A small niche might provide the best opportunity for success

by Jun 1, 2016Digital Product Management

Bill Gates once spoke at a Microsoft event in Johannesburg to an audience of over a thousand packed in a large auditorium. After his presentation, many questions were posed to the visionary who had together with Microsoft defined personal computing and made it a reality.

Any professional speaker will know that in order for a presentation to be successful, you need to give the audience a few “take-aways”. So despite the presentation being over 12 years ago can I still remember any of the “take-aways”?

The answer is yes, I remember one clearly, so it must have been a good session. Bill Gates answered in response to a question around the growing Open Source movement.  He said that in order to continue to succeed, Microsoft will compete in the areas where it is strongest, and that was its ability to make enormous investments in technology.   The size of the investment being so large that it ruled out all competition on the scale alone. I call this the big hammer approach, nice if you have the hammer, or in Microsoft’s case the investment capacity.

The concept of large scale investment resonated with me, because as a young and growing software business of my own I often wondered whether we were on a hiding to nothing. Could we ever reach the scale necessary to even be counted in the software world, let alone compete with the giants of the software business?

It was mildly encouraging when I learned a few weeks later that the core team that first developed Excel was less than 10 people.

So the really clever stuff actually starts small.  From a talent perspective alone, a small software company can theoretically gather the resources and create a highly successful product. Talent alone is therefore not a guaranteed differentiator, it is “necessary but not sufficient”.

So what is the prognosis for a small software company starting out today?

A tool frequently used in business strategy formulation is the classic SWOT analysis, whereby strengths, weaknesses, opportunities, and threats help clarify the companies position and helps direct strategy going forward.

Microsoft’s strength at the time was sheer size, the ability to invest and execute in large scale technology development projects on a scale that no other competitor could.

But as anyone knows, when doing a SWOT exercise a strength can simultaneously be a threat or weakness. Microsoft’s scale was not necessarily just its strength – it created a host of other problems which could be seen as weaknesses or threats, depending on your perspective.

Fast forward to a year when many people are wondering whether it is feasible to start up a new business in a world already dominated by Apple, Amazon, Google, IBM, Microsoft, and others.

Is there anything to learn from Bill Gates and Microsoft’s approach back in 2001?

I believe there is. Because a small software company starting up today can view its small size not its weakness but as very real strength. Whereas Microsoft competes on the scale of investment at the upper end of the scale, a small successful software business can compete in markets that require very little initial investment at all.

Today’s software world is dominated by ecosystems of large vendors co-existing with agile smaller players.

The big vendors make large investments. The smaller agile players leverage these investments to their own advantage and become market leaders in their own niches.

The ecosystem is symbiotic; both types of companies rely on each other, much as an underwater ecosystem with whales, large fish, smaller fish, and tiny plankton.

As cloud technology and software as a service takes hold and becomes ubiquitous and invisible the focus is shifting again towards companies that can consume and aggregate cloud services to create new business models altogether.

I am more than ever convinced that never before has it been more exciting to start up a new business.

In a sense, while many consider the giants to be successful, they have far fewer degrees of freedom than a smaller company. They are the whales in the ocean. Their strength has become their biggest weakness – with scale comes bureaucracy, overheads, inertia, internal politics, conflicting and internally competing businesses.

A smaller company has none of these inhibitors to its success (until it too grows beyond a certain size).

If you had to ask the executives responsible for strategy in the larger companies what keeps them awake at night, many will relate to you the guy in a garage who comes up with the next big thing that will fundamentally change the market in which they play.

The guy in a garage today needs nothing more than time, a decent PC, a web connection, and loads of imagination to build a next-generation software business from the ground up.

In the early stages, the investment can be minimal. You simply take advantage of billions already invested in infrastructure and cloud platforms, much of which is offered for free to prove your concept. You can tap into communities of creative developers who share platforms and ideas freely on the web. You simply match this kaleidoscope of available technologies and creative people to real-world problems and build solutions for your customers.

As you succeed and grow, you create a franchise based scalable business model that allows your formula to replicate itself, potentially around the world. All from your garage. And potentially in the future from many garages around the world. The large corporate headquarters need not even exist in your new business reaching thousands of customers around the world. A garage will suffice!

I am currently starting a small company from my figurative garage. In practice, my garage is liberally extended to outdoor venues like the Drakensberg and the Cape mountains with the help of my mobile modem and a very light laptop with a good battery. My next investment is not in a new desk but in some portable solar panels!

In response to Bill Gate’s strategy, I cannot compete with the scale of investment of a giant like Microsoft, or even a company 1% of Microsoft’s size. So I won’t.

By definition small is now my strength – I will compete in those areas where investment is very modest; where I can leverage the best of the platforms and technologies out there to solve problems.

As another analogy, let others build the roads and freeways. I just want to use them to get to my next destination. In business, you can invest heavily and build world-class roads or you can simply drive on them. I know what sounds like more fun to me (with no disrespect to Civil Engineers and the like)!

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