(2000-05-12) Spolsky Strategy Letter I: Ben And Jerry's Vs Amazon

Joel Spolsky: Strategy Letter I: Ben and Jerry’s vs. Amazon. Building a company? You’ve got one very important decision to make, because it affects everything else you do. No matter what else you do, you absolutely must figure out which camp you’re in, and gear everything you do accordingly, or you’re going to have a disaster on your hands.

The decision? Whether to grow slowly, organically, and profitably, or whether to have a big bang with very fast growth and lots of capital.

The organic growth model is to start small, with limited goals, and slowly build a business over a long period of time. I’m going to call this the Ben and Jerry’s model, because Ben and Jerry’s fits this model pretty well.

The other model, popularly called “Get Big Fast” (a.k.a. “Land Grab”), requires you to raise a lot of capital, and work as quickly as possible to get big fast without concern for profitability. I’m going to call this the Amazon model, because Jeff Bezos, the founder of Amazon, has practically become the celebrity spokesmodel for Get Big Fast. (cf blitzscaling)

Let’s look at some of the differences between these models. The first thing to ask is: are you going into a business that has competition, or not?

If you don’t have any real competition, like Amazon, there is a chance that you can succeed at a “land grab”

But if you’re going into an industry where there is already a well-established set of competitors, the land-grab idea doesn’t make sense

Another question about displacing competitors has to do with network effects and lock-in: If you are going into a business that has natural network effects and lock-in, and there are no established competitors, then you better use the Amazon model, or somebody else will, and you simply won’t be able to get a toehold.

Getting big fast gives the impression (if not the reality) of being successful. When prospective employees see that you’re hiring 30 new people a week, they will feel like they are part of something big and exciting and successful which will IPO. They may not be as impressed by a “sleepy little company” with 12 employees and a dog, even if the sleepy company is profitable and is building a better long-term company.

The worst thing you can do is fail to decide whether you’re going to be a Ben and Jerry’s company or an Amazon company. Both models work, but you’ve got to pick one and stick to it, or you’ll find things mysteriously going wrong and you won’t quite know why.