Fast, Cheap, Reliable – Pick Two!

22 Jul

This busy Tuesday morning, I am persuaded to make a short post provoked by — of all things — a bumper sticker I came across this weekend on the back of a race car ahead of me at Sears Point Raceway (aka Infineon). 

On first read, the bumper sticker alluded to the obvious trade-offs weekend racers must continually make in the delicate balance of speed, performance and safety. More broadly, however, it speaks to the management of risk and reward in a world tightly governed by constraints — constaints made by physical laws (pretty much non-negotiable), those constraints that are financial in nature (what economists would call scarcity), and those having to do with sheer will, nerve, or guts. As the sticker laid bare, one almost never gets all three at one time. Which two one wishes to have at any one point is the ultimate decision a company leader (or race car driver, for that matter) must make, and make time and again.

In the start-up world, the parallels are fairly obvious: Start-ups teams typically eat, breathe and sleep constraints of some form or another. Some believe this need to manage constraints is a rite of passage and focuses the mind of management teams to develop their core products and services without distraction and temptation brought about often by too much available capital, too many idle resources, and too many chefs in the kitchen. As an early mentor — a renown venture investor in his own right — taught me years ago, start-ups rarely fail from being too focused. Indeed, it is often the distraction and the temptation to ‘boil the ocean’ that gets young founders and their companies into trouble. Awash in opportunity, management teams can fall victim to wanting to pursue every initiative, every possible new revenue line item, every new partnership possibility, at the risk of diluting the company’s core focus and value proposition.

Cheap, Fast, Reliable – Pick Two. The key point here (and, hence, the irony) is that most emerging growth companies will ultimately never survive in the long term without possessing all three characteristics in their business model and processes. How to reconcile the Catch-22 depends upon how a management team makes the key early decisions about what is most important to focus on, and when it is most important to focus it there. Does being the low-cost provider make the most sense at launch, or should one launch with a bullet-proof product that is fast and responsive, build a customer beach-head, and then drop prices as volume increases? Then again, will the focus on building a bullet-proof, fast and responsive product take so much development time and so many resources that one will miss the window of entry and end up playing catch-up to a cheaper, inferior product that launched earlier and is now far ahead in terms of users/customers and is rapidly erecting switching costs around that user base? Tough questions.

Clearly, there is no uniform right answer. Each market is different, there are different issues and drivers at play, and one can rarely plot a strategy from a conference room table and execute it by rote without regard to how quickly the sands shift. Management teams (and their advisors and venture investors) must be supremely flexible in the current environment and be able to navigate a world where one rarely has everything one needs when needed. Some technologists are loathe to release any product that is not perfect. Some investors think it’s anathema to launch certain initiatives without a full team in place ready to manage the onslaught of orders, press inquiries, resumes, etc. The truth is that those proclivities on the part of certain leaders and investors are something of a luxury. One reads often in the business and trade press about risk management and personnel management. A less well-trodden subject that is arguably even more relevant for start-up management teams is, for lack of a more pithy term, “constraint management.” How a team manages being deprived of resources for long stretches of time can be the difference between an ultimately successful large enterprise, or another start-up bust. In future posts I will endeavor to spend more time on the issue of the unique stresses start-up founders and their teams must face and overcome in order to be successful. If you have interesting stories of your own challenges and stresses experienced in the pursuit of building your companies, I’d like to hear them.

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