There always seems to be a bit of confusion on what a startup (or any company actually) should focus on most. Some people think it is about building the best product, being first at market, having the best product/market fit, exploiting weaknesses of competitors, creating new market segments, solving a real problem, commercializing better than the competition, making your customers happy, raising the right amount of funding at the right time, building the best team for the job or simply having fun and enjoying what you’re doing. While those are all important goals to achieve,
The most important goal any startup needs to achieve is to create shareholder value.
Definition of Shareholder Value:
Shareholder value is a business term […], which implies that the ultimate measure of a company’s success is the extent to which it enriches shareholders.
Source: https://en.wikipedia.org/wiki/Shareholder_value
CREATING SHAREHOLDER VALUE
So why is creating shareholder value the most important thing a startup should focus on?
First and foremost, any startup founder is also the shareholder of the company. In the beginning of every startup’s journey, the initial co-founders usually hold the largest share of the startup company. Thus, they have a vested interest in creating value for themselves by increasing their startup’s valuation.
Once their startup has raised some funding, they must now also take their investor’s interest into account. While I believe, there should always be some kind of synergy between the startup’s founders and their investors – may it be in personality, vision or admiration of each other – it must be absolutely clear that every investor’s goal is to generate profits from their investment. Though, investors know they’re investing into high-risk companies, they know 9 out of 10 startups fail, they probably wrote off their investment the day they invested, yet they believe in the founders and in their team to turn their vision of the future into reality and commercial success.
Therefore, it is not just the goal, but also an obligation to the startup to create shareholder value. It is even in the startup’s co-founders’ best interest to do so.
HOW TO CREATE SHAREHOLDER VALUE
Those other goals mentioned above are all very important to create shareholder value. While it might not be possible to achieve all of those goals, they do definitely play a big role in turning your startup into a success. Let’s have a quick look how they all relate to the common goal.
Building The Best Product – allows you to get a competitive edge over other players in the market. Thus, it leads to higher retention rates, lower churn rates and in turn to the overall satisfaction of your customers. Or like Apple’s Steve Jobs put it: “Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.”
Being First At Market – might not always be possible, but should definitely be part of your goals. At Swapit for example, we know that we are not the first marketplace for pre-loved items globally. However, we are the first ones in our home market Hong Kong and we are the first ones to address the growing on-demand culture through our unique hyper-local approach of bringing buyers and sellers of pre-loved goods together in real-time.
Having The Best Product/Market Fit – is absolutely required to turn your product or service into a success. “Product/market fit means being in a good market with a product that can satisfy that market.” said Marc Andreessen quite a while ago. If you’re not the first at market, you still have the chance to have the better product for your target audience (compared to your competitors) and therefore, be able to have a better product/market fit for your target market. If there is no product/market fit, you won’t succeed. Period.
(Believe me. I’ve been there. Done that. It’s not a nice place to be. So better get this right!)
Exploiting Weaknesses Of Competitors – is always possible. Seriously, always! Sometimes during pitch competitions I hear some of other fellow startup founders saying, they are the only ones doing what they’re doing and there is “no competition”. That is quite frankly, wrong. They either didn’t do their job in figuring out their competition or they just don’t want to tell that there’s someone out there who already has a product in-market. Anyhow, there are always competitors – and that’s what makes this world so interesting actually – and they do usually have a product that is similar to your own. However, by analyzing your competitors and identifying their weaknesses, you create opportunities for your own venture to leap-frog ahead of the competition. The great thing about existing competitors with an existing product is, they’ve already built it and have most likely their roadmap nailed down for the foreseeable future. Thus, their flexibility is rather limited and you have the chance to outsmart them with a better product rather quickly. At Swapit for example, we are the first ones to launch the world’s first multi-location trade of pre-loved items and there is much more to come!
Creating New Market Segments – is also a rather rare opportunity that might arise for a company from time to time. A great example is the tablet market today. Microsoft identified the market potential for tablets in the early 2000’s and in 2002 the first vendors released “Tablet PCs” according to Microsoft’s specifications. Yet, it wasn’t a success due to many reasons. A whopping 8 years later on April 3rd, 2010, Apple launched their first iPad and practically re-created a new market segment for tablets worth billions of dollars world-wide. They had done so with their iPod MP3 player before as well as with their iPhone. Creating new market segments doesn’t necessarily mean you have to be the first to create it, you just got to be the best at it. Over the past 20 years since its almost bankruptcy in 1997, Apple has created probably the largest increase in shareholder value in history so far.
Solving A Real Problem – is essential to every startup. If you’re not building a product or a service that solves a real issue people have today, you’re not providing any value to your customers. If you’re not providing any value to your customers, it is rather unlikely they will pay for your product or service. If you are however, solving their real-world problem and you are the only one doing that, or even better you’re the best one doing it, then your customers will be happy to pay you for that. Remember what Steve Jobs said earlier?
Commercializing Better Than The Competition – is the key to long-term success. Many startup folks might disagree with me here, but to me this is absolutely important. Even in the early days, it is important to keep this in mind and build a roadmap that leads to perfect commercialization. In the end, every company is here to generate revenue and an attractive profit margin. That’s what you will be measured by sooner or later. At Swapit, while still being in public beta, we have already introduced Premium Services (featuring/highlighting items, premium categories, more photos) that go on top of our free offering. While our current premium services are available free of charge, we make it very clear to our users that we will be charging for those eventually.
Making Your Customers Happy – is the first step to being able to commercialize on your product or service. Happy customers who get more value out of your product than they are paying for it, will continue to pay for it. It’s really that simple. This plays back into “creating the best product” part mentioned above.
Raising The Right Amount Of Funding At The Right Time – is something really hard to achieve, because it’s not really just up to you. There is your expectation of what kind of funding you need, there is the expectation of your potential investors in terms of how much they’d like to invest, what they get in return and what the product they invest in, turns into. Some investors are more hands-off others more hands-on and that’s both fine. It really depends on your startup’s situation and what you need to move forward. However, to grow your startup and create shareholder value, you need sufficient funds at hand to achieve that. That’s why right after announcing our funding round from Aria Ventures, we jumped straight into talking to additional investors.
Building The Best Team For The Job – is of course important. You need to have the right people in place to make sure you can make your vision come true. However, in one of my previous articles, I mentioned that Building A Business Means Every Team Member Is Replaceable. I do still absolutely believe in that. Hong Kong is a vibrant city, employer-loyalty is not so popular and many especially younger folks like to seek “new challenges” elsewhere after a while. That’s what they say, but they usually mean, they’d like to get paid more. That’s not always possible for startups. But it’s not just about folks leaving, there is also the possibility of team members having an accident, unexpected deceases, family urgency, or something else. In that case, you got to be prepared to carry on. It is important, you can keep your startup at the edge of innovation and be able to delight your customers with constant advancements – no matter what your internal situation looks like.
Simply Having Fun and Enjoying What You’re Doing – is not that popular in the Asian work culture, I believe. I only have to take a look at offices of local companies in Hong Kong. Endless rows of cubicles with robots doing their work day-in day-out 9am-6pm and all collectively going to lunch at 1pm sharp. You definitely won’t enjoy the elevator ride then. I believe it is important to create a work environment where people feel comfortable working at. The best case scenario you want to achieve is: folks come to work and don’t really treat it as work, but as a place where they feel “at home” with a strong emphasis on being able to create something outstanding that will change the world.
HOW SWAPIT CREATES SHAREHOLDER VALUE
We at Swapit believe, we can change the world. Change the way people trade pre-loved goods in densely populated areas. We are on-demand facilitators; we’re real-time; we’re hyper-local; we believe people without cars and without the need for shipping parcels can trade easily; we believe this saves fuel & costs; we believe encouraging the trade of pre-loved goods will eventually lead in less perfectly fine products being thrown away and therefore in less production of waste; we believe this will make our users happy; we believe many of our users will become paying customers because they get great value from our service; we know we have the best product and we are absolutely certain we will create outstanding shareholder value.
We might be foolish, we might be idealistic, we might be opportunistic, we might actually be crazy, but we are definitely passionate and almost religiously fanatic about Swapit.
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