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Hubris: A Startup's Worst Mistake

Jan 9 2014, 9:36am CST | by

Hubris: A Startup's Worst Mistake

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The following guest post is bFrederic Kerrest, co-founder and COO of Okta.

Many startups experienced successful exits in 2013. Others crumbled to the ground. A common cause for those failures? Exhibiting hubris. It’s a big mistake that startups and established companies alike make. It lulls them into cockiness, complacency and a sense of invincibility and causes them to lose sight of what matters most – making customers successful. Here are the most common mistakes:

The Big Guys Aren’t As Slow As You Think

If you work in enterprise software, as I do, it’s tempting to think that legacy companies are on their way out, or that they’re too stodgy to compete against startups and will eventually fail while we profit. That’s why entrepreneurs start companies in the first place. We see a problem that either the big guys ignored or didn’t address properly, and think we can do better – and that’s often the case, but not always and definitely not forever. As my co-founder Todd McKinnon has cautioned, the death of on-premises technologies is greatly exaggerated. Companies like Oracle and SAP are too entrenched in large enterprises and have too much money to just disappear. And if they can’t innovate quickly enough, they’ll acquire your startup competitor that can.

Take for example, Oracle’s acquisition of Responsys last month – it’s latest in a long list of acquisitions to compete with SaaS competitors such as Salesforce.com. It’s not just traditional legacy companies, either, that are in on the act. Salesforce.com isn’t shy about buying its way into complementary businesses, as its acquisition of ExactTarget last summer proves. The big guys know what they’re doing with their billions of dollars. Don’t underestimate them.

There’s (Always) an App for That

Hubris isn’t unique to SaaS companies, of course. Consumer startups need look no further than Facebook’s power to understand the risks of underestimating the giants. Since its IPO, Facebook has acquired several companies, including Sportstream for sports-related social media data and Karma for gift-giving technology. And in doing so, Facebook has moved into new verticals like real-time public content and merchant services.

And that has competitors of the acquirees shaking in their boots. Wrapp, a gifting app similar to Karma, is concerned that Facebook is moving too close to home by competing with applications on its own platform. And for good reason. Viddy, an Instagram competitor built on the Facebook platform, plummeted after Facebook purchased Instagram for $1 billion and subsequently changed the rules for third-party apps like Viddy. Viddy’s founders and investors were caught off-guard, which goes to show how quickly fortunes can change — particularly when you’re riding high enough to get noticed by the big guns.

Don’t Be Your Own Worst Enemy

Facebook targeting your startup may be impossible to prepare for, but you shouldn’t tempt fate by becoming complacent or cocky. Once that happens, there’s no need to worry about the competition because you’ll set your company back quicker than the competition could ever hope to.

Lululemon, the billion-dollar athletic apparel company and yoga empire, did just that with its threadbare yoga pant debacle earlier this year. Customer complaints that the pants became sheer when stretched forced the company to pull the product, which sent stock spiraling. Ultimately, Lululemon apologized to customers for its mistake and the stock rebounded, with experts expecting the ‘downward dog’ to make a comeback in 2014.

Netflix is another cautionary example of the self-inflicted consequences of hubris. The company was a tech darling in 2011 when, over the course of two months, it alienated customers by eliminating one of its most popular DVD-streaming packages, raising prices and then splitting off its DVD business into a separate company, Qwikster. Customers left in droves, and Netflix’s stock plummeted, forcing CEO Reed Hastings to apologize for his mistakes and “…arrogance based upon past success.” Fast forward two years, and Blockbuster declared bankruptcy and Netflix’s net income is quadrupling.

Companies need to be aware of their faults – and apologize for them when necessary – to avoid faltering. There will always be someone, bigger or smaller, waiting in the wing, and you wouldn’t want your hubris to spur their takeover.

Keep Your Head Down

Startup hubris may be difficult to avoid. We’re living in an unprecedented period of technological innovation, and we’re in business because the big guys haven’t done what we do, at least not as well as we do it. (But that doesn’t mean they can’t if they wanted to, or at least buy your closest competitor.) There are others in business, your competitors, waiting for you to trip over your past successes, fail to apologize and fail to recover so they can thrive where you faltered.

Never discount the opportunity in front of you. But also remember that big opportunities don’t occur in a vacuum, so resolve to continue innovating and delighting your customers. Your best chances to avoid becoming a victim of hubris in 2014 are to keep your head down, to focus on making your customers successful and to stay keenly aware of industry players, big and small.

Source: Forbes

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