MONEY TALKS by Andrew Waitman

Successful entrepreneurship at its heart is to recognize a sizeable social, scientific, technical or economic pattern before others and exploit it economically.

WaitmanHighEdit-111X196.jpgPower, prescience, and the paradox of patterns
From SCAN's Print Edition

The beauty of our universe lies in its patterns. The wonder of life also lies in its patterns. Deep within most scientific discoveries, is the recognition that things don't just occur randomly. Rather, they follow patterns of progress, sometimes obvious, often hidden.
Language must follow patterns to achieve meaning. However, to those unfamiliar with the language, the patterns may not be obvious. Biology, too, follows and creates endless patterns. Many are easily detectible like the petals of a flower or the swirls in a sea shell, yet the mechanism driving these patterns are often deeply hidden.
Successful entrepreneurship at its heart is to recognize a sizeable social, scientific, technical or economic pattern before others and exploit it economically. While traveling in Europe, Howard Shultz, founder of Starbucks, recognized the popularity of coffee houses or espresso bars and combined this observation with the pattern of the decline in social drinking. He created America's "third place" (not home, not work). At Starbucks, customers discovered a new place to socialize other than in bars or taverns.

Sales and marketing in an early stage start- up company with limited revenue is an exercise in pattern identification. The successful start-up team recognizes an emerging pattern created by a change or shift in society, business, technology or biology: An aging population, women having children later in life, proliferation of low-cost high bandwidth wireless communication, economic recessions driving cost sensitivity, are all examples of exploitable patterns. Identify and profit from the pattern prior to others and you will be deemed to be visionary.

When Eric Jackson, an early PayPal marketing employee went searching for customers who wanted an on-line micro-payment capability, he spotted a pattern of PayPal’s popularity with Ebay users. At first the CEO, Peter Thiel, discouraged him from pursuing this pattern because the business model required making money from the “float”—account holders keeping money in their accounts. Ebay users used PayPal just for the transaction without leaving money in their accounts. Fortunately for Thiel, and Paypal shareholders, Jackson ignored his CEO and pursued and developed this emerging pattern of popularity around Ebay users. As they say, the rest is history.

Back in 2004, Mark Zukerberg, founder of the wildly successful social networking site Facebook, recognized that most college students had personal computers connected to the Internet and needed a simple way to stay socially connected when away from campus or after graduation. This pattern of student behavior turned out to be more broadly popular and as a result created one of the most powerful social networking Internet companies. More recently, Twitter founder, Biz Stone, recognized the enormous popularity of email and SMS messaging and combined this insight with the power, popularity and pattern of public blogs and social networking to create a new platform for "twittering"—text messaging in short sound- bytes, publicly.

Some of the most successful Internet-era companies have been built on the recognition of the pattern of our human desire to constantly communicate. People who work in sales, marketing and business development at any company, but particularly start-ups, should ask themselves what patterns are germane to our success and how do we recognize and profit from them? This is the core of successful marketing and sales.

The insights from pattern identification are appropriate at both the strategic and the tactical level. At the strategic level, the raison d’être of the firm is driven by an economic exploitation of an emerging or converging set of patterns. For example, the trend for corporations to outsource non-core functions drove the emergence of manufacturing specialist companies, software- as-a-service application companies, IT help desk companies and recently cloud or utility computing companies like Amazon EC2 service which offers bandwidth, CPU cycles and storage on- demand.

In complex systems like our economy, the paradox of patterns is that they keep changing. The fact that financial disasters seem to regularly occur every decade is familiar to anyone who studies markets. However, though the patterns of the past are similar they are never identical. One never crosses the same river twice. As a result, it takes a nuanced appreciation of the patterns of the past to exploit these insights in the future. In my next column, I will discuss how tactical pattern recognition is critical to effective sales targeting, marketing and business development. Without learning from historical patterns of behavior, start-ups can waste a great deal of time if they don’t understand the patterns of buyers. With these insights however, their potential is limitless.

Andrew Waitman is managing partner of Blackswan Ventures Inc.

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