Positioning – The High Order Bit
In computer science, the high order bit is the binary bit with the greatest value. In technology company strategy, the high order bit is positioning. A CEO can create or destroy more shareholder value through positioning than through any other management lever.
Positioning a company means deciding how you want prospects to think about your company – what business problem do you solve? As a venture capitalist, this was my favorite question for startup CEOs. Nine out of ten CEOs fail this question by talking about their product and what it does:
- We’ve developed the most scalable Java application server
- We provide LED lighting systems with software controls
- We created the first social network for doctors
They leave it to customers (and investors) to figure out how their technology might relate to a customer with a problem and a budget. Unfortunately they also burn millions of dollars on a trial-and-error approach to getting market traction.
There’s a better way.
The best positioning is based on a serious and expensive problem. If you convince customers that you have a solution, you’re going to get a meeting even before they know anything about your new technology.
- We lower transaction costs for web commerce businesses by integrating web orders with back end systems
- We reduce the cost of commercial building lighting by an average of 30 percent with a 9 month payback
- We help doctors solve unusual medical problems by giving them access to a community of peers
If I were to create a new business, I’d use most of my seed funding to find a problem I could solve with new technology, in a market big enough to support a large company. I’d spend time talking to prospects to understand how they describe the problem, the economic benefits of solving the problem, and how much they could afford for a reliable solution. Unfortunately, most startups start writing code and building prototypes in the hope they can create something that a few pilot customers will fall for.
I learned the hard way as the CEO of Novera Software. Before I joined the company its team had build the first J2EE compliant application server with a built-in LDAP directory and an object-to-relational data mapping utility. Who wouldn’t want that? The Home Depot had paid $1M for an unlimited right to use license. The problem was who else to sell it to? It took me 6 months of talking to customers, engineers, analysts and investors to find a problem we could solve. During this time, I was unable to raise money or hire badly needed sales and marketing executives.
Then came the positioning breakthrough.
I was interviewing an IBM sales executive who wanted to join Novera. I asked how he thought about our product. He said it offered a way to integrate e-commerce applications with back-end systems – he called this web application integration. As soon as he said this I knew we had our positioning. Within the next quarter we were oversubscribed for a Series C financing, hired strong Sales and Services executives, and noticed strategic buyers showing up for our webinars. Nine months later we were acquired for 20X revenues.
I’ve often imagined a shareholder value meter that allowed you to gauge shareholder value based on company positioning. The same company with the same product would be positioned one way and register $1B in shareholder value, or another way and not move the shareholder value needle. If only it were that easy.
Follow Dave on Twitter: @WDavidPower