Founder and CEO, TechInventio
Prashant is the founder of TechInventio. A... more>>
The chicken or the egg situation is defined from the expression "which came first, the chicken or the egg?"
I am the founder of TechInventio, (www.techinventio.com), a three year old startup firm which provides End-to-End Product Development solutions to global end-user businesses. We are headquartered at Bangalore with a branch sales office in Netherlands.
Since day-one, the biggest problem we faced is solving the sequence problem: should we first create a solutions offering with delivery capability for a particular technology and then start marketing it or should it be the other way around, or should we run it in parallel or should we market a concept and if there is enough interest show by prospective customers turn the concept into reality? To an outsider these might not look like a big problem.
However, in my experience, the implementation of these strategies is filled with pitfalls. There are also judgment-calls which an entrepreneur needs to take: Which marketing strategy should be applied for the given scenario? I will describe couple of "chicken and egg" situations which I have encountered along with the sequence of events undertaken to solve them, with varying degrees of successes.
We faced our first situation even before we started. Should we first generate a small amount of business while working at our existing corporate jobs and then take a plunge when there was sufficient money to come in full-time or do we just jump out of our corporate jobs and work full-time in our startups. Also any investor would like to see some proof-of-concept of the product/solution & this is generally manifested in terms of beta customers who are willing to pay for the services. So the options now are: creating service delivery or getting beta customers or funding or quitting our existing jobs to make all this into a reality. This is a major issue which every entrepreneur faces.
It took us almost 2 years to get out of this situation. We used to discuss what solution or product, market segment, technology, etc. After almost 2 years of brainstorming amongst ourselves, we were still not able to come to any conclusion. In this instance, it was pure guts which were instrumental in getting out of this situation. I quit my corporate job with absolutely nothing in place; we did not even have a business plan to start with.
After registering our company "TechInventio", we stared the process of defining our solutions, technology and product capabilities and parallely we started to look around for our first few talented employees. Also potential clients were contacted with the assurance of delivering promised solutions.
It was literally pure guts that had solved the first instance of the "chicken and egg" situation.
REPOSTIONING, BOOTSTRAPPING & BUSINESS PARTNERING
We started off by renting a small office with three talented resources. As we started our company in 2009, prime time of global economic recession, markets were tough and we were desperately looking out for projects. We built a small delivery capability & aggressively bid for projects. We got in touch with all our contacts and most of them were software companies in the bid to check if they could offload some of their client projects, but only to hear that they did not have any requirements. We also aggressively responded to a lot of RFPs (Request for Proposals) from new leads but it was indeed difficult getting any business.
The "chicken and egg" situation was less pronounced in this case. But, it still loomed over occasionally. We did have the required expertise to deliver projects, but we could only assure promises in our proposals and we could deliver the project only if we won the contract. Clients wanted to see our track record before they awarded us projects & we needed client projects in order to build our track record. Things were getting really tight and also there was the added pressure of utilization of our resources.
I have been a member of the TiE (The Indus Entrepreneurs) since several years and one day a by chance interaction with one of the chartered members (a famous and well established entrepreneur) helped us to reposition our delivery capability and marketing strategy. He suggested that instead of just approaching software companies to get outsourced work, we should also directly approach end user businesses (Manufacturing, Retail, Travel, Pharma etc.) and develop industry solutions expertise.
He also suggested, rather than just looking out for profitable projects which were hard to come by because of our lack in track record, we should go and acquire atleast couple of clients to demonstrate our capabilities; even if it was at a loss for some period of time. This was trying to come out of the typical "chicken and egg situation" which I call it as bootstrapping.
We took these suggestions seriously and re-positioned our delivery capability and marketing strategy and were able to gain some traction with a niche entertainment company which was into live show production and providing online & offline tickets booking for theatre & performing arts. This gave us a good client reference and credible track record while talking to other prospective clients. From then on, we did "replication marketing" & were able to land two more clients and these projects turned out to be profitable for us.
One of the other marketing strategies is to partner with prospective technology companies who are looking to expand their scope of solutions and services and do not want to invest into the technology expansion, they like to expand by partnering with other technology companies.
In the course of our three year journey we tried partnering with quite a few companies but there was really not much to talk about in terms of projects and cash-in flow. But since past 6 months we hit upon a good business partnership with a company from Netherlands through our hard work and efforts. They operated in a different technology space and wanted to expand their technology solutions and were on the lookout for companies having product development expertise in India. Both we & the Netherlands Company felt that there was certain degree of synergy if we partnered. They felt that they could better engage with their clients if they had an alliance partner who could execute their projects in the product development space. For us, it was like a win-win situation, they would help drive our technology and product development expertise and bring in overseas business to us through their customer engagements. In other words they would frontend both our solutions & marketing strategy.
Currently, as of today, we are in the middle of healthy business partnership and we together are already working on few projects but it remains to be seen how far and successful this relationship will be.
On encountering a "chicken and egg" situation, a startup has at minimum, the following six strategies:
1. Make a little, sell a little: In this strategy, service creation is done in tandem with service marketing. This can be used when the shape & color of the desired service delivery or desired service marketing is unknown.
2. Penetration marketing: In penetration marketing, a low price is offered in order to gain a large market share & maximize revenues. This is used when there is intense competition, undifferentiated service & demand is price.
3. Concept Selling: In this strategy, one approaches prospective clients & offers them services which are not yet fully developed. Once a client has been acquired, the idea is to go all-out & create the service & live up to the promise. But if done improperly, the following, there can be enormous barriers to creation of the promised service, which can land the firm in a big soup.
4. Repositioning: Offer solutions which are lower or better than the originally intended service. For this strategy to be feasible, the firm will need to have direct access to the targeted clients.
5. Bootstrapping: This strategy involves acquiring a client to demonstrate a proven service delivery & service marketing capability which provides good financial return. This gives an entry point into the market & at the same time helps you to generate capital which in turn helps to run the company and allowing one to internally refining the service delivery.
6. Business Partnering: This can be realized by either partnering with a relatively more established player with the same technology base but having a different target market (so that there is no conflict of interest) or they are into a different technology space and look to partner with companies to expand their solutions..
Most of what I have stated in this article can be described as common sense. But, common sense is better invoked when one has a ready checklist of options and a clear framework. Also I am not trying to arrive at any conclusion to completely solve the chicken and egg situation. Business situations of startups are not very simple and clear in nature & hence do not lend themselves to a framework type solutions process. In a way, Im trying to arrive at a set of business patterns which could possibly help overcome few of the elusive "chicken and egg" situations that a technology startup faces. After systematically identifying the variables the decision makers can choose one appropriate strategy and its consequences before actually implementing it. Needless to say, none of these strategies is a bullet-proof one & will need other enabling strategies such as creating a sustainable competitive advantage, world-class delivery standards, operational excellence, solution differentiation etc. Obviously more study & real-life data is needed to refine what has been described in this article into a usable model.
One might be frustrated by my frequent use of the phrase, "chicken and egg", but, that is exactly the point; it is this situation which ties up the hands of the entrepreneur. Only the decision makers of a startup know the many forms in which this situation surfaces and each time in a new context and causes a great deal of anguish.
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