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The Beauty of Backing Into a Business

Hardly a week goes by without my hearing yet another version of the same startup struggle. The companies may change, but the song remains basically the same: we couldn't find it so we had to build it and now "it" is a bigger business opportunity for us than the business we set out to build in the first place.

Interestingly enough, they're usually not talking about a product or service change -- this is almost always an instance of their core technology infrastructure creating new value propositions and offerings for third parties.

An activity-tracking system, new programs that help to cost-effectively automate basic and/or redundant functions, measurement tools that permit real-time adjustments in response to market conditions and consumer reactions, etc. all fall into this category. They start as internal tools and end up being white-labeled and sold/provided to third parties (as often as not, existing customers of the business) in order to make everyone's lives easier and all of their businesses more productive and profitable.

Now this isn't a simple pivot tale-- we encourage the occasional pivot, but no rapid twirling please (see You Can Pivot But You Should Never Twirl). This is more along the lines of "we built this thing and then it ate us." And that turns out to be not a necessarily bad thing -- just a different direction than anyone expected or anticipated. As an aside, this strategic shift is NEVER something that you want to spring on your board of directors; you must get out in front of the discussions about changes like this because they represent alternate uses of the business's resources that everyone needs to get comfortable with in advance.

Since more and more of this seems to be happening around us with greater and greater frequency, be sure to keep an eye out for it in your own company before it sneaks up on you as well. As the late Jerry Garcia was fond of saying: "Somebody has to do something, and it's just incredibly pathetic that it has to be us." Getting this stuff right, though, isn't as easy as you might think.

We live in a world that we assume typically and pretty clearly dictates a simple answer to the "buy it or build it" question. The conversation and the analysis usually goes like this:

(1) Unless (a) it offers an essential and sustainable competitive advantage for your business and (b) you have some particularized skill sets and resources that make your organization uniquely qualified to build whatever it is, then the obvious answer in most cases is to go out and buy that necessary part of your product, service or solution from someone else; and

(2) Make sure that the someone else is someone who (a) does it for a living and does it well and (b) will keep doing it, investing in it, improving it, and delivering it less expensively and more efficiently than you can, at least for the foreseeable future. Not necessarily forever, but certainly for a lot longer than you can or should be paying attention to it at the time.

Things (however appealing and au courant) that aren't mission critical-- wanna haves rather than necessities-- can't be allowed to consume bandwidth or scarce time and resources in a new business because that strategy simply wastes crucial focus and momentum and diverts your team's attention from the main opportunity.

The old joke used to be that eventually every app and program would have email built in whether it was needed or not (your dog actually doesn't need email). Today you don't have to look any further than everyone's rush to incorporate live video capability into their mobile offerings to see the same kind of fast-following frenzy. No question that, for some of the players, video is an essential add-on and the sooner the better. But for others, it's a distraction that will be disappeared or dumped by them by December.

The trick is to keep the two ground rules listed above in mind as you decide how your business needs to handle the "build or buy" decision each time one arises. This is a case-by-case situation and one rule won't work as a general management proposition. That's because, apart from the strategic part of the analysis, there are cost considerations given the continuing decline in the prices of new technologies, which can sometimes make it so attractive and inexpensive to try adopting an outsourced solution, at least as a pilot, that it just doesn't make sense to take, and waste, the time required to do any prolonged strategic analysis.

Cheap is sometimes the easy way out for people who can't figure out how to do things better, but, in other cases, cheap may just be the best way to put a toe in the water without making a major commitment figuring out whether the initiative makes sense. Not everything worth doing is worth doing well right away-- you don't test the depth of a puddle by jumping in with both feet.

I'm sure that there are plenty of examples that come readily to mind. Here are 3 descriptive buckets that seem to cover many of the cases where these kinds of questions and opportunities are likely to arise.

1. Improved accountability

You can't get the right information from your partners and vendors about how you're doing or what dollars you're really spending and why, either because they don't have the info or because they won't share. And so you start to develop and build the internal ability to measure and track these things and--very quickly-- you find that there are a staggering number of others equally in the dark, others who would love to have access to your new tools. And pay for the privilege. You have to decide, among other things, whether allowing your proprietary technology out there is worth the risk of eventual sharing and some levels of disclosure that may improve your competitors' abilities to keep up with you in these areas. Machine Zone's Realtime technology grew out of its own frustration with efficiently managing its massive ad spend and now the company makes some of its tools available to others-- but never shares the secret sauce.

2. Improved efficiency

Many businesses today have: (a) access to the basic CRM tools (like Salesforce) and (b) also, at least theoretically if they're prepared and able to spend the required amounts of cash to buy the necessary access, to the required data pools and other sources of transaction tracking material that they clearly all need to most effectively translate all those data streams into actionable information. But they don't have the in-house people with the smarts to integrate all these things into the kinds of reporting systems (dashboards, for short) that the majority of their employees need to use that information to better do their own jobs. Of course, you can farm the job out like Caterpillar has done with Uptake (no pun intended), but there may be a few too many babies in that particular bathwater.

A better solution is to find a team that has already built the integrated tools and made the considerable investment in accessing the critical data streams and have them provide a SaaS-type dashboard option to your people. This gets you much the same results, but doesn't outsource the learning and the skill sets that will comprise your competitive edge. Companies such as McNabb Technologies built tools like  TouchCR relationship management system and integrated it with Salesforce in order to first address its own selling and service needs and now McNabb makes the platform available to others.

3. Improved productivity

One of the best ways to make your new business hum is by getting your customers to do more of the work themselves by shifting as much of the transaction responsibility (selecting, ordering, payment options, timing, pick-up or delivery arrangements, etc.) to their side of the equation-- as long as there's less, not more, friction as a result of the process changes. If you can make their lives easier, save them time and/or money, help them avoid re-entries and redundancies, and even anticipate their needs, they'll be more than happy to pitch in. And they can help across a pretty broad spectrum by doing things and supplying personal information that ultimately saves you time and makes your offerings to them more targeted, more compelling and easier to say "yes" to as well. (See We Need to Take Charge of Our Data.)

The smartest web marketers do this by "pushing through" their in-house technology to their partners' sites so that the end consumer ends up dealing directly with the ultimate vendor even though the transaction appears to be taking place on some intermediate site. This reduces response and fulfillment time, increases the accuracy of inbound orders, and permits the back-end vendor to aggregate data and transaction histories to improve recommendations, side offerings, suggestive selling, etc., which might be beyond the abilities of the middlemen. As the complexity of our technologies continues to grow, fewer and fewer small merchants are going to be able to make the necessary investments in the systems that will keep them competitive in the high-speed, rapid response world of e-commerce and they will come increasingly to depend on their back-end partners.

This is good news for wedding apparel marketing companies like Chicago's Brideside, which is finding that more and more of its consumer-facing partners are asking to have Brideside's front-end ordering systems run their website's e-commerce interfaces as well. This approach helps Brideside justify and amortize its continued technology investments and gain more immediate access and selling opportunities to the ultimate buyers. A separate issue that may arise down the road could see major players and big suppliers start to insist, for competitive reasons, on limiting access to the shared-out technologies. (See A Big Customer Wants Exclusivity. Now What?)

The bottom line in all of this is pretty simple. As you're building a better mousetrap to help run your basic business, you may actually also be building a path to a bigger and better business at the same time. Just make sure that you're driving the process and making the right choices for your company all along the way.

To view the original article, visit http://www.inc.com/howard-tullman/the-beauty-of-backing-into-a-business.html


About the Author

Howard A. Tullman, CEO, 1871

Howard Tullman has over 45 years of start-up, management, IPO and turn-around experience and an extensive operations background in web development, online services, large-scale information assembly and delivery systems, database design and implementation and the development, creation and production of all types and formats of multimedia, computer games and audio/video digital content. He has designed and developed GUI and natural user interfaces, interactive and immersive games and instruction systems and other electronic entertainments, training products and services, as well as other information-based products and services in a variety of fields including automotive, insurance, CRM, employment, real estate, consumer goods and social media.

Topics: Insights