In part 1, John Mullins discussed how two entrepreneurs used their unconventional mind-sets to create successful businesses. He continues…
Think narrow, not broadIn August of 2007, Brian Chesky and Joe Gebbia were struggling to come up with their rent in San Francisco. A large design conference was coming to town, and San Francisco’s hotels were booked solid. Chesky recalls: ‘We thought we could make some money if we rented out our place and turned it into a bed and breakfast. We got three airbeds and created a website called Air Bed and Breakfast. People signed up to rent the airbeds, and we cooked them breakfast every morning and acted like tour guides.’
Over the next few months, they repeated the process, targeting conferences for which San Francisco’s hotel capacity was insufficient, booking their own airbeds as well as spare rooms and couches of others they commandeered. In early 2008, the Democratic National Convention was looming in Denver, at which 100,000 people were expected to attend, putting a strain on Denver’s 30,000 hotel room supply. Perhaps this was an opportunity to turn their fledgling venture into something more.
In a stunt, Chesky and Gebbia bought 500 boxes of Cheerios, packaged as ‘Obama O’s’, and sold them at $40 per box. They packaged and sold 500 boxes of another cereal they called ‘Cap’n McCain’s’. This got Gebbia an interview on CNN. That interview, together with lots of publicity that getting a hotel room in Denver was practically impossible, began putting their still-fledgling company, Airbnb, on the map.
Today, Airbnb has more than 2 million listings in nearly 200 countries and is valued at more than $50 billion. Its founders’ narrow focus on conferences in the company’s early days had enabled it to build a beach-head and a small platform from which it could grow.
In many of today’s established companies, opportunities to serve narrow markets such as conference attendees are handily rejected. ‘Too small; won’t move the needle’ they say. But an incredibly narrow target market at the outset – one that would scarcely have ‘moved the needle’ for a larger company – has served Airbnb very well.
Problem-first, not product-first logicFar too often I hear this from aspiring entrepreneurs. ‘My new idea is to sell Product X to Customer Y.’ Not so fast. The much more important question is whether Customer Y has a compelling problem that Product X can resolve. Consider Mexico’s Simon Cohen, who in 1996, fresh out of university, was working to build up the international side of his family’s textile business. But he soon discovered a problem: the service from freight forwarding companies was uniformly poor.
After an introduction to two Germans who owned a freight forwarding business in Mexico City, Cohen began learning the freight forwarding ropes and, using his sales skills and his network, he soon secured some shipments to handle. He then proposed to the Germans to set up a joint venture in Monterrey to do what the Germans were doing in Mexico City.
From the beginning, Cohen did not strive to be the cheapest freight forwarder, but aimed to offer the best service. Providing information was key; this involved keeping customers updated on the status and location of their shipments, even if it meant he had to jump out of bed at 2 am to call his Chinese shippers, thereby getting a day’s jump on his competitors.
By solving importers’ and exporters’ problem of poor service, Cohen’s company, Henco Logistics, has become one of Mexico’s largest freight forwarders and is expanding its presence across Latin America.
As the prominent venture capital investor Vinod Khosla famously remarked: ‘To me, any big problem is a big opportunity. It’s very simple. Nobody will pay you to solve a non-problem.’
John Mullins is an associate professor of management practice at London Business School and author of The New Business Road Test: What Entrepreneurs and Investors Should Do Before Launching a Lean Start-up fifth edition 2017. His newest title is The Customer-Funded Business: Start, Finance, or Grow Your Company with Your Customers’ Cash (2014).
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