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This post by Backblaze’s CEO and co-founder Gleb Budman is the sixth in a series about entrepreneurship. You can choose posts in the series from the list below:<\/p>\n
Perhaps your business is competing in a brand new space free from established competitors. Most of us, though, start companies that compete with existing offerings from large, established companies. Your job is to come up with a better mousetrap \u2014 not the first mousetrap.<\/p>\n
That’s the challenge Backblaze faced. In this post, I’d like to share some of the lessons I learned from that experience.<\/p>\n
Competing with established companies that are orders of magnitude larger can be daunting. How can you succeed?<\/p>\n
I\u2019ll set the stage by offering a few sets of giants<\/span> we compete with:<\/p>\n What did we learn by competing with these giants on a bootstrapped budget? Let\u2019s take a look.<\/p>\n For a long time Apple considered Apple TV to be a hobby<\/em>, not a real product<\/em> worth focusing on, because it did not generate a billion in revenue. For a $10 billion per year revenue company, a new business that generates $50 million won\u2019t move the needle and often isn\u2019t worth putting focus on. However, for a startup, getting to $50 million in revenue can be the start of a wildly successful business.<\/p>\n The giants have a lot of advantages: more money, people, scale, resources, access, etc. Following their playbook and attacking head-on means you\u2019re simply outgunned. Common paths to failure are trying to build more features, enter more markets, outspend on marketing, and other similar approaches where scale and resources are the primary determinants of success.<\/p>\n But being a startup affords many advantages most giants would salivate over. As a nimble startup you can leverage those to succeed. Let\u2019s breakdown nine competitive advantages we\u2019ve used that you can too.<\/p>\n It\u2019s hard to build a $10 billion revenue business doing just one thing, and most giants have a broad portfolio of businesses, numerous products for each, and targeting a variety of customer segments in multiple markets. That adds complexity and distributes management attention.<\/p>\n Startups get the benefit of having everyone in the company be extremely focused, often on a singular mission, product, customer segment, and market. While our competitors sell everything from advertising to Zantac, and are investing in groceries and shipping, Backblaze has focused exclusively on cloud storage. This means all of our best people (i.e. everyone) is focused on our cloud storage business. Where is all of your focus going?<\/p>\n You may have heard Paul Graham say \u201cDo things that don\u2019t scale.\u201d<\/a> There are a host of things you can do specifically because you don\u2019t have the same scale as the giants. Use that as an advantage.<\/p>\n When we look for data center space, we have more options than our largest competitors because there are simply more spaces available with room for 100 cabinets than for 1,000 cabinets. With some searching, we can find data center space that is better\/cheaper<\/a>.<\/p>\n When a flood in Thailand destroyed factories, causing the world\u2019s supply of hard drives to plummet and prices to triple, we started drive farming<\/a>. The giants certainly couldn\u2019t. It was a bit crazy, but it let us keep prices unchanged for our customers.<\/p>\n Our Chief Cloud Officer<\/a>, Tim, used to work at Adobe. Because of their size, any new product needed to always launch in a multitude of languages and in global markets. Once launched, they had scale. But getting any new product launched was incredibly challenging.<\/p>\n This one is probably obvious. If you\u2019re going to provide the same product, at the same price, to the same customers \u2014 why do it? Remember that better does not always mean more features. Here\u2019s one way we built a better product that didn\u2019t require being a bigger company.<\/p>\n All online backup services required customers to choose what to include in their backup. We found that this was complicated for users since they often didn\u2019t know what needed to be backed up. We flipped the model to back up everything and allow users to exclude if they wanted to, but it was not required. This reduced the number of features\/options, while making it easier and better for the user.<\/p>\n This didn\u2019t require the resources of a huge company; it just required understanding customers a bit deeper and thinking about the solution differently<\/a>. Building a better product is the most classic startup competitive advantage.<\/p>\n How can you provide better service? Use your advantages. Escalations from your customer care folks to engineering can go through fewer hoops. Fixing an issue and shipping can be quicker. Access to real answers on Twitter or Facebook can be more effective.<\/p>\n A strategic decision we made was to have all customer support people as full-time employees in our headquarters. This ensures they are in close contact to the whole company for feedback to quickly go both ways.<\/p>\n Having a smaller team and fewer layers enables faster internal communication, which increases customer happiness. And the option to do things that don\u2019t scale \u2014 such as help a customer in a unique situation \u2014 can go a long way in building customer loyalty.<\/p>\n After determining that the industry standard EMC\/NetApp\/Dell storage servers would be too expensive to build our own cloud storage upon, we decided to build our own infrastructure. Many said we were crazy to compete with these multi-billion dollar companies and that it would be impossible to build a lower cost storage server<\/a>. However, not only did it prove to not be impossible \u2014 it wasn\u2019t even that hard.<\/p>\n One key trick? Remove the unnecessary. While EMC and others built servers to sell to other companies for a wide variety of use cases, Backblaze needed servers that only Backblaze would run, and for a single use case. As a result we could tailor the servers for our needs by removing redundancy from each server (since we would run redundant servers), and using lower-performance components (since we would get high-performance by running parallel servers).<\/p>\n What do your customers and use cases not need? This can trim costs and complexity while often improving the product for your use case.<\/p>\n How many times have you visited a large company website, particularly one that\u2019s not consumer-focused, only to leave saying, \u201cHuh? I don\u2019t understand what you do.\u201d Keeping your website clear, and your product and pricing simple, will dramatically increase conversion and customer satisfaction. If you\u2019re able to make it 2x easier and thus increasing your conversion by 2x, you\u2019ve just allowed yourself to spend \u00bd as much acquiring a customer.<\/p>\n Providing unlimited data backup wasn\u2019t specifically about providing more storage \u2014 it was about making it easier. Since users didn\u2019t know how much data they needed to back up, charging per gigabyte meant they wouldn\u2019t know the cost. Providing unlimited data backup meant they could just relax.<\/p>\n Customers love easy<\/em> \u2014 and being smaller makes easy<\/em> easier to deliver. Use that as an advantage in your website, marketing materials, pricing, product, and in every other customer interaction.<\/p>\n Obviously unnecessary risks are unnecessary, and some risks aren\u2019t worth taking. However, large companies that have given guidance to Wall Street with a $0.01 range on their earning-per-share are inherently going to be very risk-averse. Use risk-tolerance to open up opportunities, and adjust your tolerance level as you scale. In your first year, there are likely an infinite number of ways your business may vaporize; don\u2019t be too worried about taking a risk that might have a 20% downside when the upside is hockey stick growth.<\/p>\n Using consumer-grade hard drives in our servers may have caused pain and suffering for us years down-the-line, but they were priced at approximately 50% of enterprise drives<\/a>. Giants wouldn\u2019t have considered the option. Turns out, the consumer drives performed great for us.<\/p>\n The larger a company grows, the more it wants to hide information. Some of this is driven by regulatory requirements as a public company. But most of this is cultural. Sharing something might cause a problem, so let\u2019s not. All external communication is treated as a critical press release, with rounds and rounds of editing by multiple teams and approvals. However, customers are often desperate for information. Moreover, sharing information builds trust, understanding, and advocates.<\/p>\n I started blogging at Backblaze before we launched. When we blogged about our Storage Pod<\/a> and open-sourced the design, many thought we were crazy to share this information. But it was transformative for us, establishing Backblaze as a tech thought leader in storage and giving people a sense of how we were able to provide our service at such a low cost.<\/p>\n Over the years we\u2019ve developed a culture of being open internally and externally, on our blog and with the press, and in communities such as Hacker News and Reddit. Often we\u2019ve been asked, \u201cwhy would you share that!?\u201d \u2014 but it\u2019s the continual openness that builds trust. And that culture of openness is incredibly challenging for the giants.<\/p>\n As companies scale, typically a smaller percent of founders and executives interact with customers. The people who build the company become more hidden, the language feels \u201ccorporate,\u201d and customers start to feel they\u2019re interacting with the cliche \u201cfaceless, nameless corporation.\u201d Use your humanity to your advantage. From day one the Backblaze About page<\/a> listed all the founders, and my email address. While contacting us shouldn\u2019t be the first path for a customer support question, I wanted it to be clear that we stand behind the service we offer; if we\u2019re doing something wrong \u2014 I want to know it.<\/p>\n\n
Determine What Success Means<\/h3>\n
Lesson Learned:\u00a0Don\u2019t let the giants set your success metrics.<\/span><\/div>\nThe Advantages Startups Have<\/h2>\n
1. Drive Focus<\/h4>\n
Lesson Learned:\u00a0Align everyone in your company to a singular focus to dramatically out-perform larger teams.<\/em><\/div>\n2. Use Lack-of-Scale as an Advantage<\/h4>\n
Lesson Learned:\u00a0Use lack-of-scale to exploit opportunities that are closed to giants.<\/em><\/div>\n3. Build a Better Product<\/h4>\n
Lesson Learned:\u00a0Dig deep with your customers to understand and deliver a better mousetrap.<\/em><\/div>\n4. Provide Better Service<\/h4>\n
Lesson Learned:\u00a0Service your customers better by establishing clear internal communications.<\/em><\/div>\n5. Remove The Unnecessary<\/h4>\n
Lesson Learned:\u00a0Don\u2019t think \u201cwhat can we add\u201d to what the giants offer \u2014 think \u201cwhat can we remove.\u201d<\/em><\/div>\n6. Be Easy<\/h4>\n
Lesson Learned:\u00a0Ease-of-use isn\u2019t a slogan: it\u2019s a competitive advantage. Treat it as seriously as any other feature of your product<\/em><\/div>\n7. Don\u2019t Be Afraid of Risk<\/h4>\n
Lesson Learned:\u00a0Use calculated risks as an advantage.<\/em><\/div>\n8. Be Open<\/h4>\n
Lesson Learned:\u00a0Overshare to build trust and brand where giants won\u2019t.<\/em><\/div>\n9. Be Human<\/h4>\n