In fifty years of working with both early-stage companies, I have realized that four components are required for a successful outcome. I call this concept OYSTER.

Opportunity

Why now?

You can’t create an opportunity; it is something you recognize. And hopefully, before others do. Imagine you know how to surf and have a surfboard; you still have to go to a beach with waves because you can’t make a wave.  

It makes no sense to pursue creating a new business unless you start with a compelling opportunity. There are an endless number of them. They can be unmet needs. Often, they are the result of new enabling technology. A great example of that is GPS combined with mobile phones creating the opportunity that became the focus of Uber. A great question to ask yourself is, “Why Now?”. If this could have been done many years earlier, ask yourself why no one has done it yet. 

When someone presents a new business concept to me, I first ask them to describe the opportunity. I am not interested in going further if I do not find it compelling. The founders should be able to explain the opportunity clearly and quickly and preferably without a slide deck or a demo.

Think more and do less.

Strategy

The strategy is the plan for pursuing the opportunity. There usually are several possible strategies. While I am most interested in the chosen one, I also want to understand the ones that were considered and rejected. It would be a red flag they only analyzed one strategy. While all the components are essential, the strategy is the most important. Once you start going down a specific direction, changing is very difficult, time-consuming, and expensive. Therefore, I always advocate thinking more and doing less, especially in the early stages of development.

Are you doing the right thing or just doing your thing right?

Execution

Most early-stage companies fail at this stage. Typical failures are running out of money (not raising enough at the start), missing schedules, especially concerning product development, and being unable to staff with the right people. Venture capitalists often focus on their perception of the team’s ability to execute. I think this is because VCs are not very strategic themselves. They talk a lot about the importance of the team. Yes, the right team can identify, develop and execute opportunities. But some teams are not good at strategic thinking, and from my experience, venture capitalists often miss that because they are not very good at it either. 

What is in the pot at the end of the rainbow?

Reward

The reward is the reason that everyone got involved. The outcome does not have to be only financial, although that is the typical metric. However, the new business may be ultimately successful; the venture results in a successful business but not one that benefits the founders and investors.  

Amazon as an Example

Let’s consider Amazon. Jeff Bezos started Amazon in 1994 as an online book store. That was the first year there were documented product sales on the Internet. A year earlier, the first advertisements appeared on the Internet. 

Opportunity: The Everything Store

Bezos was working in the Financial Series Industry, where he had a very successful career at D.E. Shaw, a firm that was one the earliest companies to realize the potential of the Internet. In fact, in 1992, D.E. Shaw was among the first to register a domain, http://www.deshaw,com, three years before Goldman Sachs did. Bezos, just 30 years old, was tapped to find opportunities for D.E. Shaw on the nascent Internet. Many of those he explored would become significant opportunities like trading stocks and email services. The concept that excited him the most was “The Everything Store.”, a limitless store that could sell every product. But Bezos concluded that an online store that sold everything would be impractical at that point. So he started analyzing various vertical markets, including books.

Strategy: Exploit the Long Tail of Books

He realized that the number of books that had been published exceeded the ability of bookstores to stock them. He recognized that book publishing had “a long tail.” There was no way a bookstore could carry enough inventory to hold even a tiny percentage of the most popular books. But the potential demand for the books that could not be found in retail bookstores was far more significant. Before Amazon, one would have to go to a bookstore and ask them to order the book. Once requested, it could take many weeks before the book would come to the bookstore, the customer would be informed, and then the customer would return to the bookstore. The long tail was the unique opportunity that formed the vision Bezos’ vision for Amazon. It would become the world’s largest bookstore. Eventually, half of all books sold in the USA were sold by Amazon.

While Bezos had a much bigger goal, his brilliance was in developing a strategy that would take him there in manageable steps.  

Execution: The best people 

Bezos raised initial seed money from his family. He selected Seattle because it had a good pool of technical talent. But also because he realized that he would not have to collect sales take for the sale of books except in the state where the company was located. Washington state had around 5 million inhabitants, about 2% of the total population of the USA. So not having to charge sales take provided an additional incentive for customers in states where sales take was high.

There were already online books stores, including BookLink, started by CMGI. My group at Intel led an investment of over $5 million in that company in 1995.  

Bezos focused on building the best online bookstore and hiring talented people. He had a focus on very smart people. At this point, it was all about execution. Bezos proved himself not only to be a brilliant strategist but a competent but demanding operating executive with a clear focus.

Amazon was still living off of family and friends financing. Slowing, they began to raise money from wealthy individuals. Then in June of 1995, the legendary Kleiner Perkins, then under the leadership of John Doerr, invested $8 million for a 13% stake in the company. It would prove to be one of the most investments of this venture firm.

They wanted to assign a junior person to sit on the Amazon board, but Bezos wisely insisted that the board member be Doerr himself.  

In the late 90s, Amazon ventured beyond books to sell products like CDs and DVDs. They also began to customize the site for each unique visitor, including the ability to recommend books based on the data they had on previous purchases. Slowly, they could expand and pursue the original vision of “The Everything Store.”

Reward: A trillion-dollar company

Amazon went public in May of 1997 with a valuation of $438 million. Today, Amazon is worth 1.3 trillion dollars, the fifth most valuable company in the world. It is the second largest retailer in the world after Walmart. Bezos is worth $135 billion as of this post (not counting about $30 billion his ex-wife, MacKenzie Scott, received in their settlement. But more than money, the people involved in Amazon changed the world.

If you like the Oyster concept, try it out with other companies. Take a look at Uber, Netflix, and Airbnb, for instance. They are great examples. Think about companies that failed. Was it Opportunity, Strategy, or Execution?  

I love to hear from you with your examples.