“When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.”
Alexander Graham Bell
As an entrepreneur, you continually test your decisions by gaining feedback: from your customers and your investors (or lack thereof). This process of ongoing feedback is how an entrepreneur learns to shape their opportunity to accommodate their new knowledge of the environment. But this activity is very dependent on the “world view framework” of the entrepreneur. What may seem to be important turns out to be noise and important signals are dismissed. This article describes the special value for an entrepreneur of frameworks grounded in theory in general and the value of the framework of business ecosystems from two perspectives: as a member of a business ecosystem and as a creator of a business ecosystem. These two perspectives fundamentally affected the direction of adaption for our product and reshaped how we approached our (ad)venture.
A story allows the author to rationalize decisions based on hindsight. For a story told by an entrepreneur, this might be a fair tradeoff given that they make many of their decisions in an environment of high uncertainty (McMullen, 2006). This is my story.
Freshly unemployed and lacking the foresight to take a pre-emptive vacation, my first partner and I rapidly churned through many mashups of old and emerging technologies connected to the nascent wave of connecting data and people to location and objects. Without any hot prospects for early and meaningful revenue, my partner departed to enjoy the practical reality of a salaried position. Continuing to move forward with a new partner, what soon emerged was a product that we coined "Social Signage". I would soon learn that our process was as a classic case of technologists working hard to find the right problem to fit a solution.
The Before Picture
Despite our best efforts, it was not a pretty picture. Through volunteer labour, applied research students from Algonquin College, the Ontario Self-Employment Benefit Program (OSEB), and dogged perseverance, we had finally achieved a major milestone: the installation of our first digital screen in a café. The euphoria of this moment quickly passed and we faced the cold reality shared by many of our fellow entrepreneurs starting up in a downturn: we would starve before this would turn into anything meaningful. Our barrier was that our customer value scaled with the size of our network. So, as a small network, without the capital to subsidize early adopters, it was going to be very tough. This I would subsequently learn was entirely predictable from Metcalfe's law.
Despite the best intentions and support from many programs, we were stuck. We were not lost, we knew exactly where we stood, but it was obvious that our chances of survival were slim, given the barriers we faced to move forward in the metaphorical jungle.
Opportunity and Serendipity
Quite fortunately, but not entirely fortuitously, there was a timely confluence of learning and practical necessity. In parallel to this seemingly Brownian motion of creative activity, a continuous thread of more formal entrepreneurship education was already well underway. The initiation of this thread had already taken place months before with acceptance into the freshly re-minted Lead to Win program. Like all roads leading to Rome, several months later I found myself enrolled at Carleton University in the Technology Innovation Management (TIM) Master’s program.
Attracted to the TIM program for highly pragmatic reasons, I was soon introduced to, and became totally absorbed in, the theories of technology management, business ecosystems, and multi-sided platforms. Elements of this journey can be seen in my archive of OSBR submissions. There were two very practical aspects of this learning: one was the concept of business ecosystems as described by Dr. Tony Bailetti (2010) in the OSBR. But the other was the value to an entrepreneur of conceptual frameworks based on academic theory, rather than popular literature including management fads and entrepreneurial best practices.
As Carlile and Christensen (2005) explain: "The external validity of a theory is the extent to which a relationship that was observed between phenomena and outcomes in one context can be trusted to apply in different contexts as well." Therefore, a conceptual framework based on theory was more powerful to us than our working hypothesis that was, for all practical purposes, derived from anecdotal evidence. Viewing our situation through a lens grounded in theory helped us clearly see the nature of the barriers we faced. We were like the blind men from a well-known parable finally agreeing that what we were dealing with was actually an elephant. Once we knew it was an elephant, we could make better decisions.
What I did not anticipate was the effect of internalizing the framework of business ecosystems and the principles of multi-sided platforms. This enabled a true paradigm shift. By looking through this lens, the world suddenly becomes very different to an entrepreneur. A new path to reach critical mass for our venture emerged. Being able to reframe the product opportunity in terms of an environment structured as a multi-sided platform allowed us to abandon our traditional standalone, push business model and embrace a pull model where the the barriers of money and resources no longer stood directly in our path. This was very exciting to discover and gave us new confidence and hope.
There is of course another aspect to business ecosystems, or collectives, and this relates to the value to an entrepreneur of belonging to such a collective. Being a member of a collective such as Lead to Win or the Carleton Entrepreneurs (see Bailetti's article in the April issue of the OSBR) simply lowers the risk and makes it less expensive (or more profitable) for an entrepreneur to compete or collaborate with the incumbent. It does this by making it easier to access expertise, increasing the stakes for cooperation, and leveraging the stronger brand of the collective. This concept of operating inside or outside a business collective is an interesting extension of the classic framework of Gans and Stern (2002), where they describe a framework that links business strategy for a technology entrepreneur to that of the commercialization environment for their opportunity.
There are several points to take away from this experience:
A mental model of the business environment not only frames your opportunity and therefore the design of your business model, but it changes how you observe and discriminate the signals that come from the market.
A model based on theory is likely more robust and plausibly extensible to your context, which as a startup will by definition have some element of novelty.
Framing the environment through the lens of a multi-sided platform gives the entrepreneur new possibilities for their venture to break free of the constraints of a standalone push model. This is huge for a bootstrapping entrepreneur.
Reframing from a traditional standalone, push model to a multi-sided platform, pull model can be very challenging for individuals who have historically found success in the traditional model and have not yet internalized the principles of a business ecosystem.
It is lower risk and less expensive for an entrepreneur to start a venture as a member of a business ecosystem. The entrepreneur can take advantage of the resources and diverse perspectives of members inside the ecosystem. More and different opportunities emerge for growth and revenue generation. As a collective, the brand of the ecosystem is generally more powerful and valuable than that of a barely nascent firm.
The After Picture
For our company, Cornerportal, this was transformative on two levels. We had found confidence based on an understanding of our position in the marketplace and a possible path for our success. Success was by no means guaranteed, but we had a better sense of what direction we could take and make progress with the limited resources at hand. This, in a sense, kept us in the game. This, in turn, gave us the time to rediscover the environment through the new lens of multi-sided platforms and complete our transformation to a pull model of business development.
But even with a transformation of our business model, things were still not right. Although we were able to define a better business model for our opportunity, it was not powerful or compelling enough to gain any real momentum. Or put another way, we still struggled to justify continuing to invest our personal resources into the project. It was time for a serious review.
We challenged ourselves to look at the environment with new eyes and to question all previously held beliefs. This allowed us to jettison what we thought was the cornerstone of our product and value proposition: the on-premises digital screen. We discovered it was an artifact of our journey and where we thought our core value was rooted. Through this process, we uncovered a previously missed opportunity and what has now become our primary focus. It was particularly upsetting was that we had earlier in our journey dismissed key elements of the approach that we were now embracing.
But again and in retrospect, this was perhaps not entirely surprising. The emergence of the new approach was again connected to parallel learning in coordination of deal processes for business ecosystems (see Ayukawa, 2011). Fundamental to this work was the notion of coordination through shared objects (Bailetti et al., 1994). Adding this model to our thinking helped not just identify the new opportunity but also to bring clarity to the potential scope of this opportunity. This in turn allowed us to obtain early-stage funding in a remarkably efficient process.
There are a few points to make from this experience:
A change in mental model or framework of the environment can make what seems old, new again. Forcing a change in your mental model may be the first step to find a new direction.
Take this as an opportunity to challenge closely held beliefs and what you believe to be core to your business. You may be surprised at what you discover.
Stay in the game if you can. Never give up. Opportunities come to those still in the game.
Our New "Stikky" Product
We expect to release our new product, "Stikky", in May 2011 via the Apple Appstore. Stikky will make it easy for any ad hoc group of individuals who, through a specific shared context, find it valuable to contribute content or sentiments. Or put another way, we make it easy and productive for people who might not otherwise connect, to share their perspectives about something they care about. All from their mobile device.
The difference is the practical focus or filter that comes with the context of the shared object, be it a common objective, an experience, or a passion. The value of this service now becomes intrinsically linked to the value of the shared object from either a practical or emotional perspective. One additional outcome from such a highly contextual timeline of contributions is a rich storyline that would otherwise be difficult to assemble after the fact.
In a powerful way, this also solves the scaling problem of how to productively extend the reach of your functional personal and professional network without the noise associated with a large, but unstructured network. In fact, people do not have to share personal contact information, since the connection is made through the shared object. There is no need to “be friends” or be “LinkedIn” to make this happen.
What makes this particularly exciting is the potential diversity of applications. For example:
Imagine being able to capture your child’s sentiments over time and easily attach them to their favourite stuffed animal or toy. No syncing, no file folders, no shared drives.
Imagine your ad hoc group who came together to help reduce vandalism in the neighbourhood. Observations and snapshots can be easily captured and shared, together with location, to create a visual map of activity. No logging in, no email lists, no wasted time.
Imagine being able to easily visualize the connections (or lack thereof) between the players that have played a role in a fragmented but interdependent project. No special project software, no data merging, no waiting for reports.
As entrepreneurs, we have to hope that we will make better choices and learn more rapidly than our competitors. Entrepreneurs who are members of a business ecosystem have a strategic advantage due to their network of trusted relationships and affiliation to the whole. It simply has lower risk, is less expensive, and has a higher probability of success. For Cornerportal, this is the business ecosystem of Lead to Win.
The framework of a business collective can be transformative to an entrepreneur's view of the environment and the options they have to overcome the traditional barriers presented by a push model of commercialization. Looking at the environment through such a lens can be difficult for those who have not internalized the theory and have historically found success in the traditional approach. For Cornerportal, this was the result of formal course studies in the TIM program at Carleton University.
Startup companies that have access to, and a meaningful engagement with, the resources from academic institutions have an advantage based on exposure to theoretically supported frameworks that can help them discern signal from the noise and thus better accommodate the high degree of uncertainty that is part of being an entrepreneur. For Cornerportal, these are the academic resources of the TIM program.