Never Too Young to Learn

Startup funding wasn't the hardest thing in the world to accomplish over the past couple of years. Now comes the big challenge: keeping a fledgling company going in a suddenly tight funding market.

It's hard to find anyone now who doesn't think the next 12 months will see an upswing in mortality rates for companies that came into being during the financing boom just passed. Figuring out which companies will stay alive is another question.

Startups will have a better chance to succeed if they can identify their unique strengths and build a business strategy around those strengths. That's the lesson that one experienced group of industry consultants is trying to teach to new companies.

TeleChoice, which has been in the telecom consulting game for about 15 years, is offering a whole startup survival plan under what it calls its Business Strategy Lab. In an intensive three-day session, TeleChoice consultants work with startup executives to help them focus on their core strengths and develop a business strategy to match those strengths.

"There are a lot of consultants in this business that will do a strategy assessment, but they will take six to eight weeks, and in this industry right now, that's a very long time," says Christine Heckart, president of TeleChoice and head of the Business Strategy Lab. "We've been able to hone the process down to less than three days, for $50,000."

The goal of the lab is to help startup clients create a strategy-driven firm that isn't subject to short-term vagaries of the investment market or its customers, but is focused on long-term success.

"When a company is strategy-driven, executives can make good decisions quickly, based on the internal strategy and not on shifts in the market," says Russ McGuire, VP and chief strategist for TeleChoice. "When you don't know what's most important, decision making becomes stressful and hard."

Entrance Exam

TeleChoice qualifies companies for its Business Strategy Lab based on a couple of key criteria. Executives for the company must be able to agree on what the company is all about, and they have to have a business definition that is unique and defensible.

Lou Piazza, president and CEO of Gotham Networks, a maker of multiservice systems for the network's edge, says he was skeptical when he went into the lab process at the urging of another Gotham executive. But he learned one lesson very quickly. "After 15 months of recruiting, I'd assembled a management team that each had a slightly different spin on what we do," says Piazza. Working together on a consistent message enables more efficient communications with investors, customers and the media.

More importantly, however, the Business Strategy Lab helps companies specifically craft a message that represents its unique strengths.

"Christine and Russ are two knowledgeable individuals who are able to give you a better sense of how you truly are different, which may or may not be what you thought," says Piazza. "When we came out, the story wasn't what I'd have said going in."

You'll Never Walk Alone

One difference in that story, says Piazza, is that many startups position themselves against incumbents and think they're alone in delivering the better solutions they've created. "But these guys know there are five other startups doing the same thing," he says of TeleChoice. "So you need to know specifically how you're different."

In the case of optical networking startup Coriolus Networks, the Business Strategy Lab confirmed what CEO Robert Castle believed.

"I thought the [lab] process would be fluffy," Castle admits. "They basically confirmed what we thought was special about our company. But we came away with a clearer and more comfortable feeling about what differentiated the company, and we had the confidence to build marketing tools around that. We actually developed some specific concepts for what to say and how to say it — tools we actually used in our marketing."

Most startups do believe they are unique — and are often mistaken in believing their technology is disruptive, says Heckart. "Most of the time they are offering incremental improvements, but they think they're creating new categories of technology or providing disruptive technologies," she says. "If you can't identify what kind of improvement you're offering, you can't develop a successful strategy for marketing your company."

TeleChoice has developed a series of tests that companies go through to determine if their products are unique, disruptive or offer an order-of-magnitude improvement. The Business Strategy Lab puts companies into one of four groups: a UP (unprecedented performer) that is creating a new category; an OUT (obvious update of technology); a DU (disruptive upstart); and a DI (disruptive innovator).

For each category, there are different business strategies. TeleChoice guides companies away from what it calls the Five Fatal Fallacies and toward the Seven Signs of Success.

These success signs include creating a unique and defensible business strategy that management can be passionate about — and that an entire organization can understand. This strategy has to be built on the company's core competency. The market entry strategy and first product must be tied to the business strategy, and the product needs to offer an order-of-magnitude improvement in at least one area important to industry decision makers. Heckart notes that an order-of-magnitude improvement is by definition a 10-times improvement over an existing product or service.

Two of the seven success signs involve making the company's message clear and simple. Company employees need to be able to describe what the company is about in a simple sentence, and then tell why it is important in less than five minutes. The company's differentiation and positioning should be apparent in one compelling picture.

Finally, the initial product should address an immediate pain in the target market while offering long-term potential for dramatic change.

Ultimately, a clear business strategy will enable startups to attract and keep investors and customers, Heckart believes. "With all the turmoil in the venture capital world," she says, "a management team that can go to a VC and articulate a clear business plan around a unique and defensible strategy in one picture, one sentence and five minutes of discussion is going to have a very strong advantage."

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.