Easy Win, Big Finish Framework

How do startups with limited resources become $100B companies? By picking the right wedge.

In 2018, I met a company called Mercury - a tech forward bank designed specifically for startups. Today, they are used by many of the top startups in the US, have raised over $150M, and are valued at over $1.6B. 

Mercury introduced me to the easy win, big finish framework. The idea that in the early days a startup should focus its limited resources on one key area, usually a smaller market segment or product category, and winning that market first, before moving into larger markets.

In Mercury's case the “easy win” was creating the “Mint for SMBs” designed specifically for the founders network of venture backed technology startups. On its own, this is a compelling idea, but not a category-defining company.  However, their “big finish” was to become a tech forward bank - taking on the stagnant financial services industry. 

Easy win, big finnish


Today, we’re discussing startup positioning and how startups with limited resources become billion dollar companies in such a short period of time. 

Here’s a little bit of background:

A beachhead is actually a military strategy where soldiers focus on winning a small area before expanding into bigger territories. 

A wedge, on the other hand, is a term that was popularized in Chris Dixon’s article, ‘The “thin edge of the wedge” strategy.’

One common strategy for establishing this initial relationship is what is sometimes known as the “thin edge of the wedge” strategy (aka the “tip of the spear” strategy).  This strategy is analogous to the bowling pin strategy: both are about attacking a smaller problem first and then expanding out,” Dixon says in his article. 

If you’ve ever split wood, then you know what he’s talking about.

(Here’s a visual)


If you don’t have enough force to split the log in one go, you start with an iron wedge and slowly split the entire log using the momentum you got going with that small crack. 

This simple metaphor translates to: 

  1. Using a small amount of resources
  2. Funneling those resources into a strategic plan
  3. Executing the plan well
  4. Using that momentum as a launchpad into bigger markets

See where I’m going with this? Wedge and beachhead strategy are analogous terms, and both are focused on starting small to scale big.

Why do startups use wedges?

Beginning a new company is never easy. Founders have to consider a lot of external factors AND decide if these factors will help achieve the end goal (profit). 

At the end of the day, this is a game of positioning: What can a startup with limited resources do now that will propel them forward into a lucrative company later? 

After all, we’ve all gotta start somewhere. The question is, where?

When considering your investment options, it’s important to hone in on a startup’s “easy win.” The reason I say this is because if they’re starting out big, they may face a lot of resistance and risk failure without the proper foundation from which to grow. That’s where you can help advise them on intelligently pairing back and even shifting their focus.

The second reason is that if you can identify a startup that’s strategically deploying their easy win and already has a solid plan for scaling up, then that could be your cue to invest. 

Let’s take a gander at some different types of market wedges. 

Geography

A geographic wedge is exactly how it sounds - geographic. This wedge is based on the actual physical location of your customers, such as a small area or state.

Uber → If Uber had launched globally right away, they probably wouldn’t have had enough drivers for customers.  They needed to start in one small area to ensure that they were delivering on their promise - and delivering well. Once they had a solid footing (or...wheeling, I guess?), they expanded to other geographic areas. 

Uber Expansion Timeline


Product Category

Many companies use a product category wedge so that they can perfect one product before offering new ones. 

Amazon → Amazon didn’t always sell...well... everything. This multi-billion dollar company started with books because they had a consistent customer demand. Book sales provided Amazon with a steady flow of revenue. Using the beachhead approach, they started incorporating related product categories and then, eventually, new markets entirely. 

Amazon Expansion Timeline


Community

A community wedge refers to catering to a small group of people based on common interests, such as a social group or a school. Don’t forget - it can also refer to virtual communities!

Facebook → Facebook started in a Harvard University dorm room during the time that Myspace already had a strong footing in the market. Rather than competing with Myspace, Facebook used a wedge by offering its platform to Harvard students exclusively. The team focused all of their energy toward strongly acquiring a single audience. From here, Facebook expanded to more campuses and then slowly grew its circle to non-university markets. 


Demographic

Demographics refer to certain aspects of a population, such as age, location, gender, income, etc. A demographic wedge can be as broad as everyone in Arizona with an income of $50,000+, or as small as women ages 25-30 in San Diego. 

Tesla → Instead of tackling the mainstream market, Tesla honed in on a very specific demographic by only selling high-end sports cars valued above $100,000. They didn't want to attract everyone - they wanted to attract the right people. Even though Tesla only sold 250 of their first model, they successfully demonstrated how they could truly dominate a single demographic. 

Tesla Models over time


Why is a beachhead strategy so effective?

After looking over some of the most utilized and well-known companies of our time, we can conclude that beachhead strategies work (if done properly, of course).

Here are a couple of reasons why the startup that you’re investing in should consider this strategy:

Effective use of limited resources

When a startup is just beginning, resources are usually limited (unless they’re lucky). Building up these resources takes time and determination. In the starting stages, the company can use a wedge to reinforce and make good use of every resource they have. 

Understand the audience for later expansion

Starting out in a smaller market is an effective strategy because it helps the company get a better understanding of specific pain points and how to deliver on them. They can make sure that there is a need for their product and establish a small but solid customer base before expanding. 

Build up brand awareness

Baby steps allow a startup to build up a positive reputation and brand awareness through word of mouth. If you want my opinion, I’d say that this is more valuable than any paid marketing. Think about it. How many products have you bought because someone you trust was either using or raving about it? If a startup can get this kind of traction going, then they’re already in the positive. 

Make mistakes without paying the full price

Startups are at risk of failure. That’s the cold hard truth. However, a beachhead strategy gives the startup some cushion to explore low-risk failures. By choosing a focused market or product, it will be easier for the company to test, edit, and repeat until they feel safe enough to move to the next growth phase. 

Let's look at some ways you can help a startup define their niche. 

First of all, is there a clear market need? Determine if the target customer actually needs the offering or if it's just nice to have. The people who made the most money during the gold rush were the merchants who sold equipment, not the people panning for gold! 

Is the customer easy to reach? If not, then gaining traction will be that much more difficult. Avoid market segments where the decision-makers are hidden behind iron doors.

Can the target customers afford the product? Will they be willing to pay? Even if the offering seems like a great idea, if the customer doesn’t want to spend money on it, then there’s no market. Choose an audience that will value the offering more than its price. 

Will the company be able to use this niche as a launchpad into adjacent markets? Pick a niche that’s expandable so that, when the time comes, the startup can grow into those neighboring areas and continue their growth journey. 

As you can see, I’m a big wedge fan.

As an investor, there’s a huge advantage to knowing how a startup can use this strategy effectively. 

To recap, every startup should have an easy win and its big finish. It’s about focusing resources on one key area, winning that area over, and expanding into larger territories.