Dancing at the Edge of Chaos
Robert Ryan, founder of Ascend Communications, refers to the constantly zigzagging changes that occur in doing a startup as “Dancing at the Edge of Chaos.”
Ascend Communications started in 1989 as an ISDN company. Unfortunately, telecos didn’t roll out ISDN as anticipated. Robert told his investors that he had good news and bad news. The bad news was that having spent most of the investor’s money, they had decided to kill further development of the current product. The good news was that they were doing a dynamic bandwidth product instead. The investors said fine, you have 60 days to get a product win.
Ascend went and talked to several possible customers. One customer was so impressed that they actually bought two units, sight unseen. The board decided that if a customer would buy a product concept, there must be a market for it, and authorized further development.
Ways of Creating Change
There are five ways of creating change at a company:
- Incremental change is the continuous evolution and improvement of your existing products.
- With speed and surprise, the objective is to appear on the market with a product line, while never having previously appeared on your competitor’s radar screen.
- Focusing on core strengths is identifying your core competencies, and adopting products and strategies that leverage them as much as possible.
- The contrarian or zebra effect, notes that you can’t distinguish slight variations in the width of the stripes from one zebra to another. But if the zebra were to have spots, you would immediately be able to identify it. When you are faced with a flood of identical products in the market, examine radically different ways of performing the same function.
- The sunflower model views the core competencies of the company as being the center of the sunflower, and the various products that can be based on these competencies, as the petals of the sunflower. For example, Honda regards itself as an engine company. All of its products such as motorcycles, automobiles, and lawn mowers, are based on engines.
Over the next three years from its founding, Ascend grew in revenues to $16 million. There was only problem, the company had gone through $20 million in the process. Revenues needed to be much higher, in order to provide an adequate return on investment.
Using the sunflower model, Ascend identified its core compentencies as being WAN ISDN and non-ISDN dialed services. While its existing products were ISDN data converter and a video box, products for ISPs were seen as a possible high growth area.
In visiting many ISPs, one of the ISPs essentially specified the product he wanted to see. Aspect returned 6 months latter with the desired product to the ISP. In turn, the ISP enthusiastically endorsed and recommended the product to all the other ISPs he knew. Aspect at the time only had 80 people, but quickly became focused on mining the gold that they had found.
Informal Advice for Startups
What are the technical barriers to entry? If many man-years have been invested in learning the art of how to make things work together, this represents a big hurdle for any competitor. Companies with a technical barrier, are superior to companies relying solely upon marketing and sales, since they have something to fall back upon should they not execute everything as planned.
There is a fine balance in a startup between trying to do too much and diluting your resources, and doing too little, and never discovering a key market opportunity.
When you look at a venture capitalist, you want someone who is in the first tier, invests in your industry, and has not invested in a competitor. It is important to be able to clearly and succinctly state what your company is about to a venture capitalist.
While the CEO is in charge of a company, he needs to be careful of how he manages the board, since they can fire him. It is a good idea to have an one-on-one meeting with each board member before bringing up a controversial subject for discussion at a board meeting.
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