The 3 Needs

Having spent the last couple of posts focusing on self-improvement, I thought I’d transition back to the business side of things for a bit.

The past 2-3 weeks a few of my friends reached out to me regarding concepts that they’re working on, and as is usually the case, it got me thinking: assuming all else is equal (e.g. a great founding team, seed capital, discipline, a bit of luck etc.), what exactly makes for a viable business idea?

If you ask me, all great companies have one essential ingredient in common: they all address three fundamental needs.

Philosophical Need: On a macro level all companies, large and small, must address an overarching “philosophical” need. For Google, it’s ensuring that search is as intuitive as possible, even as content on the web continues to proliferate; for Twitter, it’s enabling people to broadcast what they’re doing whenever they want, wherever they want; for Boeing, it’s making flight as cost-effective, and safe as possible; for Toyota, it’s manufacturing more fuel-efficient automobiles without sacrificing standards; and for Ikea it’s providing consumers with quality furniture at a discount – just to name a few.

Practical Need: Of course, addressing a macro-level need, while powerful, is not nearly enough. There are practical considerations as well.

Take Twitter for example. The social media upstart would have never become a phenomenon, if its value proposition was solely predicated on enabling users to publish status-updates (i.e. answer the question, “What am I doing right now?”); after all, what’s the point in telling people what you are doing, if nobody is there to listen?

Thus, not surprisingly, it wasn’t until Twitter addressed an even more basic need – the need to integrate with existing social media applications (e.g. Facebook, AIM, gchat etc) – that it started to realize its potential as a tool that could empower people to concurrently reach out to an audience with a megaphone while engaging  individuals  in a “coffee-shop.”

Mechanical Need: Finally, no concept can truly succeed unless it addresses the most elemental (and forgotten) need of all:  the need for a simple mechanism that will make the philosophical and practical solutions feasible.

In Twitter’s case, the mechanism is obvious: SMS technology (i.e. text-messaging). However, what about more traditional companies like Ikea or Toyota?

If you think about it, they too have distanced themselves from the competition by addressing mechanical needs. Ikea is able to provide furniture at a discount (“philosophical need”) by using material comparable to its peers (“practical need”) because it transfers the majority of its assembly costs to its consumers by selling ready-to-assemble goods (“mechanical need”).

Toyota on the other hand is able to consistently manufacture top-of-the-line fuel efficient cars (“philosophical need”) by employing some of the automobile industry’s most advanced technology (“practical need”) because of its world famous Toyota Production System (“mechanical need”).

In short, when considering an idea, ask yourself one question: how many needs does it address?

The Basics are Good

If you don’t know of Umair Haque, the director of the Havas Media Lab – “a… strategic advisor that helps investors, entrepreneurs, and firms experiment with, craft, and drive radical management, business model, and strategic innovation” – you should; the man is an absolute genius.

His post, “Why Ideals are the New Business Models,” is unquestionably one of the most impactful reads I have come across in a while. Not so much because it’s profound (though I assure you it is), but more so because after years of having the “merits” of business models shoved down my throat (seriously, I was almost gagging!), it is refreshing to see someone take a stand.

He argues, in essence that:

Business models aren’t today’s fundamental economic challenge.

If there is a silver lining to the current economic crisis it is that the complex, cumbersome business models of yesterday are slowly being supplanted by the basic ones of tomorrow; and as President Palmer (for all of you 24 fans) declares in a recent AllState commercial: the basics are good.

Twitter for example has become a world-wide phenomenon for two reasons. For starters, it enables people to answer a basic human question: what are you doing (thinking) right now? Secondly (and perhaps more importantly), everything Twitter’s engineering team does reinforces that notion. From emphasizing the concept of followers, to building robust back end functionality (e.g. integration with mobile phones and other social media platforms), they are dedicated to making the act of tweeting (i.e. sending and receiving simple status updates) as easy for their users as possible.

In contrast, Facebook’s latest redesign marks a troubling departure from and obfuscation of its original objective. By making a conscious effort to mimic Twitter and focus on “conversations” rather than life-streaming many (including myself) believe that Zuckerburg and company have created two distinct challenges for themselves: first, to impose a seismic shift in philosophy will not be easy considering Facebook has over 120M users (the majority of whom are used to interacting with the interface in a particular manner); and secondly, in trying, they will effectively dilute much of the value they had previously created.

In other words, instead of doing one thing well (i.e. enabling users to engage in each other’s lives), Facebook is on the precipice of doing two things “poorly” – though of course it remains to be seen if that has any effect on their long-term strategy (or viability).

My guess is no.

Creating something valuable in the first place is.

In his book, “Four Steps to the Epiphany” serial entrepreneur Steve Blank writes:

“If you want to get my blood pressure up when you invite me in to see your newly formed startup introduce me to someone with a Business Development title. This is the most ill used and ill-abused title in a startup. By itself this function and title more than likely decreases the probability of success when used early in a startup more than any other single factor. When I hear it used in an early-stage company I question the competence of all involved.”

The point is, if you can’t convince consumers of your product/service’s value before or during production, chances are slim to none that you will be able to sell it to them (i.e. via Business Development) once it’s completed – irrespective of its merits or your efforts.

“Monetizing” + “business models” = zombieconomy

Though I fundamentally believe that you must become ramen profitable in order to have any chance of creating value for your customers in the first place (unless of of course you’re Twitter), I do agree with Haque in one key respect: innovation and consistent long-term growth derive from a customer-centric approach.

It’s not about beating the snot out of your competition in order to achieve higher margins anymore. It’s about building lasting reciprocal relationships with your end user.

Forget business models. Focus on ideals

If creating value is today’s “fundamental economic challenge” (and like Haque I believe it is),  then nothing will empower us to rise to the occasion more than pursuing concepts founded in our ideals.

Freedom. Peace. Fairness. Justice. Principles like these not only create “authentic, deep, meaningful value” for the customer, but also (as I can tell you from experience) equip founders with: the focus to navigate a difficult competitive environment; the stamina to stay in the office until the wee hours of the morning; the determination to cold-call hundreds of prospects in an effort to pre-sell; and the humility to listen to and learn from users and mentors alike.

Thoughts?

Mimicking Reality

It seems like everyone and their mother likes to make predictions around this time of year; and so clearly, being the fun-loving guy that I am ( really, I am!), I thought it only appropriate that I join the party. However, as is usually the case with me, there’s just one slight problem: a key prerequisite to making predictions is that you have to have something to make a prediction about in the first place! So okay, let’s see here. How about sports? Eh, considering Seattle just completed the worst year in sports history that’s not likely (seriously, Oklahoma Thunder?!). Fine, then how about women? Ha! Yeah, no I’m not touching that one, sorry mom.

*Sigh* so I suppose that wasn’t too hard after all. By process of elimination that leaves me with: web-based business, specifically as it pertains to social media. If you ask me, many of the largest and most reputable social media companies today have achieved critical mass because of one thing and one thing only: they mimic, consolidate, and expedite what we do on the web. For instance:

1) Facebook – If you really think about it Facebook and other social networks like it became ubiquitous because they enable people to connect and communicate with contacts from their past and present through one simple, yet powerful interface. Rather than through instant messenger and email, which are inefficient and fragmented mediums at best.

2) Digg – Next, Digg has become a phenomenon because it successfully leverages its large user base to create a repository of “interesting” content. So now, instead of browsing through sites and sharing content one at a time (which is what people used to do on the web), people can simply sign into their Digg account, and find/submit content for all their friends to see.

3) Twitter – Finally, for its part, Twitter capitalizes on the interconnectivity of the web/mobile phones to faciliate micro-blogging through multiple mediums (e.g. AIM, gmail, Facebook etc). So instead of updating their friends one person at a time and one medium at a time (which, again, is what we used to do), people can now chat with and provide real-time status-reports to all their “bffs” at once (e.g. “OMG. The Jonas Brothers are sooooooo HOT! xoxo”).

Of course, I’m oversimplifying things for the sake of brevity. Facebook, Digg, and Twitter each provide far more value than I give them credit for above. However, my sense is that at some point, if not in 2009 than shortly thereafter, mimicking the web (i.e. increasing the proximity of information) will simply not be enough; and in order to succeed, the next generation of social media companies must and will learn how to mimic reality.

For, as useful, wonderful, and mind-blowing as some of these current sites are, I predict that one day soon we’ll look up blurry-eyed from our monitors, iphones,  blackberries, blueberries and strawberries; and realize in a moment of (ironic) clairvoyance that there’s just no subsitute to engaging and impacting others in real-life.

Thoughts?