With all the hype about the advantages of small company size in recent years, does growing big really mean failures to your company?

Bill Taylor, cofounder of Fast Company, just wrote a great article on the relationship between size and success on his Practically Radical blog. He recently did an interview with Jack Welch, the legendary former CEO of General Electric. And one of the themes of their conversation was about company size.

While Jack agrees the disadvantages of big institutions, like waste and bureaucracy, he still believes managers and entrepreneurs should want their companies to get bigger. He said:

For one thing, it’s evidence that you’re winning in the marketplace. For another, it gives you the opportunity to bring in more people, which gives you access to more talent, which allows you to tap into more ideas, which you can then spread more widely – and start winning all over again.

In this talent age, which companies don’t want to get more brain power? But for many companies, managing talent is the hardest part. How can a company scale without suffering the costs of size? Jack has an answer for us:

“I want to be big, but then run the company like it’s the corner grocery store.”

Obviously, this sounds easier said than done. And some people even argue that GE was never run like a corner shop either. But that doesn’t mean it is unachievable.

In fact, there are many new companies which are BIG and SUCCESSFUL in the past decade. For example, Google, Amazon, Apple, Netflix, Salesforce, VistaPrint, Research In Motion, Zappos…etc. All these companies were started by a small team of people. But right now, they have thousands of workers, great corporate culture and tremendous success.

After all, IF you have the management skills and leadership to make your company remain quick, responsive, and flexible, why stay small? (Assuming you have an ambitious goal).

Don’t be remain small just because people think you are cool.

Start small. Grow big but remain agile.

In the future posts, I will dig into different strategies that help growing companies to become smarter and remain quick, responsive, and flexible.

Photo source: januszbc @Flickr

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At a time that many people building safe businesses and not enough startups trying to change the world, are we, as entrepreneurs, still supposed to dream big? Should we build a company that will go public someday? Or should an exciting startup define success on a $170 million exits?

While I am happy for Aaron Patzer, the founder of Mint.com, the world has just lost the Steve Jobs/Bill Gates/Scott Cook of this generation because of this acquisition. Many young entrepreneurs have to find another role models to look up to now.

Growing a company from a startup to IPO sometimes requires more than ability and knowledge. It also takes a strong will for an entrepreneur to want to build a lasting company. I am sure there are entrepreneurs somewhere building the next big things right now. And I hope this “Startup to IPO” blog post series (Part 1, 2, 3, 4) can inspire them to keep fighting for their dreams.

In this last post, we will look at how these four elite companies (Vistaprint, Rackspace, OpenTable, Salesforce.com) differentiate and market themselves when they just got started.

Pursue Customers that Competitors Hate

In the printing industry, companies usually hate to work with small business customers because of the low printing volume and low profit margin. They rather go after big companies which spend large amounts of money on printing. Yet VistaPrint had a different strategy. Their founder, Robert Keane, once said:

Our experience gave us confidence that there was a market with micro businesses. Other companies did not want to pursue them. Everyone else thought it was a horrible market. We happened to be in the right spot at the right time.

In order to achieve this goal, they have developed technology to automate desktop publishing and manufacturing so that they can sell products at low quantities and superior prices. However, there were another problem. Another reason their competitors hated the micro businesses market was because these customers are not easy to get to. VistaPrint solved the problem through direct marketing but in an unusual way. They gave their products away for free to generate buzz. According to Robert,

That became a runaway success. At the time, full-color business cards were selling online for $85 and $200-$300 at traditional printers. We gave them away free with a $5 shipping and handling fee. That offer was so successful in getting people to try us that it became an acquisition engine that drove our business. Our business model got to scale very quickly.

This free sample offer also built up the credibility of the company. So the customers will buy other things when they come back for the second time.

Do your company and competitors ignore a portion of potential customers now? In fact, even President Obama targeted a tribe (young people, minorities and the poor) that were usually ignored by traditional candidates during his presidential campaign. If you want to be successful in a crowded market, you have to be creative and do something very different from your competitors. Love the customers your competitors hate. They may just be the ones who help your company grow to the next level.

Must-Have Business

During tough times, if your company was a must-have business for your customers, I am sure your company will do pretty well. OpenTable happens to be that kind of business. Like AdWords and regular affiliate programs, OpenTable’s customers only have to pay for results providing an extraordinary lead-generation marketing tools for restaurants. Like one of their customers said:

OpenTable.com has given us new ways to understand who our guests are, and what they want. Their system is helping us utilize the Internet to communicate more easily with consumers, and makes it easier to cater to the desires of our regulars…52% of the reservations that OpenTable.com delivers to us are first-time visitors to the restaurant, which means that OpenTable.com is bringing us significant numbers of new customers, as well as giving our regulars an easy and efficient way to visit us.”

Their system revolutionized the way that restaurants are managed and marketed, and add depth to the way that they welcome and communicate with their guests. OpenTable allows their customers to see who is eating at the restaurant at any given moment. So the restaurants can treat some guests like regulars. Oftentimes, their reservation system is indispensable to the diner, too. Like a restaurant owner said:

Next to the name of one regular, who has a habit of bringing in women he is not married to, is an instruction to make sure the man’s wife has not booked a separate table for the same day…Of another, who takes many of his first dates to Town Hall, the instructions read, “Do not treat like a regular!”

The bottom line: is your product a pain killer (got to have it) or a Vitamin (nice to have)? If you could create values to your customers during downturn, your company will be in a great position to continue to outpace the competition after the bad times.

Specialize in Just One Thing

When asked the key to success for Rackspace to become the fastest-growing managed hosting company, Pat Condon, the cofounder, believes their customers have chosen Rackspace because of their sharp focus.

We specialize in just one thing – managed hosting. We’re focused exclusively on managed hosting with Fanatical Support, and as a result we’re very good at it. Think about it this way: If you needed to have brain surgery, what kind of doctor would you choose? A general practitioner or a brain surgeon? I’d know I’d choose a brain surgeon – a brain specialist.

Moreover, combining this focus with their Fanatical Support, they have created a brand with tremendous value. Whenever potential customers hear about Rackspace, they will have a positive impression of the company. In fact, 60% of their new business comes from referral showing their existing customers are fully satisfied with their services.

For Rackspace, some of their most effective marketing actually came from serving their customers fanatically every day. It’s no surprise that their customer turnover rate is one of the lowest in their industry. Their customers not only stay with Rackspace but also purchase more from them as well. According to Pat,

Our customer base grows organically every month, month-over-month. What this means is that even if we didn’t sell anything to new customers, our existing customer base would keep purchasing additional servers from us. This has caused the Rackspace business to grow at a fairly rapid pace and it is something of which we’re extremely proud.

Rackspace has proven that the most effective marketing strategy sometimes just doesn’t cost you that much. How do your customers feel about your company? Do they have a positive impression of your business now? Do they recommend your services to others? If you want to find out these answers, creating a customer development survey probably can help you get started.

Strong Relationship with the Media

Salesforce.com, on the other hand, uses a totally different approach in marketing. They do marketing on the cheap through public relations and creating buzz. The company has a reputation of being able to work the media very well, especially for the founder, Marc Benioff. He is very outspoken and not afraid to take on their giant competitors like Microsoft, SAP and Oracle. He once said:

Relationships with the media are really important. The media has a more important voice today than it has ever had. We don’t advertise. We only have one marketing vehicle, which is editorial, and our ability to get our message out and communicate it effectively.

Besides disparaging large competitors as dinosaurs, 20th century fossils and monopolists, Salesforce.com is very good at guerrilla marketing as well. They once hired actors to stage mock protest rallies outside a competitor’s conferences, which brought tremendous attention to their company. The reason of doing that? Like Marc said:

In both good times and bad, people are always eager to hear about challenges to the status quo.

After all, does your company have a position in the market? Are you trying to be all things to all people? Find the customers who share your vision and stop blindly follow your competitors in the industry.

Conclusion

After this post series, we have heard consistently that their leaders have defined success on a very big scale. And it seems they are all using similar but actually different approaches to achieve their success. So stop looking for the silver bullet now. There are million ways to scale your business rapidly. Find your dream and fight for it till the end (hopefully).

I would like to end this series with a quote by another highly successfully entrepreneur, Glenn Kelman, the founder of Plumtree and Redfin:

If first-timers don’t create public companies, nobody will.

“Telling young entrepreneurs that they’re not ready to be a Jedi yet, just because they’re young” is simply wrong. Fight on to victory!

Photo source: nickwheeleroz @Flickr

Part 1: Leadership & Vision
Part 2: Obstacles
Part 3: Growth
Part 4: Differentiation & Marketing

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Today’s business environment is extremely competitive, especially on the web. Simply building a good product, a strong brand or great distribution won’t guarantee your company success. You also have to do some or all of these things better than your competitors.

After looking at the leadership and obstacles of these four elite “Startup to IPO” companies (Vistaprint, Rackspace, OpenTable, Salesforce.com), we are going to learn about their growth strategies which helped them to outgrow their competitors.

Viral Programs & Product Expansion

Vistaprint realized early on that if they want to success in a crowded market like online printing, they needed to do something different from their competitors. In 1999, they decided to use viral marketing to attract new customers. The company came up with the idea of free business cards. Customers can order 250 full-color business cards for free for unlimited time. The only cost for the customers is the $5 shipping and handling fee.

Of course, this strategy gave them runaway success. Seriously, how many companies do not want free business cards? Vistaprint knew that if they could have enough volume, giving cards away should not be that expensive. Up until now, the company has already printed over 4 billion cards for this offer. This single viral program has drove their amazing growth from 1999 to 2003.

To get a sense of just how quickly Vistaprint scale up in the early days, you have to see their actual revenue numbers provided by the founder:

In FY2001, which was June 2001, we had $6.1 million in revenues and 25 employees. In FY2002 we did $16.9 million and we had 50 employees. In FY2003 we did $35.4 million, in FY2004 we did $58.8 million, and FY2005 was $90.9 million. The following year we did $152 million and in 2007 we did $256 million. The growth has maintained as we did $401 million in FY2008. Our current guidance to Wall Street for FY2009 is $504 million to $510 million.

And then in 2004, the company started going well beyond the business cards area and into all things related to small business marketing, which includes apparel, pens, magnets, brochures, presentation folders, logo design, graphic design, web sites design and even email marketing. This broad product expansion has fueled their extraordinary growth from 2006 to 2009, from $152 to $510 million in revenue. To ensure the high quality of their new products, the company is spending over $50 million on technology development this year, which is about 10% of their revenues.

Not to Become a M&A Company

Oftentimes, large companies will consider using M&A (mergers and acquisitions) to increase market share, broaden product offerings, enter new markets, or even expand into new distribution channels. For a company like Vistaprint with $400 million revenue, even in a deep recession, they are obviously in a strong position to fuel its growth by deal making. Yet Robert Kean looks at M&A from a different point of view:

Very skeptically. We do look at it, and we have looked at many opportunities…We are not opposed to acquisitions, but we have to be very selective… If there is a win-win opportunity we will take it. We never say never. VistaPrint for a very long time will be an organic growth story…

Rather than looking for innovation outside, Robert prefers internal new products development. For example, when the company decided to go into the software-as-a-service business providing email marketing solutions, they has chosen to develop the product, Vistaprint Email Marketing, themselves despite the fact that they can easily acquire iContact or ConstantContact.

Think about your company now. Are you looking for long-term organic growth or short-term profitable opportunities? Do you have the confident to do a marketing campaign on a very large scale, like Vistaprint’s “free business cards” offer? If your company is not growing anymore, is it the right time to expand your core business to a much wider variety of businesses? Today Vistaprint has over 1,600 employees worldwide, growing from 25 people in 2001. I bet you can learn something from their success.

Customized Solutions

Like Vistaprint, Rackspace also found that following industry norms may not be the best way to do business. Many hosting companies saw themselves as commodity and technology companies. Yet Rackspace believes every customer is unique and has different business objectives. In order to met those goals, Rackspace is writing custom Service Level Agreements (SLAs) for their customers to guarantee their quality of their services. Their co-founder, Patrick Condon, explained:

We’re beginning to work with customers to identify the specific business outcome or business process a customer is trying to fulfill with their Web infrastructure. We then work with them to write an SLA around this business process versus just the infrastructure portion of hosting. I think this is a dramatic shift from how hosting companies have guaranteed quality of service in the past. Customers need customized solutions developed specifically for their businesses. I think the way the industry is moving is more towards a service based model where the technology and specific hardware components become less relevant.

Discipline to Achieve True Profit

In previous post, we mentioned about Rackspace has developed a principle of achieving “true profit“. It turns out that the same strategy has helped the company achieve significant growth.

For example, in 2003, Rackspace launched a low-cost hosting service for very small Web sites. Within months, this new unit was growing faster than the parent, generating $600,000 a month in new revenue and $150,000 in cash flow. Sounds very promising, right? How many entrepreneurs will question about such a fast growing service? Even so, its CEO was not pleased with the new unit:

“Thinking in terms of true profit quickly illuminates a problem within a business. We could see that we were wasting money.”

He found that the marketing costs to bring in new clients were very high and customers could easily switch to cheaper service provided by competitors. In other words, the new service was delivering a minimal return on its capital. Still, for normal companies, it is hard to correct such a huge mistake because, at one point, this new unit was generating $7 million, or nearly 10% of the company’s total revenue of $77 million, in its first year in business. However, due to their strict financial discipline, Rackspace sold the moneymaking unit for $7 million eventually.

Rackspace’s revenue has increased its revenue from $139 million to $532 million since 2005. As you can tell, focusing on true profit has helped Rackspace to avoid businesses that are wasting their resources and pay attention to areas that are generating real growth. In your company, do you have any units that are giving you minimal return on its capital? If yes, can you relocate those resources to some other promising opportunities? For a startup, inefficient allocation of resources could kill your business. Do a due diligence on your business and find out the truth now.

Making Your Customers Success

Sometimes the best growth strategies are so simple and obvious that most people overlook them. In 2005, Salesforce.com’s revenues has grown 77% and paying subscribers has increased from 267,000 to 308,000. When asked about the reasons for the company’s continued success, Marc Benioff, the founder, simply replied:

The No. 1 reason we’re successful is our customers are successful. Before Salesforce.com, you were expected to fail with enterprise software. Salesforce.com is the first company and product that companies loved and users wanted to use.

Who does not know that business has to provide products that customers want? However, in the web industry, companies always fall into the trap of ignoring their customers because of their focus on fancy technology. Apparently, Salesforce.com did not make this mistake given that their customer turnover rate has been less than 1% per month. This amazing loyalty from the customers did not surprise Marc at all. He explained:

“We aren’t changing our playbook here: we work to make our customers successful. Success is the biggest predictor of loyalty.”

Think Big

Again, achieving growth sometimes does not need complex strategies. Wondering how a $5.3 billion company like Salesforce motivates itself to do better? It is as simple as thinking big. Marc never worries about competition as he believes the sky is the limit for his company. He once said:

“If there wasn’t any competition, I’d be very worried, because it would mean we were not doing very well. When you have a company like Salesforce, that’s now one of the top 40 software companies in the world, and we’re shooting to become one of the top 24, which means more than $1 billion in revenue…”

For Marc, status quo is not acceptable. He always looks for growth opportunities. In 2009, Salesforce has achieved his goal of generating more than $1 billion in revenue. How about your company? What is your next goal? Have you took the time to make your customers success? Or you just want to make a profit from them?

Next time, we will talk about the ways these four companies differentiate themselves in this crowded market.

Photo source: Guille. @Flickr

Part 1: Leadership & Vision
Part 2: Obstacles
Part 3: Growth
Part 4: Differentiation & Marketing

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Our team was so obsessed with the philanthropic model created by Marc Benioff at Salesforce.com. So we have decided that this blog should have a bigger mission than helping others to grow their businesses. As entrepreneurs, we want to help someone similar to us, who are willing to take risk and believe they can change the world. That is why we think Kiva is our perfect match.

Kiva is the world’s first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs around the globe. According to Kiva, the people you see on the site are real individuals in need of funding – not marketing material. For example, Mrs. Tagoeva lives in the Varzob district. She is divorced and has 9 children. So she is requesting a loan in order to purchase livestock to support her children and she still needs $350 more to get the loan she requested. If you want to help, Kiva allows you to lend as little as $25 to help entrepreneurs like Mrs. Tagoeva and as they repay the loan, you get your money back.

If you want to learn more, 37signals has written an excellent post about this wonderful service.

We have just created a Lending Team at Kiva for people who understand the sufferings that every entrepreneurs have to go through and believe entrepreneurs need to have a mission that is bigger than making a profit.

If you join our lending team, we can work together to alleviate poverty. Web technologies have empowered people moving ideas at unprecedented scale. So we believe the power of philanthropy is scalable, too. Please join us to help some of the world’s best and toughest entrepreneurs. Yes, we can change the world now, $25 at a time.

Photo source: jup3nep @Flickr

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Just saw this interesting video from Seth’s Blog. It reminds us that every movement was started by one person or a small group of people.

When we are busy doing our day-to-day operation works, it is easy for us to forget about this fact. Every big organizations started small. We always feel amazing when a web site or startup obtains huge traffic in a short period of time. We feel disappointed when we see a different result in our own companies. A lot of startups will give up at that point.

Think about the first few members of Twitter, the early adopters of Digg or the beta users of YouTube. These web sites were far from perfect when they first launched. Yet they found a way to capture those supporters and gradually built from there.

Momentum is the key. Don’t let your fear to control you. Keep finding ways to improve your company. When you have acquired enough followers or reached the tipping point, no one will remember you once was a small tiny startup.

(oh yes, the first guy just freaks me out when I saw the video…)

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Have you seen this excellent animated explanation before? It is made by an educational videos production company, called “Common Craft“, based in Seattle, Washington.

In the very beginning, this company started making custom videos for companies like Google, Ford, LinkedIn and Twitter. Due to their quality works, their instructional videos, which usually paid in five figures, have generated a lot of buzz on the web. Had they continue to make videos for private clients, their business should still be doing alright.

Custom Videos vs Generic Educational Videos

But their founders saw a different picture. They believe producing custom videos is too labor intensive and difficult to scale. Similar to doctors, dentists and lawyers, when these professionals are working on a project, they just can’t take care of other potential clients at the same time unless hiring more people. Common Craft wants to remain small and still able to grow. So they changed their business model to solely focus on making educational videos for educators and corporate trainers. They have built a library of educational videos to help their customers to explain complex subjects. In this way, one particular video can be sold to different customers again and again.

So what can we learn from this story? Does your business or product allow you to scale? When you realize that scaling becomes an issue, do you have the gut to change the direction of your company in a timely manner? Your business may be doing OK right now but don’t forget to review the scalability of your business from time to time. This decision may help your business to become the leader in your field.

Video source: Common Craft

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Imagine that Facebook only has 100 members who don’t know each other, don’t have any common friends and don’t go to the same school. Or Twitter is only used by 50 random people who don’t have any common interests and none of them are celebrities. Will these sites still be so valuable as they are now?

So what makes them so special today? Their users. A tremendous amount of users. Without them, Twitter is only a page with a text box and an update button. Generating 20M unique visitors per month? Impossible.

However, people always underestimate the way scale can change the game.

In this blog post, Chris Anderson, editor-in-chief of Wired Magazine and the author of the famous book The Long Tail, talked about why Sergey Brin, co-founder of Google, didn’t believe that Wikipedia could work. Just like no one ever thought that FMyLife could be a hit. Because in the real physical world, most people do not tend to contribute. The contribution rate is just so low. Therefore, it’s very difficult for people to understand why people answer questions on Yahoo Answers, why people broadcast TV channels on Justin.tv, or why people work on Open Source projects.

Like Chris Anderson said, more is different. The Internet enable you to run a business under an extremely low response or participation rates. Wikipedia becomes a top 10 web site by the contribution of 75,000 active members, which is 0.01% of their user base.

If you want your business to reach customers at the largest scale, it’s only possible to do it on the Internet because it gives you near-zero marginal costs, zero-cost distribution method and zero-cost marketing.

Entrepreneurs always love to say they can make a fortune if they can get 1% of the market share in a huge population, like China. It seems that they finally are able to do so. And the fastest and only possible way will be using the Internet which works best at a huge scale.

Do you know any other sites that rely on a small fraction of their users to contribute? Let us know in the comment area.

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