on our phones. If we were better housekeepers and tossed some of these unused apps, our screens would be a lot cleaner and we’d save tons of time that’s now lost searching for specific icons lurking somewhere in the mess. At best, we’re using maybe 5 to 7 apps a month on any kind of consistent basis and, according to comScore, 50% of our activity is concentrated on a single (usually social) app. If you’re a standalone app, you’d better start looking for a home.

2.       We're gravitating to do-it-all gateways, not dedicated gadgets.

Fitbit is flailing. Retailers are flooded with product sitting on their shelves and that makes huge Xmas orders for additional product highly problematic. How many wrists do they think we have? How many measurements really matter to most of us? And how many dedicated devices does anyone want or need when each and every day the basic functionality (steps, heart rate, BP, etc.) is being built right into all of our other mobile devices? And Fitbit’s caught in a classic squeeze from both ends of the price spectrum which is likely to persist. Apple wants to own the high end and Xiaomi is chipping away at the lower end of the range. But there’s a much bigger structural problem facing all the gadget guys.

We are a country of one-stop shoppers and it's the folks that control the gateways, the channels and the top-of-mind interfaces, not the gadgets, who are increasingly becoming the only games in town. No one is better at this game right now than Facebook.  (See http://www.inc.com/howard-tullman/facebooks-fabulous-future.html.) Honestly, it’s only a matter of time before it becomes clear that all the tracking devices, all the navigation devices, all the data-generating wearables of whatever stripe (just like all the content created by professional media publishers) will need to knuckle under and feed their results thru Facebook’s front door to the consumer because that’s where the consumer lives and that’s where the data needs to be. Facebook’s phone was a bust, but guess what? They figured out a better and far more profitable way to serve their users and they shifted all the risk, pain and costs of production onto the backs of the gadget guys. If you’re a dedicated device, not made by Apple, or in bed already with Facebook, you’re toast.

3.       We've decided that good enough is more than enough for most of us.

            GoPro is gasping. Competition is up, diversification into drones is going nowhere fast, Christmas looks lousy, and the forecast for the year is down. And they’re having a hard time manufacturing the next new thing. Sounds just like the litany of Fitbit’s woes. The truth is that most of us are mere mortals and we don't need the newest and greatest anything - we just need something in our price range to get the job done. And the competition is pushing the prices down and the basic quality up. In almost every tech sector, the players keep raising the bar and upping the average so that, in most cases, good enough today is plenty for the vast majority of customers. GoPro has burned through the pros, the enthusiasts, and the super-picky (and price-insensitive) people and now they're staring into the consumer chasm and facing a world of competitors (including all the phone manufacturers) whose offerings keep getting better, cheaper and more waterproof. It’s hard at this point to imagine what they would call their sustainable competitive advantage. If you’re the price and quality leader in your space, you need to start working on Plan B.

And overall, regardless of where you feel you fall, now’s the right time to take a hard look at just what you have and what you’ve built and to sit down with your team and your advisors and discuss what the best alternatives are to capture and extract whatever value you’ve created in the business before it goes away. It’s already past time in most cases (and largely a waste of time) to talk about how anyone is going to recoup their prior investments as opposed to their pro rata share of today’s value. No one who’s interested in moving forward spends much time looking in the rearview mirror. They call these kinds of dollars “sunk costs” for a very good reason. They’re long gone and they’re not coming back.

 

 

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