Venture Geek

Fred Wilson wrote a piece about Facebook’s valuation a couple days ago, and it reminded me of the most frequent advice I find myself giving to entrepreneurs (or any business decision makers, for that matter). It’s not really what Fred’s post is about, but it comes down to strategy, or more specifically market positioning — what you might also call your brand (as an aside, these words often get used interchangeably, yet you’ll find “experts” who will give you lengthy explanations about specific distinctions — the word “brand” in particular is used to mean many different things).

The issue is choosing what not to do with your business as a means of having a stronger position in the market. This is certainly not a new idea, and I don’t claim any ownership over it, but it’s a very important idea and one that very rarely is embraced by startups (or any business for that matter). Here’s the bit from Fred’s post that reminded me of this:

I asked Jessica [a student Fred knows], who is a Facebook fan (she switched from MySpace when she got to high school) about the possibility of Yahoo! buying Facebook. She was fine with it, as long as “they don’t change it”. She’s not happy about the opening up of Facebook to everyone. She liked it because it was exclusive. Not everyone could be a member.

When I told her I had a Facebook profile last month, she was shocked. That shouldn’t happen in her view of Facebook. She says that MySpace has “sketchy old men” on it and Facebook doesn’t. She’s worried that Facebook is going to become another MySpace and if it does, she’ll move on.

The above quote is in the context of Facebook looking to maximize its valuation by opening up to more than just students — to embrace a wider audience in order to have more users and thus more page impressions and thus more ad inventory. This graph from Alexaholic really says it all about the position Facebook finds themselves in (click to enlarge):

And so Facebook and so many others face a dilemma: stick to the core of what we’re about (in their case, students at colleges and universities) or try to grow the brand to be something more. And this ends up being the kind of decision a lot of startups tackle: what market are we in. But, a more productive way to ask the question is often: what markets are we NOT in. To stand for something in the minds of your customers and to have your customers relate to you personally (and, ideally, to consider your brand part of their own identity) you can’t be all things to all people — and you can’t even be a lot of things to a lot of people. Now, of course, there is a balance here — you don’t want to be so narrowly targeted that you don’t have an attractive market to play in. Certain brands also lend themselves to being broader than others. Facebook put a stake in the ground long ago that they were all about colleges and universities (the very name “Facebook” screams that fact). Yahoo! and Google, for instance, both chose to start as something much broader than that conceptually (though, in both cases it still remains to be seen if they can truly come to dominate areas other than their core — and Yahoo! in particular is taking a lesson from the big companies like Procter & Gamble and building a portfolio of brands that target specific segments rather than try to make the Yahoo! name dominant in every new area they explore). This also doesn’t mean you can’t ever go into new markets (though many of the best companies do so with new brands), but it does mean that there are often hard choices to make about which opportunities you will and won’t pursue.

Most will pay lip service to this concept — ask a room full of CEOs “who here wants to have a strong brand and a differentiated market position?” and all or most of the hands will go up. You’d be hard-pressed to find a CEO who doesn’t want to make strategic decisions about their market, but I am continually amazed how few are willing to actually make those decisions when doing so involves forgoing what seem like fruitful opportunities even when it’s reasonably clear that going after such opportunities will undermine their core brand positioning. It’s very tough for any company, especially a cash-strapped startup looking for revenues and growth, to actively decide to ignore market opportunities that present themselves. And yet, making those tough calls is the very essence of having a well-targeted, differentiated position.

I have the picture of Michelangelo’s David with this post because I like to use it when doing presentations on this topic. Michelangelo has a famous quote that I’ve seen articulated several different ways, but it boils down to that he doesn’t create the sculpture, he sees the figure in the block of marble waiting to be uncovered and merely removes the bits of the rock that are in the way. Next time you’re pondering your strategy, try reversing the question and ask yourself what bits you need to remove that are in the way.