I always see start-ups trembling whenever a big company like Safaricom or Nation Media Group launch a product within the area which they operate in. Take for example start-up X within industry A which I have been working with to help them launch a new system. At a certain point I told them that Safaricom has some sort of system similar to what they are doing. When they heard that , they all froze. For a second I was like what the hell has just happened here. Then it hit me that the fear that they will fail if Safaricom is already in the space or trying to get into the space is real
We have seen and heard the above scenario with many start-ups in Kenya. The outcry is usually too loud especially if Safaricom is involved. Some go to the extent of accusing Safaricom of stealing their ideas. Today I want to discuss why the start-ups should not be afraid of the big companies trying to encroach within what they consider their personal spaces.
To start with let me assume that you all have heard that Nairobi News is folding after just a few months. Yes, it is folding and the current issue would be the last. R.I.P. When it was launched, those start-ups within the entertainment sector got scared. And for a good reason, I must say. Backed by a big budget from Nation Media Group, the roll out was unique and spectacular. They used digital, print, radio and tv platforms to create awareness about it. But less than seven months down the line, the following statement announced its death
Little advertising and slow sales growth at a time of rising costs made Nairobi News survival impossible.
The following are three lessons that Start-ups should learn from this:
- Horizontal Integration Vs Vertical Integration
When big company like NMG or Safaricom see some good ideas, within a certain industry they always long to be part of it and own it, after all the capital is not the problem. What they usually forget to do is to lay the foundation for the success. This is how it usually go, get the developers to work on a new competing system, with the emphasis of it being better than what they see. Then pour good money out there to launch it and to do the initial PR /marketing. The problem here is, the new product becomes part of the horizontal line of many products within the company. At this point, some people within the company are tasked to run the new product. Given the fact that these people already have some products to look after, they have to split their time between the old and the new product. For example Nation Media Group did not hire new people to run the new product. They used the same people within the company who are already busy doing some other things to run Nairobi News. This is where the horizontal integration mostly go wrong for most companies
Let us now compare that to start-up like Ghafla or Niaje which has dedicated team to run the business. The team sole responsibility is to ensure the success of the product they are working on. It is possible that they think about the same thing and try to improve it 24/7. It is easy for the Start-up using vertical integration method to get ahead of the big companies. It is the reason why some of the global companies like Facebook, Google, and Yahoo don’t try to compete with the start-ups but usually acquire them. When you acquire start-up, it comes with the initial team behind it, to continue with the vision and the work they had already started. Taking this route means the company eliminates the time needed for the research and development and on top of that gets a dedicated team to run the product within the company.
There are usually two reasons to acquire a start-up…One to own the new and exciting product and two to acquire the talents behind the product. Some companies do it only for the talents and end up killing the start-up or the product after the acquisition. I must say that I hate those who acquire start-ups and then kill them but that is a story for another day.
- You can copy the idea but not Passion
For those who want to do business you will always hear people telling you to work on something you are passionate about. The main point is that even during the hard times, you would be able to continue doing it. At the level where NMG is, the main focus is to make money and not to rely on passion. So if the money is not coming in as expected, then they have no time for the product.
In the world of start-ups, it is not uncommon to hear stories of people going for a year or more without a single coin in terms of revenue from the business they are running. What keep them through such hard time, is the passion they have for the product they are working on. NGM and others like them cannot even think about such a situation. Well, may be one or two people within the company might be ready to wait but when you bring in the shareholders equation, then it becomes a different ball game. So if you are running a start-up out there, just know that there are those small things within the industry that you can cope up with but the giants cannot. I say hold it there.
3. Nature and the definition of a start-up
The other thing to put into consideration is the nature of start-ups. By the nature and the definition, a start-up is a new company designed to search for a repeatable and scalable business model. The key word there is search, and when things are not going well, there is that option of changing the direction. I guess you can see right there that NMG was not going to experiment with Nairobi News and then change the direction.