Cinching creates more value

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Nilofer's Strategy Blog

Monday March 20, 2006

I’m always worried about the Valley companies that have too much funding, too much venture capital, too much valuation. In this day of American ‘more is better’ philosophy, you might think me contra-culture (or, worse, old-school) to even mention it. When the WSJ had an article today about VCs ‘aggressively showering start-ups with cash’, I cringed. This won’t end well, I thought.

One thing about having loads of capital is that companies and technologies aim to solve really big problems, without much tradeoffs or considerations for short-cuts. They might pursue multiple verticals instead of the ones most needing the problem solved. They might add a bunch of head-count before they know the customer has a specific problem that needs solving.

In a case where there’s too much money, the walls are really far apart and ideas take a loooonnnnnggggg time to bounce off.

Constraints add value.

When you have constraints, that’s where you’re forced to be creative. That’s where you’re squeezed to make better use of your money, your people, your time. And out of this squeeze will come better software, more satisfying solutions, and simpler focus. The truth is this: There are a million simple problems that need to be solved before you should even consider trying to solve the complex ones. Less software solves simpler problems. Let your competitors kill themselves trying to solve the big complex problems. Solving those problems are really hard, really expensive, and often with tough odds. So stay simple, create simple, and solve the things that real people need solved today

There’s another thing that constrains adds: personal self-discipline. Working for a living with real tradeoffs means that the team appreciates the bonus, the offsite, the company dinner. It’s not a drop in a bucket of endless dollars but a real investment in the team or the person. There’s something real about all that.

Categories: Creating New Markets, High-Tech Case Studies, Innovation