Building a successful business that survives the 5-year failure window is very difficult.
However, a lot of entrepreneurs believe they have really great business ideas that they must protect at all costs.
They believe that anyone who stumbles on this pile of gold will become the world's next billionaire.
Unfortunately, entrepreneurs are terrible at realistically sizing up their business idea or opportunity.
In this article, I wanted to talk about 6 key factors entrepreneurs must consider that make a massively successful business.
Here's a checklist you can use on your business idea to decide whether it has legs, or not.
Note: This article was heavily inspired by the book, Blitzscaling, by Reid Hoffman and Chris Yeh.
Large market size
One of the most important and the most basic factors one must consider when choosing a business is the market size.
Depending on what entrepreneur you listen to, you're going to get different answers as to whether a small market is better, or a large market is better.
A large market, as Reid describes it, isn't only a market with a lot of potential customers - it's also a market that has a plethora of available channels for reaching your customers.
He further argues that if your market is the whole world, ironically, there are no effective or efficient ways of marketing to everyone on the planet.
When I was building Condensr, we had a massive market - entrepreneurs.
Entrepreneurs accounted for almost 600 million, around 0.075% of the whole world's population.
Although the product was by no means a high-ticket product, the market size for it was massive, making it attractive to many investors whom I had the chance to speak to.
What's even more attractive, almost irresistible, is when the market is currently growing rapidly.
Sometimes entrepreneurs think too narrow - they may have a great business idea, large market, but forget to account for all the other markets they can eventually expand to.
Jeff Bezos, for example, started Amazon with a massive vision - to sell everything.
However, everyone starts from humble beginnings including Jeff Bezos.
Bezos started Amazon by strictly selling books, giving Amazon the slogan, 'The largest book store in the world.'
Although this caused some issues with jealous competitors, today, Jeff's vision is almost fulfilled.
Being the largest retailer in the world, Amazon covers the widest range of products available anywhere.
Not only did he start in a big market - books, but he also expanded into every other market thereafter.
The NFT space is a rapidly growing industry at the moment.
With millions of people making the switch to digital, the NFT space will continue to grow, and perhaps, become the new standard for the internet.
Not only do NFTs leverage Web3, but you can also expand into different industries thereafter.
Competition, or no competition?
Another really important factor to consider when building a massive business, or any business for that matter, is the competitive landscape.
Whilst competition isn't a huge problem in general, it can mean different things in different, unique situations.
For example, if you're looking to build a semi-big business, reaching around 7-figures, max, competition is great.
At this stage, competition offers you a roadmap for what to do, and what not to do.
There are a ton of businesses in your industry who have come before you, and you're able to use their success as stepping stones to your own success.
However, when we want to 'blitzscale' as Reid likes to call it, competition can be detrimental to our success.
When Brian Chesky started building Airbnb, there were no prior examples of businesses in this market that indicated whether there's an opportunity or not.
Brian could have raised millions and spent years building a business that never succeeded
However, if you're able to miraculously break past that initial barrier, don't stop now, the competition will be quick to follow along.
As soon as news is made public that there's a new, disruptive business in town, teams will be scrambling to claim their piece of the pie.
This is where it's important to focus on growing the business and letting the competition grow theirs.
I don't know about you, but I am not looking to build the next Airbnb, or the next Amazon.
In order to build an 8-9 figure business, you don't need to worry about this issue.
You're free to choose a big market, with or without competition, and carve your own future.
The competition is an added layer of security, reassuring you that there's a big opportunity up for grabs, but keeping you on your feet at all times.
Many entrepreneurs start businesses as quickly as possible, leaving everything that comes down the line for later thought.
Although this is a good strategy to ensure you start and make some progress, it's not a good strategy when it comes to making important business decisions.
One of the most overlooked decisions that entrepreneurs fail to express early on is the scalability decision.
Different businesses have different infrastructure and processes, and each one comes with its own ups and downs.
Let's discuss the two most broad ends of the spectrum - digital product businesses and physical product businesses.
Digital product businesses are essentially SaaS/software businesses - these are amazing for scalability because creating a digital product once usually gives you the ability to sell it infinitely.
SaaS businesses are much easier to scale because it's a lot easier to meet high demands, when it's time to serve a larger influx of customers.
As a SaaS business grows exponentially, they don't need to worry as much about where the supply of the product might be coming from.
Better yet, the fact that no extra supply should be ordered allows SaaS businesses to scale much more freely because they don't need to worry about costs skyrocketing along with their growth curve.
However, where SaaS products lack, is not on the supply-side, but on the labor-side.
Most SaaS businesses, especially high-ticket SaaS businesses that depend on finding larger clients to feed the pipeline, face a strain on the sales side of things.
As a SaaS business scales, it'll need to hire more and more salespeople to keep up with the business's growth.
Add on the fact that more and more engineers will also have to be hired, the numbers quickly build-up, and it can be difficult to meet the demand for staff.
Physical product businesses are almost the exact opposite.
While the problem is more likely on meeting the demand side by increasing available supply, staffing limitations are less common.
As an eCommerce business owner, your biggest issue is ensuring you always have products to match the ever-expanding demand curve for your products.
This can be detrimental to your business' success.
To ensure you're able to build a massively successful business, you need to be aware of any scalability issues you might face down the road, and figure out how to tackle them early on.
The reason my most recent project, Hawk Prospecting, failed was due to a scalability issue.
You can read all about it along with the lessons that experience taught me here.
The margins of a business are something many new-found entrepreneurs overlook all the time.
Most people simply pick an idea, maybe look at the market size and competition, but completely dismiss the gross margins.
Gross margins, which refers to the figure a business is left with after subtracting the overall cost of goods sold (COGS) from the overall sales value, is a great indicator of how successful a company could be.
The higher the gross margins, the more a business can aggressively afford to throw into marketing, product, and business expansion.
Software and SaaS businesses, in general, have much higher gross margins than physical product businesses.
As we've discussed, to run a software product, the csot of serving 100 customers isn't much different from the cost to serve 1000 customers.
While there are server costs involved, or even API costs (which can stack up), innovative services like amazon AWS make it extremely cheap to run software businesses on Amazon's servers.
On the topic of Amazon AWS, a lot of people speculate that this business is the reason Amazon's main business, the retail side, is able to grow so big.
The high margins of over 60% give Amazon AWS a massive advantage, as it doesn't cost Amazon a whole bunch to keep their servers running.
Another extremely high gross margin business is Google.
Google is said to hold over 90% of the search engine marketplace making it, essentially, one of the biggest monopolies in the world.
Google has a gross margin of around 60%, giving it a massive advantage to aggressively expand its business by spending capital on different parts of the business.
Compare this to something like an eCommerce business that has 20-40% gross margins (at close to full capacity), starting a software business is definitely the key to rapid business growth.
This, by no means, concludes that you can't build massively successful eCommerce businesses - you can.
But if you want to scale extremely fast by constantly reinvesting profits, your chances are better with a SaaS/software business.
There's a common belief shared throughout the entrepreneurial world where individuals believe that a good product is always a great solution for bad marketing.
The product itself has a far smaller bearing on the success of a business than people make it out to be.
Now by no means should you go out and build terrible products, but a mediocre product has a much better chance of stealing the spotlight than a badly marketed, yet good product.
A good product is rarely ever the answer to a lack of distribution.
Going back to the first point on market size, we discussed how market size also refers to having multiple channels of reaching your ideal audience.
In his book, Blitzscaling, Reid refers to two major distribution methods that all billion-dollar (plus) companies leverage in order to grow rapidly.
Although there are more, he argues that startups often don't have the necessary resources to exploit things like paid advertising.
The two distribution methods Reid suggests you follow are:
- Existing networks
Some of the biggest, most successful companies in their industries were built solely off other networks.
Anker Technology, one of the biggest eCommerce companies, started by selling on Amazon.
Right around the time Amazon FBA was in the works (early 2009), Steven Yang's wife decided to dropship products on Amazon.
Her husband, then a Google employee, decided to help her build a system to easily manage and automate the whole process.
Within a month of the system being implemented, Steven Yang said in an interview, his wife started fulfilling 300 orders a day.
2 years later, Steven decided to quit Google, travel to China, and officially establish the company that solely focuses on USB charging.
Today, Anker is a multi-billion dollar company, selling a wide range of products - all of this started because Steven's wife decided to leverage Amazon's growing network to build their business.
On the software side of things, there are a ton of these examples.
App stores, like Google Playstore or Apple's app store, help app developers launch mobile applications - Candy Crush, Clash Of Clans, and Flappy Bird being amongst some of the biggest.
Shopify, the eCommerce platform, has enabled developers to build tools to help merchants run their stores more seamlessly, allowing some businesses like Privy to grow rapidly and get acquired for millions.
Likely the most effective growth method is viral marketing.
Viral marketing is one of three growth engines, and the cheapest yet most effective one of the three.
In it's early days, Facebook would strategically decide to launch in different campuses - they wouldn't decide to move onto another campus until a certain percentage of the campus were demanding for Facebook to launch in their campus.
Mark saw this as an amazing opportunity to launch, grab as many users as possible, and further build the virality of the platform.
TikTok, a more recent example, has grown very quickly by leveraging viral marketing too.
When one person watches an interesting video on TikTok, they share it with their friends, who then repeat the process.
Virality is a cheap and effective strategy which is why a ton of new businesses leverage it for growth.
If your business idea is able to leverage any one of these two distribution methods, you could be onto something big.
As the usage of the wide web becomes more and more adopted all around the world, the power of the network effect grows ever more powerful.
Billions of people around the world are all interconnected through the power of the internet and technology like our smartphones.
The issue, however, is that most entrepreneurs don't fully understand what the network effect is.
Simply put, a network effect is when one user's usage of a product/service increases the value of that product/service for other users.
It's that simple.
There are 5 main network effects that Reid highlights in his book:
- Direct network effects
- Indirect network effects
- Two-sided network effects
- Local network effects
- Compatability & standard
I'll give you the chance to grab the book, Blitzscaling, and delve into the lessons yourself.
The reason network effects are so effective for growing massively successful businesses, is the fact that each user added to the product or service leads to explosive, exponential growth down the line.
Think about it like this. Each user brings on another 3 users, which bring on another 3 users, and so on.
This is the primary reason companies like TikTok are able to add millions of additional users to their platform per month.
The problem, however, is that to build a successful business on network effects, your product or service will need to reach a 'minimum breakthrough velocity', which is essentially a minimum number of users needed to make the platform useful for other users.
Shopify's app marketplace, for example, would not be attractive to developers if there were only a few hundred users.
However, with over 1 million stores, there's a massive opportunity for developers to build a product and monetize it through Shopify, which in turn, leads to more entrepreneurs opening businesses on Shopify, growing the platform bigger and bigger.
This is exactly how businesses like Fiverr work, and it's the reason they're so big!
Those were the 6 key factors that make a massively successful business. Does your business idea tick off these boxes?
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