The next billion-dollar markets
David Thomson, an intense former technology executive and management consultant, has spent the past three years figuring out exactly what it takes for a startup company to reach that magic revenue threshold of a billion dollars. He lays out his findings in a new book called Blueprint to a Billion (for more information, see blueprinttoabillion.com).
After interviewing dozens of executives at billion-dollar firms, Thomson boiled down their management practices to what he calls the Seven Essentials.
The key: Each Blueprint company operated in a market big enough and fast growing enough to support at least one billion-dollar firm. Thomson doesn’t tell you how to find that killer idea, although he does suggest where the next set of billion-dollar opportunities in the U.S. might lie. Among his answers: Our increasingly harried society is likely to embrace any time-saving product or service. A bet on QLess, perhaps? On 1ofthese’s ability to save buyers and sellers time matching with each other? Or on the faster search experience provided by Whozat or REPcloud? Or on the faster marketing answers provided by PREPROVE?
Some of the essentials identified by Thomson are strategic: Create a killer value proposition. Some are operational: Manage for positive cash flow from the start. And some involve leadership: Hire a second-in-command who can take care of the day-to-day while you think big picture. (ab inventio is hiring! COO candidates invited to apply.)
It has long been a business school staple that successful companies sell emotional benefits, not just products. (QLess can extend your productive life by 2-3 years) Yet few entrepreneurs can explain why their business proposition is any better than the competition’s. Not so with our Blueprint companies.
Most Blueprint companies operate in markets large enough to accommodate several new billion-dollar businesses.
In their early days Blueprint companies attracted what Thomson calls a “marquee customer,” whose high profile and reputation opened doors to new markets. Landing that whale requires more than just salesmanship, however: The trick is to find one who effectively takes you on as a partner to help transform your organization. Says Thomson: “You need to find a client who is willing to take risks and innovate with you on your journey.” A customer like Fox or Korn Ferry?
Thomson found that Blueprint companies tend to finance their early growth from operations (the classic example is eBay, which was profitable from nearly its first day in business). There are exceptions, notably in industries such as biotech and telecommunications that require large upfront capital investments to get a business off the ground. But most Blueprint companies are the exact opposite of all those tech startups that flamed out back in the bubble days. “The customers finance the business,” says VC McNamee. “There are just too many people who believe that the path to success is, Get a pile of press, then get a pile of venture capital money, and then get a pile of customers. That’s exactly backwards.“
Corollary: Blueprint companies get extraordinary value from their boards. Most startups populate their boards with insiders or with investors who want to keep an eye on their money. But because Blueprint companies tend to finance their own growth, they are able to stack their boards with successful CEOs and industry experts who offer deep experience and contacts, help bring in business, and give shrewd advice.
Summarized from an article on CNN Money by Richard McGill Murphy.