Thursday, October 28, 2010

The Benefits Of Thinking Small

In previous posts I wrote about visionary entrepreneurs, and how to constantly ask how you can 10X your business.  However, many startups fail because the founding team thinks *too big* from day one, and doesn't take the time to really define the short term, immediate value their product or business provides.

In this post, I write about the opposite of thinking big - thinking small.  I point out why thinking small may be one of the most powerful things you can do as an entrepreneur.

The Biggest Companies Today Started By "Thinking Small"
Think of the top internet services you use - I am guessing all of them started as "niche" products:
  • Facebook
    • Then: An invitation-only social network for college students during a time when MySpace, Friendster, Multiply, Orkut, etc. all existed. 
    • Now: identity management on the web.
    • Twitter
      • Then: Group SMS. 
      • Now: Primary information network on the web.
    • Zynga
      • Then: Poker app when everyone knew that RockYou/Slide style apps were the future of the FB platform. 
      • Now: Massive, highly profitable social gaming company.
    • Google
      • Then: a search engine when 10 other search engines existed and companies like Yahoo! were actively outsourcing search since it did not have a good monetization model (brand ads were the key).  However, they always wanted to "Organize all the world's information and make it universally accessible and useful".  So they thought big from day 1.
      • Now: The primary search switchboard for the internet with multiple indices (search, local/maps, books, video (YouTube), email, Android phone O/S, etc.)
      • With Google in particular, they are executing on the original "big vision" they had.  However, they had the discipline to start with one core product (web search) and expanded from there.

      Starting Small Keeps You Focused On What Is Important
      Too many entrepreneurs start with a grand premise that is impossible to execute from day one, and distracts from building a useful product.

      Imagine if Facebook had said from day 1 "we are identity management for the web".  What would have been a potential outcome of this mindset?
      • Facebook would have started as an open social network which anyone could join (vs the exclusive, school by school network everyone wanted to join.).  I am guessing no one would have joined it.
      • They would have immediately built Facebook connect.  After all, they are identity management on the web...  But no one would use it as they had no members.  This would have been a big waste of engineering time and a distraction for the company.
      • They would have hired big company VPs of Eng, HR, Product, and BD to be ready to "scale" to the massive opportunity at hand.  These people would have promptly destroyed any cultural components the company had and screwed up its roadmap.

      It Is OK To Build Something That Does Not Scale From Day 1
      A common VC question is "how does this scale?".  Ultimately, to build a large, long-term business you need to be able to take an approach and scale it.  However, it is OK to start with something that is manual and hands on.  The key is to have something that can be systematized and replicated over and over eventually.

      Examples: Yelp needed to crack the code on getting a small group of people contributing reviews in SF before they could roll out the Yelp model to new cities.  Ditto with GroupOn and local sales.  Facebook with schools.  Zynga learning game mechanics within individual games and then rolling them out across multiple games.

      If You Want To Build Something Big, You Should Have A Path To Greatness
      Now, while it is crucial to think small and to build something that does not scale, you should always keep in mind the long term path for your business or product.   This path (and the end goal the path itself leads too) may continuously change as you learn more and as circumstances dictate.  However, you should constantly be thinking how to make what you have even bigger than what it is.

      A great example of this is Facebook transitioning from schools, to .coms, to an open social network.  They needed to keep opening up to more users as they saturated their smaller markets.  This forced them to keep moving towards a bigger and bigger objective - online identity management - even if this was not the original goal of the service.

      By thinking small, they eventually were able to think very big indeed.

      Implications: Why The YC Model Works
      This post was originally inspired by a question on Quora about whether the YC model can generate big successes, despite its emphasis on "small markets" and "low risk" products.  As I point out above, thinking small if often the key to building something truly huge.

      Any other benefits or drawbacks to "thinking small"?  Let me know in the comments section.

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