Just a few years ago, the notion of how to create a New Economy business was turned on its head. Suddenly, you were supposed to enter a market before you had finished surveying the competitive landscape, confidently identified the right opportunity, and crafted a compelling strategy; all of that would have to occur once your business was up and running.
"You have to act;you can't afford to think about it," proponents claimed. Even after the collapse of hundreds of start-ups and the meltdown of the Nasdaq index, we would hear colleagues and clients alike affirm their belief in speed--albeit with less vehemence.
Is such advice always sound? Are there times when moving with extreme speed amounts to dangerous risk taking? If so, how does an entrepreneur balance thebenefits and risks of moving fast? While these are questions for all strategists and business builders, the Internet's sheer volume of start-ups, embodying every conceivable business model, makes that medium a logical place to seek answers.
We studied 80 Internet companies, including business-to-consumer companies, business-to-business companies and infrastructure providers. We sought todetermine the speed with which each of them built its business--and the outcome. Many other factors affect the growth of a new company, so it is hard to pinpoint the effect of speed. Nonetheless, it quickly became clear that moving fast at the expense of developing a solid business plan and gathering the right resources rarely paid off. Speed gave an advantage to 10 percent of the companies studied, andonly if certain conditions were present. When they were not, moving fast provided no discernible advantage or turned out to be costly.
The perils of moving too fast
Generally, the faster you build a business, the less time you have to study the market, test assumptions, understand competitors, and optimize resources. Some entrepreneurs today have actually made getting to market as fast aspossible an end in itself, even though it often involves doing so with incomplete information and plans as well as inadequate resources. Usually, this approach is what passes for moving at extreme speed, or "e-speed."
Admittedly, speed can provide important benefits. A company that is first to market can shape industry standards and erect entry barriers against competitors. For example, eBay wouldn'tdominate online auctions if it hadn't moved extremely fast. But faster execution carries the risk of burning through resources, both financial and human, before the business becomes self-sustaining and of overlooking or misunderstanding the economics of the business model or the realities of the market.
The challenge, therefore, is to know how fast to move. One start-up we studied--Altra, in thefield of wholesale energy trading--figured that out; another, called HoustonStreet, appears not to have done so.
Altra: Slow and thoughtful evolution
Created in 1995, Altra has evolved into one of the leading energy-trading exchanges through a series of carefully planned steps. Founder E. Russell Braziel sensibly cautions that the energy market has been based on relationships and that it won't bepossible to create an Internet-based transaction business instantaneously. The company started out designing software for managing natural-gas transactions. By 1998, it had a solid customer base, for which it then created an online trading platform and transaction-processing services. Once it had established itself as a leading player in natural gas, Altra expanded into other fuels, such asnatural-gas liquids (NGL) and crude oil.
By closely partnering with, rather than attacking, huge industry incumbents, Altra removes them as a competitive threat and protects itself from future attackers. For example, Altra recently launched Market Solutions, which provides energy companies with the technology to develop their own Web-based strategies and services. Altra's software and trading...