Sunday, July 01, 2012

Developing "Toys" for the Enterprise - It's About Delivering the "Smallest Unit of Value"

Today's TechCrunch post by Aaron Levie of Box - Rise Of The Enterprise "Toys" - and the recent acquisition of Yammer by Microsoft prompted me to dust the cobwebs off of my blog and write a post that I have been thinking about for years.

In his post, Levie talks about enterprise solutions that are initially viewed as "toys" and then they develop into "solutions".  As he puts it...
Students of the Innovator’s Dilemma know that a new technology starts out being just “good enough.” Often, an early solution only serves a niche part of the market with limited requirements. This naturally shields it from the incumbents’ radar, but what starts out as a nascent product attacking an unprofitable or unattractive market segment can quickly mature into a disruptive solution that becomes more than adequate for a broader population.
I completely agree with this approach and I often use - as Levie does in his post - Yammer as the poster child.  When they launched their initial offering in September 2008, they touted it as “Twitter for Companies”.  Many influencers viewed it as a "toy" and as this chart depicts, many of them didn't give Yammer much chance to succeed.  Two years later, they launched Yammer 2.0 as a “Full-Fledged Social Network for the Enterprise” and the industry started to take them a bit more seriously.  Now, after being around for less than four years, they are being acquired by Microsoft for $1.2 billion.  Not bad for a toy.

Throughout the years, as I have consulted for many early-stage enterprise startups, I have found that it is very difficult for many entrepreneurs, particularly those who have been in the enterprise space for a while, to think about developing a toy as they figure out how to penetrate the market.  They often go after the big solution from the onset and end up having a difficult time experiencing much success.  This happens for a variety of reasons.  Having the solution mindset often results in trying to build a broad offering, which is difficult when you have limited resources.  Also, communicating about a broad solution often diffuses the marketing message, which is not great these days when laser-focused messaging is critical to rising above the noise.

The approach I espouse to my early-stage clients is what I call, "delivering the smallest unit of value".  What is the smallest unit of value you can deliver to a segment of users/customers that is consistent with the broader vision you are trying to execute.  Having this type of narrow approach will enable you to focus your development resources and your marketing messages.  

I think it is important to note that taking a narrow approach initially does not take away from the ultimate vision of a company.  But a company that doesn't get started with a focused offering may never experience the early success they need to obtain the resources required to execute their long term vision.

What do you think of developing "toys" versus "solutions"?  What are some other good examples of startups that either succeeded by initially developing a toy, or did not succeed because they started with a solution?

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