Article by Madison Park
IF I KNEW THEN...
In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.
Don’t be lured by the bright shiny object. The bright shiny objects are big deals that when you start up, and suddenly you have a large opportunity -- a potentially big client.
Big clients can be great and they can make you successful. Or they can take you down the wrong path and put you out of control of your destiny.
We were very early on, we were like the first one using API in the cloud for distributing data. APIs are so common today, everybody embraces it and same for the cloud. But [back then] we were very new. We started getting approached by large companies that wanted to license our platform and technology to distribute data.
Those firms were the largest stock exchanges in the world. You’re like, “Oh my God, [they] want to use our tech!” These were opportunities for large ticket items that could really impact the business.
We started getting a pipeline of those things. We raised a B round in 2011 on the promise and we started to shift our strategies. We initially were selling data and APIs to a certain population, but then we started having these large exchanges wanting to license our technology. It started shifting our direction.
It turns out that we probably didn’t understand what was going on very well. We started hiring aggressively. But things changed in the market. A lot of the demand was driven by a phenomenon of high frequency trading. All the exchanges were seeing the volumes of trade expanding around the world. High frequency trading started slowing down due to regulation.
I was traveling the world, we had this pipeline of business, we had hired people – it just literally evaporated in one quarter.
We had to take drastic measures to reduce the size of the team and focus on the core business. Our customers got acquired by someone else. Deals we put in place went away.
It could’ve killed us.
“Always be careful with big shiny objects.”
When you start working with a large client, you’re deploying your few precious resources with the idea that it’s going to multiply. These were deals that were important to us, but they didn’t pay us in the long-term.
The deals were 10 to 20 times the regular deal. They were bright, shiny objects. But when you have a deal like this, it makes a difference and requires you to spend engineering resources.
The big shiny objects consume and take you down a custom path, and make you deal with stuff that’s unique to them. Often they put you in a corner to customize stuff, it’s not repeatable.
If you start doing customizations and you’re spending huge time with a few clients, no matter how exciting the names can be, it can be detrimental rather than beneficial.
You’re not in charge of your destiny. The large, bright shiny objects can be a distraction. You start dangling names like NASDAQ or JP Morgan, it gets people excited. That’s the danger. You put all your chips on that and then you’re not scaling the business for growth.
The main teaching is you have to stick to your guns.
We went down this path. We corrected it. We recovered. Had we not managed that transition, we could’ve run out of money.
Always be careful with big shiny objects.
Read the original post at Crain’s Silicon Valley