The Perfect Product - Secrete of Entrepreneurship
Someone is right these days everyone wants to be an entrepreneur. Even in India everywhere I go and most of them passionately explain to me how they are going to change the world. They tell me their business plan and flatter me saying thats the business plan which will kill Google, Microsoft, SAP and other big players in the market. But all I could smell in their coffee is they want to become rich and they want to make money.
Though I support the passion of every single entrepreneurs I meet; here is something I want to tell them — wait and smell the coffee.
In my last post I had explained, ‘Why go behind your passion is a bad advice’. And what they should do instead. This post talks about how you should plan when you found your true passion. How could you make a perfect product and change the business and eventually changing the world.
Entrepreneurship is all about three things;
1. Can you make the product?
2. Can you sell the product?
3. Can you manage the money?
In my whole life, I have never came across a single person who can do all three things himself. You always need your entrepreneurial soulmate. Like Steve Jobs and Steve Wozniak of Apple, Bill Gates and Steve Balmer of Microsoft or Larry Page and Sergey Brin of Google; you definitely would always need a soulmate. If you’re an engineer, you need someone who can sell your product. If you’re a sales person, you need someone who can make a product for you. If you have money? Well you would need both of them. So once you found your soulmate how do you create the best product? Because;
Quality isn’t enough, and Good design doesn't sell.
What you need to understand is, coming up with creative ideas is easy; selling them to strangers is hard.
Once you found your soulmate you need to make a perfect product. The industry has changed from mass consumption to well designed network suggested products. Remember, people do not buy product anymore they buy the experience. To design a perfect product you need perfect blend of six ingredients; Design, Innovation, Quality, Price, Sell and Update. One of finest entrepreneur Peter Thiel in his book Zero to One asks one of the fundamental question that every entrepreneur should be asking; **”what valuable company is nobody building”**? This question is harder than it looks, because your company could create a lot of value without becoming very valuable itself. Creating value is not enough—you also need to capture some of the value you create.
“This means that even very big businesses can be bad businesses. For example, U.S. airline companies serve millions of passengers and create hundreds of billions of dollars of value each year. But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip. Compare them to Google, which creates less value but captures far more. Google brought in $50 billion in 2012 (versus $160 billion for the airlines), but it kept 21% of those revenues as profits—more than 100 times the airline industry’s profit margin that year. Google makes so much money that it’s now worth three times more than every U.S. airline combined.
The airlines compete with each other, but Google stands alone. Economists use two simplified models to explain the difference: perfect competition and monopoly.”
How could you create a product which will provide monopoly in the market.
But following are most importantly four things to remember when creating a business
1. Build Proprietary Technology Which is 10x Better
2. Look for Network Effects
3. Create Economics of Scale
4. Build A Strong Brand
Proprietary Technology - Not just any technology mind you, but one that provides a 10x performance improvement over the closest substitute. Even as a startup, Amazon could offer at least ten times more books than a traditional book store, just as it could be argued that PayPal made buying and selling on eBay ten times easier.
Network Effects - Everybody uses Microsoft Office because it’s the most common software. PayPal is only convenient because it is popular, which makes it easy to find places that will accept payments from it. Facebook is useful because you can find your friends there. These are all examples of businesses that benefit from network effects.
Economics of Scale - like many others, I am a big fan of network effects because of their ability to produce accelerating returns to scale. As the market grows, each customer becomes increasingly valuable, not just for what they buy, but for the value they add to the rest of the network. It is, after all, returns to scale that create outsize profits.
Building a Brand - We go to Wal-Mart because it promises and delivers a low price. We value Apple because we know that every product they make will be “insanely great.” Google can attract the smartest people because it delivers on the promise of being a rewarding place to work. Exxon gets access to opportunities that others don’t because it has a history of performance.
A brand is essentially a promise. We value brands that we trust and that applies not only to consumers, but also to suppliers, employees and other partners. But be ready for the product to be ready to ship or almost ready to ship. Lets learn from the greatest mistakes of few great products.
Goatta Go now... will write when I land. Hold your breath.
Note: This article is still under editing. -Umakant Jani