When we are mentoring startups, we often encourage them to look for analogies. What do we mean by analogies? And why are they important? There are two good reasons for finding analogies for a startup, especially a startup that hopes to be disrupt a market.
Let’s start with a reminder that the human brain acts like a sorting machine - see the link to the frame of reference blogpost below. Knowing what other companies or products your startup resembles tells potential customers what category or “frame of reference” you belong in. It also helps define your point of differentiation. That’s the first reason: to help customers understand your offering. Let me give you an example. I recently met with a startup in men’s apparel, Pistol Lake. Their CEO had some t-shirts on hangers so I could see them and feel them. I felt them and they were super soft. I asked how he would describe them. He said something like, “They are minimalist t-shirts that are more comfortable than most others.” So far, so good – we’ve got a category of minimalist t-shirts (which immediately conjured up the ever-present plain hoody or T’s, popular in tech communities) and a point of differentiation. So, I started asking myself, “How much am I willing to pay for extra comfort in a t-shirt?”
We kept talking. He got very excited when he started talking about their proprietary fabric called Eudae. First, it’s made out of recycled plastic bottles. Second, it has eucalyptus pulp embedded in it which makes it antimicrobial. That means it doesn’t smell if you sweat in it. Wow, I love the idea of comfort, eco-friendly, and non-stinky! When are they making ladies apparel?
But hold on, this sounds like a whole new category. Now, analogies of other startups pop into my mind. Rothy’s has super comfortable shoes made out of plastic water bottles. They cost $125 to $145 and they use referral links to recruit new users by offering each a $20 discount. Other apparel brands in this space (i.e. cool apparel that is an alternative to mainstream and sold primarily online) include Allbirds minimalist shoes (leverages word of mouth and social media, but no discounts and more modest price), Third Love bras (focus on guaranteed comfort), Bombas socks (high performance, premium priced socks), and even Stitch Fix clothing boxes (guaranteed to figure out what you like). Here’s the second reason: these analogies provide examples of successful and not successful strategies that other companies have used. This gives a startup ideas about product development paths, potential partners, and even different promotional strategies. Instead of making the same mistakes as others, a startup can learn from them.
Take Bombas which set out to re-engineer the sock. They made 7 improvements to the sock from materials to design to stitching. They used the “Tom’s Model” of one for you and one for someone else. They did a Kickstarter and got funded by a Shark Tank shark. It’s not hard to see all of their promotional efforts including pay-per-click ads, just Google it. You can even find their estimated revenue growth: steady growth from $1.2 million in 2014, $4.6m in 2015, and $7.5m in 2016 with an explosive jump to $46.6m in 2017 and doubled again to more than $100m in 2018. Not bad for a role model.
Thinking about novel fabrics, they could even look at the history of the W.L. Gore Company and Gore-Tex. There are many, many articles and a few books detailing how Gore got started and grew Gore-Tex into an outdoor essential. Fabric innovation is not a new thing.
More importantly, there are analogies of startups that died. You should definitely comb through Startup Graveyard, Startup Cemetery, Pitchbook’s Startup Failure list, CB Insights Startup Failure list, and even GetAutopsy. Find out what mistakes these startups made so you don’t repeat them. You won’t figure out all of your key plans from these analogies. But, you can get some good ideas about what might work and what definitely won’t. For example, we see words of caution about Zulily which started as flash sales of women’s and children’s clothing and toys. Turns out that they struggled with delayed shipping to customers and too rapid product expansion that eroded their point of differentiation. They had gone public, but got absorbed by QVC at a significantly discounted valuation. Still a success overall, but not the success everyone wanted them to be.
Recently, Fred Wilson (a VC at US Ventures) shared some thoughts about a new book (VC: An American History) comparing the VC industry to the whaling industry in the 18th and 19th centuries. The whaling industry is used as an analogy to describe how the VC industry works and makes some assertions about its future. It turns out that it’s a pretty good analogy as both provide financing to others trying to develop extraordinary profits. Fred argues that venture capitalists today are really looking for whales, not unicorns.
So, find your startup’s analogy or analogies – who are you like and how are you different? What did they do that you should? What did they do that you want to avoid? Then, be the whale looking for good fishing grounds and smooth waters.