on fire, originally uploaded by JesseBarker

The latest issue of AlwaysOn includes a great piece by Founder and Editor-in-Chief Tony Perkins, titled, “Avoiding the Bubble Blues.”  He lays out seven guiding principles of success in a bubble, and implicit aftermath, geared towards startups.  I’d sum them up as “ground yourself in reality” - watch cash, focus on customers and their experience, avoid hypesters (with their hipster clothes), etc.  These are “evergreen” advice nuggets that deserve a rehash, but what caught me was Michael Moritz’s quote within Perkins’ discussion of cash as king:

At Sequoia, we like to start raging infernos with a single match rather than with two million gallons of kerosene.

On face, it’s a simple metaphor: seed a company with a small cash infusion rather than a couple million bucks.  Pragmatic venture firms are careful about capital allocation and recognizing that a number of investments will fail, attempt to optimize appropriately.  One hopes to invest enough in a business to prove out its capacity for success, then pour more into the winners or limit one’s loss.

Actually, the analogy carries a bit further.  It’s the businesses that have a strong foundation - passionate and capable management, a compelling product or service, and a hungry market - that require only a spark (and then often careful tending with additional “sparks”) to build lasting value.  These are the platitudes of which Perkins reminds us.

Put aside funding and foundations, though.  It’s often a punctuative tactic or strategic turn that fuels a company’s growth and deserves the entrepreneur’s undivided focus.  Consider the following examples:

1) Product refinement, or the quest for the “killer app” - Starbucks operated at a small scale for years before Howard Shultz’s trip to Italy inspired a cafe concept that transcended its history as a mere bean seller.  Harmonix had been “ambling along for a decade” before they released Guitar Hero and hit it just right.  Nintendo has reinvented itself with the Wii.

2) It’s the business model, stupid - Sometimes, the winning shift isn’t as sexy as a rock-and-roll concert simulator.  I’ve seen companies completely remake their growth trajectories with a move to focus on recurring, rather than one-off, revenue.  Pricing moves are always risky, but they can pay off.  Consider Bob Parsons (of GoDaddy.com) who failed twice before a drastic price change sent sales sailing.   

3) Creative offering techniques - In the media world, we’ve seen two startups succeed recently based on innovative distribution: YouTube’s flash implementation (recognizing that viewers won’t wait for a long load) and user embeds within MySpace sent the service off like a rocket, and MyBlogLog put a face on blog readership, driving adoption with community-focused blog widgets.

These are game-changing moves and any investor will tell you it’s the entrepreneurs that iterate, and then reiterate, that generally succeed in the end.  Market winds may blow out your first match, and that’s okay.  Time to relight.