As an entrepreneur, I’m into building value. That goes without saying, right?

When I started my first company in 1994, my only business plan was to make the $600 minimum monthly payment on my credit card for startup expenses. A brilliant and reasoned plan, I know.

When, in the first month, I brought in $25,000 I thought I hit the lottery (aside from the splitting headache from lack of sleep). Things only improved from there (except for the lack of sleep part). Very quickly I had 20 employees. Still, I had never stopped to figure out what I was doing, or more importantly what I wanted out of it.

It is easy to say that you want to build a successful company. It’s harder to say exactly why. In retrospect, much of what I did in those first two years was to build my own ego. I hate to admit it, but it’s true.

It was not until I had my first significant failure that I took pause to collect my thoughts. In 1996 I founded The Virtual Market, one of the first dynamically generated e-commerce sites on the Internet. It won all sorts of technology awards, and was really fancy. And it lost me over $500,000 cash. It almost took down my other company, although we pulled through and paid off the creditors.

It was then that I realized I was looking inward, not outward. I was thinking of myself and how I could increase my own importance. Inevitably, I failed to understand the market and made decisions that did not create value for the company. Because of my early success, I thought I knew everything.

Why is this so important? Because so many entrepreneurs are building ego instead of building value. If that is what you want, go for it. I just won’t be joining in. I’m into building value.

Of course, building ego and building value can be closely intertwined. Money is often the measuring stick of self-evaluation. Therefore, it’s really easy to be fooled about what you’re really up to.

How can you tell when an entrepreneur is building ego? It shows up in his need for control, his irrational valuation expectations, his failure to focus on market needs, and in many other ways. If the word “legacy” is appealing to you, then you might want to stop and think twice about what you’re focusing on.

When I consider doing business with people, one of the first things I try to assess is whether the executive team is building value or building ego.

I prefer working with people who are building value. They are more rational. They tend to be more fun to spend time with. And it’s much easier to work with them to build even greater value together.

Ego builders, on the other hand, are hard to work with. I feel like I’m having to manage them to get them focused on value creation. It’s not much fun, and it’s very hard to create a mutually beneficial relationship with them.

Like I said, there is nothing intrinsically wrong with building ego. It’s just that I’m into building value, and that is the sort of people I prefer to have around.

The blogosphere is replete with references to an interesting post by Michael Mace, “Mobile Applications, RIP“. Michael believes that the age of custom mobile application stacks is dead. Instead, he posits, the mobile web is surging in importance, despite its being inelegant and inferior technologically. He points out that

“A platform that is technically flawed but has a good business model will always beat a platform that is elegant but has a poor business model.”

In principle, I agree with him, but his choice of language and approach to the issue suggest that technology comes first. As he says “A platform (subject) … has a … business model (object).” I don’t mean to sound like a third-grade English teacher, but this is an important distinction. Platforms don’t have business models (or at least they shouldn’t). Business models have platforms.

For the past 14 years I have been managing teams of very capable engineers. I myself do a lot of the software design, and for some projects, the coding. It is very easy to think technology first, because that is often the way things are built. Engineers naturally want to make their software elegant.

But elegant architectures do not necessarily make money. And there is real danger that by starting to plan or build the technology before nailing down the business issues, you’ll build the wrong thing. Of course, given today’s frantic and competitive technology markets, the technology and the strategy usually evolve concurrently. The problem is that the during such concurrent development, the technology is often the most concrete thing you have. It is easy to relegate the business strategy and consumer needs to a secondary role.

The “technology first” attitude is at the heart of more startup failures than I could ever list. Never let the engineers (the crazy people) run the startup (the asylum).

But what can we do to minimize the risk that the technology takes on a greater importance than the business objectives? Here are some suggestions:

• Start every technology meeting with a review of the current business objectives. This will help remind your team of where they’re really trying to head.
• Challenge your team to explain why their technology decisions are the best choice to achieve your business goals. Never let them build the technology “right” unless they can persuasively articulate how that plays into your business needs.
• Use business milestones to motivate your technology team rather than development milestones. Don’t reward them for the release of version 2, but rather for acquiring 3,000 new users on version 2. That will make them think more like a consumer when they’re developing, and will force them to work with marketing to get the job done rather than just passing it off and saying “good luck.”
• Stress the importance of maintainability and flexibility in their software design. They will be tempted to go for scalability and stability instead. Remind them that until we have settled on what we need to build, work on scalability and stability is wasted. Maintainable, flexible code can evolve as we determine our business needs. Once that is set, we can focus on locking down performance.
• Contextual design interviews are key. It’s very easy for engineers to lose track of what customers actually need/want unless they actually see it. It still amazes me sometimes how stupid users can be (like I can be sometimes when using a new product I’m not really paying attention to). Accommodating their (our) ignorance is critical for a good product.

[Fellow engineers, fear not. Some day I’ll write a post about the ignorance of non-engineer managers ignoring the technology realities, and pushing out a product that is not ready, and will never be any good.]

Readers, do you have any other suggestions about how to ensure business objectives remain paramount?

I’m on the executive board for a very promising Chicago-based startup. The CEO and CTO consult me weekly (sometimes daily) for my thoughts and advice about various aspects of their business. We often shoot emails back and forth about industry news and events, and the activities of potential acquirers, competitors, etc.

There is one competitor in particular that has been creating a lot of buzz. Each time their competitor makes a big PR splash, I can see / hear the stress on the faces of the entrepreneurs. It’s a natural thing, and to a certain extent it can be helpful. But many entrepreneurs overreact to the activities of the competition.

I used to be quite guilty of managing against the competition, rather than the market. When a competitor announced a new product line, I might feel devastated, thinking that I had ceded part of the market. Meanwhile, when I heard (even anecdotally) that a competitor was suffering, I felt a sense of elation.

The problem is that these emotions, while natural, can cause entrepreneurs to make irrational decisions. There have been times (thankfully long ago), when I mimicked my competitor’s offerings in a dead race to win (yes, I can be rather competitive). But who says your competition is doing the right thing? And even if they are, why can’t you carve out a differentiated niche?

Flickr image courtesy of Koltregasges

Building a business in a competitive market is like rally racing. You’re moving at high speed over uncertain terrain, and any mistake could send you into the trees. Often, you don’t know what is over the next hill or around the next corner. While it is wise to keep an eye on your competitors, the ultimate goal is to move fast along the road (follow the market). The most successful drivers remain calm and focused on the road. Focusing too much on the other drivers will just slow you down.

Don’t worry too much about what the competition is doing. Just focus on following the market (your customers).