Starting From Assets Dooms Business Models From The Outset

2022-09-24 original Startups

I’d like to focus on just this one contrast between the two.

First, let me say this up front: “technology-driven approaches rarely turn out well.” This isn’t limited to technology alone—“business models that start from assets” tend to fail, or at least face serious difficulty, right from the start. This claim runs counter to a lot of conventional management theory, so let me explain.

Compare business to hunting. It’s like a situation where a team works together to catch a deer that flees quickly.

If you start from the market—that is, if you take an approach that follows the situation—you can consider the best means from many angles: where the deer tends to appear, what time of day, whether it moves in a herd, what weapon suits that, whether you have home-field advantage, and so on.

Now suppose you end up missing that first deer. You review what went wrong and what went well, and based on that you think about the next move. This is a pivot.

Starting from assets means the “weapon to finish the job” is already fixed. Say, for instance, you chose a throwing spear. At first glance that doesn’t seem like a bad choice. Your team has a spear-throwing expert, and it has good range.

But you fail with the first deer. Throwing always requires a preparatory motion—draw back, then swing—and the deer will always notice during that motion. Hitting a running, fleeing deer with a thrown spear is an extremely difficult feat, even for an expert.

So what do you do? Everyone starts throwing out opinions: “Maybe we should drive it into a cave,” “What about setting up a net and surrounding the area?”, “How about a trap aimed at its legs?” and so on. Then the spear expert says, “Wait a minute. Think properly about how to finish it off with my spear. In other words, how do we stop the deer from moving?” ”…(if we could stop it from moving, we wouldn’t need the spear anyway)“—the mood in the room turns awkward.

Having a fixed “finishing move” like this can be very reliable depending on the situation, but in most cases it just becomes a shackle.

Everyone is probably familiar with the concept of “fixed assets.” When you purchase expensive equipment, for instance, you register it and record depreciation as a loss each year according to the legally defined useful life. Its book value gradually diminishes over time until eventually it reaches the end of its use and is disposed of.

Assets decay.

Technology is the same. Some technologies fade with the times, and others become unnecessary. So everyone can immediately understand that clinging to past legacy narrows your field of view when thinking things through. But even if you look toward the future rather than just the past, it’s extremely difficult to deploy a specific technology at exactly the right time and place. Achieving that balance within a single project is extremely difficult. That’s why many companies separate pure-research R&D departments from applied research and product development departments.

Technology can be the decisive factor that differentiates you from competitors. For a startup, it can also be an important factor when thinking through an exit plan. But when you compare technology and market, the target market rarely changes much within a plan—I won’t say it’s fixed, but it’s close—whereas the more options you keep open for which technology to adopt, the more your chances of winning increase.

In other words, the correct planning process doesn’t start from assets—technical capability, patents, brand strength. It starts by considering a wide range of business possibilities from the market, and only then adopts the plan where the assets seem likely to be put to good use.

Make the effort to push the question of “how to make it happen” as far back as possible. “Effort” really is the right word here.

Inevitably, especially if you’re an engineer, the moment an idea comes up, the implementation methods and required technologies race through your head. This can be done, this can’t, this needs new development, this can reuse that existing technology—everything gets sorted out and a conclusion is reached in an instant. But what percentage chance is there that this conclusion is completely correct? Are there factors you’ve overlooked? Are there options you unconsciously discarded somewhere in that thought process?

Bringing a discussion of methods down to the level of a planning idea like this tends, in most cases, to lead you astray.

The content of this post is an excerpt (original text) from the following book. If you’re interested, please pick up a copy.

The Shape of a Happy IoT Startup

Originally published in Japanese at https://clazytech.com/2022/09/1209/. Translated with LLM assistance and reviewed before publication.