2007/02/23

Business Models and Exit Strategies: FS3

The FS3 project team can learn from the recent announcement of Google Apps Premier Edition and the response post on the Zoho blog.

A popular business model in the dotcom boom days was 'float an attractive-sounding internet or high-tech idea with a minimal organizational structure developing that idea and get a few million dollars to work on it.' No working product or service, no customers (at least no paying ones) and minimal 'skin in the game.'

The exit strategy, if there was one, was often 'be acquired by a large company for more millions.' The start-ups didn't always pay attention to developing a revenue stream and making the business a profitable one.

Zoho, however, appears to be focused on providing a usable, effective product and generating positive cash-flow. They are concentrating on developing the best possible online apps suite available, and have been releasing a steady stream of improvements, with more on the way. Zoho also has the advantage of flexibility and quick response possible from a small company that a large company will never be able to match.

The Zoho blog post uses the metaphor of Google Apps being an anchor tenant in a mall. People shopping at mall anchor stores often spend money in the smaller stores surrounding the anchor. The presence of the anchor results in more customers and revenue for the small companies than they would have had without the anchor. Another post about the Google Apps Premier Edition alluded to the same effect, using the "rising tide floats all boats" metaphor. Approaching innovation products with an abundance theory mentality will, in the end, be much more productive than the attitude that any win for a competitor is a loss for the other players. In a mature market with commodity products the abundance theory may not hold, but online apps is certainly not a mature market.

Zoho undoubtedly has several exit strategies, one of which is 'sell to Google for billions.' But one of their short-term and long-term strategies is also 'provide a continually-improving good product to paying customers for a positive cash-flow.' As long as they focus on the later while being prepared for the former, they'll be in great shape. In fact, working extremely hard at the latter greatly increases the chances of the former happening!

Lessons here for the FS3 project team and ad hoc tech projects in general are:
  1. Establish a sound strategy around a market need, developing a real solution to that need.
  2. Continually improve your product, and have an internally documented pipeline of useful, customer-defined improvements so you know where the company and the product is headed.
  3. Use media focus on your competitors as incentive to work harder at delivering innovations rather than letting them be a distraction to your team.
  4. Have your prime goal be delivery of a useful product to a diverse customer base resulting in a positive cash flow.
  5. Be aware of short development cycles and compressed internet-time product life so you can take advantage of the opportunities those phenomenon present, but build and develop products that will serve your customers over the long haul.
The FS3 project will be impacted by technology innovations, such as a 66% speed boost gained from the Samsung 2000 MHz graphics memory that was in the news recently. These innovations must be incorporated into the FS3 when appropriate and ignored when they would only get the project off track. Figuring out which developments to incorporate and which to ignore, well, that's half the fun of the project!

*****

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