In this blog series, we're shedding light on the factors behind Silicon Valley's success. They include such strategies as bringing products to market as quickly as possible and agile working in lean teams.
Silicon Valley start-ups are consistently gearing their business models to the customer. They recognize that applications and services need to be a perfect fit for users for them to be accepted by the market. The success of digital business models depends less on physical products than on access to platform where providers and customers exchange data and goods.
Silicon Valley blog series
- Part 1: If you don't ask, you will never know
- Part 2: Chasing the unicorn
- Part 3: “Be a sponge and not a babbler:” Interview with Annika Hoeltje (1)
- Part 4: “Be a sponge and not a babbler:” Interview with Annika Hoeltje (2)
- Part 5: A special mindset
- Part 6: Properly set up for success
A car service that owns no cars
A striking example is Uber. The car service provider neither invented the smartphone nor GPS, customer ratings systems, route optimization, or mobile payments. Yet, founders Garrett Camp and Travis Kalanick figured out a unique way to combine these technologies to create a successful business model.
Although Uber owns no vehicles, it has become the most important mobility provider in the world. By the end of 2018, its stock was worth $120 billion, as much as the Big Three US automakers (GM, Ford, and Fiat Chrysler) are worth together.
Prototype instead of full product
A key success factor for American start-ups has been temporarily making do without perfection when it comes to new products. Silicon Valley companies are launching minimal viable product (MVPs) onto the market.
These are, so to speak, prototypes that only cover users' minimum requirements. Only those features that the product needs to fulfill its purpose are considered. Once the MVPs are released, the companies than use customer feedback to improve the products. This process saves a lot of time, work, and money.
By comparison, German start-ups are much more perfectionist. As a rule, they set themselves the goal of launching only fully fledged, well-engineered software that leaves nothing to be desired. However, this requires more resources, takes longer, and is more expensive. The risk is that if the product does not meet customer needs and therefore finds few buyers, it will result in huge losses for its developers.
When assembling teams, the motto in Silicon Valley is to limit oneself to the bare minimum at the start. Typically, a start-up consists of a sales professional and a software design expert who brings technical knowledge, but does not do the actual programming.
The third member is the product manager who mediates between internal and external interests. You'll look in vain for real software developers. Initial development work is often outsourced if it even takes place at such an early stage.
Growth before profit
The team's first task is to create customer traction, that is, ignite demand. Only when this has succeeded, will investors release further funding. In the B2C segment, the targeted monthly growth in user numbers is between 20 and 30 %.
Profitability comes later, after two to three years at the earliest. In Silicon Valley, investors are looking first and foremost for the maximum potential of a start-up and not how quickly it will turn a profit.
That's another difference between founders and investors in Silicon Valley and their counterparts in Germany. In Germany, they want to get out of the red as quickly as possible. In the US, on the other hand, there are exactly three goals: growth, growth, growth.
Photo: Uber Technologies Inc.