Don't Be A One-Trick Startup Pony
When I’m approached by startups that have a business model that I identify as a “one-trick startup pony”, I go on a crusade to try to course correct their business.
One-trick startup ponies are businesses that have a “value proposition” they will be beat on due to the superficial nature of its differentiator. Consumers are increasingly becoming uninterested in the 99-cent store style of business where the experience is purely transactional (atleast these are not the brands consumers stick with for the long term anymore). If low prices are one of your business’ notable features, you better be a Trader Joe’s type of low-priced business where you’ll never find an unfriendly cashier at any of your stores and your cookie butter has a cult following.
Customers expect way more than just a transaction now when they buy. They expect great customer service, efficiency, and consistency (a great personality is a bonus) or they’ll take their business to the many other competitors out there that can serve them better.
Here are the most common characteristics of a one-trick startup pony and why your one trick won’t last you very long.
“We Have The Lowest Prices”
A race to the bottom is a horrible race to compete in, where even the winners lose. Whether you’re the lead of the race or just a competitor, everyone involved in a pricing war will slash their profit margins till they break even, or even worse, lose money.
Not to mention, the journey to slashing profits comes with sacrifices such as product quality, employee quality, and degrades your company to the point that no one is happy to buy from you, work with you, or work for you.
There are plenty of successful businesses that entrepreneurs look up to when dreaming up this type of business. Amazon is a big one. Although it looks like it from the outside, in truth, Amazon’s value proposition is actually not low prices. Their core value proposition is market dominance. They use low prices as a tool, but their ultimate play is dominating the sandboxes they play in — Amazon controls almost 50% of the US e-commerce market and has been a large contributor in completely obliterating the existence of physical book stores and toy stores.
If your low pricing is an asset for your company, make sure that it’s a piece of a bigger puzzle. A business model that only rides on low prices will eventually be beat by a competitor with even lower prices, and if your customer is only loyal to you because of your prices, their loyalty will flip as soon as you don’t have the best prices. Build your business so that you have another trick up your sleeve for when that day arrives.
If your business is truly first-to-market and makes a splash, get ready for a flood of competitors. First-to-market businesses only have a short amount of time before their success catches the attention of newcomers. Once competitors start flooding in, first-to-market businesses have to grasp as much market share as possible while responding to the efforts of their new competitors (thinking back to Uber and Lyft’s back and forth spar in its early years gives me a headache). Being first-to-market is incredibly stressful because of this dual responsibility. In the end, being first-to-market is short-lived, and your business has to shine for another reason.
Since “first-to-market” is a temporary badge of honor, build your business as if it already has competitors. Make sure that the business you build will always hold some kind of competitive advantage in a high-competition market.
“We Have The Most Products”
Building a business strictly under the value proposition of providing the most products under a product category or industry has no legs.
We now live in an e-commerce world where any product is available to us in a matter of clicks — accessibility issues are no longer a big issue for shoppers. Therefore, a business that is built on resolving an accessibility issue is addressing a consumer problem that no longer exists.
If you’re running a quantity-focused business, you need to give shoppers another reason why they’re walking through your doors. Maybe you’re a curator with standards that people respect (REI), maybe you create your own unique line of products that shoppers can’t get anywhere else (Trader Joe’s), or maybe you give incredible makeovers that also teach shoppers how to apply their makeup (Sephora).
Whatever that reason is, your quantity-focus should be an additional feature rather than the focal feature.