How Irresistible Entrepreneurs Beat Immovable "Inertias" to Dominate Industries | Technological Leadership Institute
When they launch their ventures, most entrepreneurs hope that the world will welcome them with open arms. Reality is often different. The world yawns and moves on, unless you are a Bill Gates, a Mark Zuckerberg, or a Steve Jobs who knows how to make sure that the world notices.
Entrepreneurs change the status quo. But the status quo does not always want to be changed, and will not change, unless the new venture offers enough benefits to overcome inertia. Unsuccessful ventures are like a pebble dropped on the surface of a solidly frozen lake. No impact. A successful venture is like a pebble dropped on a lake that creates a tidal wave. That’s what companies like Amazon.com did.
How can you be the irresistible force that moves immovable "inertias?" First understand the "inertias." Then find a way to overcome them. Easier said than done. Immovable "inertias" include the following.
Market Inertia: Customers have established habits. Most customers, both humans and organizations, especially past a certain age, like to stick to existing vendors and established practices. The benefit has to be huge for the switch to be permanent. Otherwise, the customers go back to the old. This explains why price wars usually don’t work for entrepreneurs unless they have a strategic advantage. When a brash newcomer enters the market by offering a lower price, the savvy, established company matches the new price and often doubles down until the newcomer fails. Then prices go back up again. This is one reason why Sam Walton went into small towns, in addition to the fact that he knew this market from his business experience. When he opened big stores in small towns, his main competitors were small merchants who were no match for him. Walmart could offer more convenience, better prices, and more variety than the small merchants. After he monopolized small-town America, Walton then focused his arsenal on urban America and beat Kmart and Target for the crown.
Supplier Inertia: Suppliers may sell to newcomers but don’t often give them the best service. Suppliers may also demand upfront cash payments. So rather than being able to pay suppliers with extended terms, and using this capital to fund your startup, you may not even get regular industry terms until you establish your business. This means you need to raise even more money, which is difficult at the start. When Dick Schulze started Best Buy, he obtained extended terms from his vendors because he had a great relationship with them due to his previous job as a sales rep for some of them. By combining this inventory financing with fixed asset leasing, Schulze was able to expand without VC.
Industry Inertia: Existing competitors won’t exactly welcome you with open arms. On the other hand, they will immediately attack you and make sure you don’t make a dent in their market share. You need to jump on an emerging trend to get an advantage against established competitors, which is the strategy used by Bezos against his bookseller rivals to build Amazon.com . Or you can be an enabler to dominate like Gates. Bill Gates sold operating systems to PC manufacturers after licensing the operating system to IBM. With IBM making it the industry standard, the others lined up to license from him. When an industry is taking off, find out how you can place yourself in the center of the flame to control the emerging industry.
Employee Inertia: As a new employer, you are not exactly a prize catch except maybe in Silicon Valley. In the rest of the country, you need to find the best employees without the means to pay them more. This means that you have to find a variety of ways to attract the ones you want. This can mean profit sharing, more responsibility, and career growth. Bob Kierlin built Fastenal by promoting from within. He recruited bright young college graduates, trained them, incentivized them, and promoted the best and the brightest from within. With an investment of $31,000 and no other capital, he was able to build the largest fastener company in the U.S.
Financier Inertia: Financiers may be the most immovable of the immovable inertia. Experienced ones have seen and heard every idea and story, and are often jaded. What gets them is evidence of excellence, i.e. Aha. Mark Zuckerberg did not get angel capital until he was attracting hundreds of thousands of new users, and did not get VC until he was well established as the leader of the linking world. VCs did not need to hear promises of his venture’s potential. They could see proof.
MY TAKE: To bridge the gap between startup hopes and startup reality, you need to learn how to overcome inertia in all aspects of your business and bend them to your will. That’s what makes entrepreneurs great. This is covered in my forthcoming book, Finance Secrets of Billion-Dollar Entrepreneurs.
To bridge the gap between startup hopes and startup reality, you need to learn how to overcome inertia in all aspects of your business and bend them to your will.