Recently, I was referred to a short Steve Jobs of Apple video, http://youtu.be/H8eP99neOVs, on the importance of “focus”ing – saying “no” to other ideas or projects that do not fit the overall strategy and philosophy of a startup company, however painful it might be to others. I myself see the term “focus” in the context of economics – Pareto Optimality — http://en.wikipedia.org/wiki/Pareto_efficiency. How do I make efficient choices that places my final objective to the most optimal result, which, in econometric language, leads to the Pareto Efficient Frontier.
Now, any company, including startups, has umpteen million choices to choose from every day. The two major constraints are time and capital. There is one singular objective of any choice – does the choice lead to an increase in economic value of the firm, or, does that particular action increase value for the shareholders. Or is the action’s likelihood to success is so minimal that it would represent an expensive allocation of time and resources without a viable result.
How is the efficient use of time so important? Paul Graham of YCombinator has stated that successful startups move fast forward efficiently. Or, to state the opposite corollary, those companies that make the wrong choices, waste time moving forward, will not be successful.
Another way of approaching Paul Graham’s observation is that, since investors expect a return and the measure of return includes the time value of money, the faster a company achieves financial success, the higher is the return on investment.
How are these principles applied to real world? I once worked with this CEO who invariably in my personal meetings would suggest ten potential projects to review. One project choice I never forgot was to develop a strategy to place a telecommunications satellite over the Andes so facilitate telecommunications between Chile and Argentina. It would have made some sense to the CEO, but it did not make sense given the resources of the company and physics and regulations. First, placing in a geostationary orbit a satellite is highly capital intensive. The cheapest satellites run around $50 million. To be effective, the satellite must be geostationary which means parking the satellite around the equator, not over the Andes. One must purchase the insurance and insurance carriers require that 2 satellites be built in the event of a catastrophic event. To park on a geostationary orbit, one must petition the ITU and receive the regulatory approval. Overall, that company did not have the financial and human resources to implement that project.
Instead, I allocated my limited time to handling operational matters that brought in revenue and lobby the telecommunications license so that the company can achieve an IPO. The expectation value to invest my time on an Andean satellite project was meager or non-existent. Another way I look at any potential choice is to look at the expectation value – the probability of success times the expected results. In my mind, I thought that the probability of success was zero – the company, with meager financial and human resources, could not ever deliver a satellite system.
And recently I applied the expectation value to a recent decision on establishing a joint venture for a startup company. First, a startup company with limited operating resources with an unproven technology would be a considered a major risk by an established company. The probability of success to pursue a joint venture was near zero. Second, how would the startup company be advancing with such a relationship? I would doubt that. Yes, we can hop around Silicon Valley to seek partners with little or no likelihood of success. The result will be a substantial waste of time and resources better allocated somewhere else. Instead, the focus should be to complete a clinical trial, which investors have required. Then, after the capital is raised, then return to other projects. Again, look at time as being a limited resource. What actions will lead to a greater probability of bringing in revenues or attracting investors? Anything else is secondary.
Another example I use comes from American football: the team is 5 yards away from the end zone, 3rd down, behind by 3 points, a minute left in the game. Time is the critical constraint. The key to winning is to select the right resources to get into the end zone. I treat every strategic business decision in that typical football scenario: what will it take to get me into the end zone given my resources and limited time window.
In summary, Jobs’ “focus” is all about fine tuning decisions that will move a company forward expeditiously. Focus is finding choices among others which make strategic sense.