Hackers, Startups and business in uncertain times

Was on a delayed flight today, laptop had run out of juice so just sat back and thought about something that I am seeing quite a lot now in the broadband media world.

How to manage uncertainty.

There have been two grists to this particular mental mill. The first was at FOWA a fortnight ago, when Paul Graham essentially outlined an approach for the mass production of startups.

The second has been growing over the last few months as we wind up doing work for larger businesses, not startups, who are now being impacted by the evolution of the broadband internet (Web 2.0, social and video media, open source, freemium busines models etc etc) and whose carefully charted courses are being knocked awry as the winds of change blow through their markets and their compasses start to spin.

Its the classic "how do I get from here to there" issue. The current S curves are stuttering, the new ones are starting up, but:

(i) the current value of new business can't make up for the loss of old (usually exacerbated by new business being sold at a discount to gain market share by newer startups).

(ii) it is unclear which stepping stones are going to lead to the new S curve, and which are dead ends.

What Paul Graham has done is de-risked the current Angel/VC game by realising that the cost to start up is far lower now, so you may as well start a larger portfolio earlier , reduce startup costs by systemising the process as much as possible, and (unsaid but implicit) strangling the failures early. In other words build an evolutionary engine for launching startups - don't try and guess the market, just place lots of options and follow what works in a Darwinian way.

Not so much incubation as post conception

So what about those wanting to transition to an Enterprise 2.0 World?

Quite clearly any company steering into turbulent waters needs to do something similar, to build an evolutionary engine for itself. It is unclear right now what any new course is, so it can't just swing the tiller and reset the sails to go off on a new tack.

The question for any existing company is how to build within itself such an evolutionary engine, given that it has (i) probably optimised the current structure for the current course and has got rid of all the surplus resource that could allow it to change course, and (ii) most companies will have nearly all the resource (time, money, experience etc) locked into the current business structures.

The answer is clearly to place options, like Y Combinator. If it costs not a lot to start up outside a company, in theory this can be reproduced in-company. However, it is likely that as a strategy that will not be enough, as they will be using a lot (nearly all) of their resources just keeping the current business going (and politically it is hard to start something in existing Lines of Business). But they will need to set up small "start-up" like teams to start new options just to see where success will be found, so will have to manage this issue. However, it is highly likely that when they see options starting to succeed they will need to expand rapidly in that space by acquisition as well, as that is the only way to get sufficient scale fast.

Which of course is good news for the Y Combinators of this world.....