I am involved in a deal with Elon Musk, the founder of Paypal, who is one of the quintessential serial entrepreneurs around. He is working on his latest company, SpaceX, to take on the aerospace industry in the satellite launch business. I once asked him how Paypal won the micro-payment race when so many other efforts failed. His response was straight forward: the Paypal solution worked simply and the others didn’t. Instead of creating a massive, proprietary payment network (like ABN and the other large players tried), Paypal focused on leveraging existing payment networks and found creative ways to link those networks together. In short, Paypal delivered simplicity and invisibility and leveraged other firms’ investments and developments.
Carl Ledbetter, a partner at Utah Ventures and formerly head of Novell’s R&D labs, recently made a great speech on this topic. In short, he said that technology is not useful until it is simple and invisible. He used the example of your car. How many people spend time popping up the hood on your car in order to use? Unfortunately, most solutions have a lot of trunk popping. Carl’s son (when he was a teenager) provided him with an axiom that stuck with him: if you need to read the directions to use technology, either you are an idiot or whoever made the product/service is. (the main caveat here is that this clearly does not apply to life science, material science and other highly technical fields!).
I would argue that it is this user experience, and the genius of a solution’s simplicity, that creates competitive advantage in technology. The old cliché says that new technology needs to provide 10x better performance to curve jump incumbent solutions. While this is still true for many hardware/infrastructure plays, this is not the case with most technology. In fact, with the onset of open source, low cost hardware and outsourced resources, performance based competitive barriers are shrinking, as are technology cycles. The battle is increasingly being won around user experience, simplicity of architecture and responsiveness to market needs.
So what does this mean for entrepreneurs:
— focus on getting prototypes built quickly and into customers’ hands
— fail quickly the models/solutions that don’t work
— use blogs, chat rooms and websites to capture user feedback (and incorporate it)
— get prototypes up and running on as little capital as possible
— build “good enough” solutions and don’t over-design (think Microsoft versus Apple)
— get consumers using technology quickly. Inertia is your best barrier to entry (especially with recurring revenue solutions)
— get to break even…you never know when the next nuclear winter will hit (and you’ll obviously own more of the company).