My last year at a Fortune 100 tech company, I did a fair amount of technical due diligence in support of M&A activities. In this role, I would fly into a company for a couple days to assess the value / risks of their product, technology, people and process. The aspect of this job I found personally most engaging was listening to company narratives: the story from the founding, through the ups and downs, to the present time. In listening to these narratives, I started to see a pattern that I came to call the “string of pearls”: the series of epiphanies that represented the foundation of a successful business.

Sometimes the pearls in the string were features delivered to their customers; other times it would be how their product or service was marketed or sold; and other times it was the technology behind the value proposition. But in all cases, each pearl by itself was not sufficient to drive a successful business - yet the aggregate impact of all pearls represented a form of “secret sauce”.

E.g.

When the iPhone was introduced in 2007, the smartphone market was well established. So what made the iPhone so successful over Nokia, Palm and RIM? The string of pearls for the iPhone might go something like this:

Apple brand - The iPod had established the Apple brand as one representing quality, design and innovation.
Multi-touch user interface - The multi-touch interface revolutionized the user experience for accessing the internet on a small screen.
3rd party apps - The App Store streamlined the user experience for consumers and developers.
Sleek design - The slim, sleek, high quality design stood out in a market that undervalued design and user experience.
Competitive phone - All of the above would not have made a difference if Apple had not produced a competitive phone.

If you took any one of these pearls away, would the iPhone have been such a runaway success?

Observations

Over the years I've made the following observations about the strings of pearls behind successful businesses:

There are usually 3-5 pearls in the string of successful companies / products.
The pearls almost always contain at least one epiphany for the product, go to market / distribution, business model and technology.
There tends to be at most one pearl in the string at company founding (and in a few cases no pearls exist at company founding, e.g. Twitter).
The majority of the pearls in the string are acquired only by operating the business - e.g. trial and error, success and failure.
Identification of pearls requires a close collaboration between the company and its value chain (e.g. customers, investors, partners).
The pearls usually draw upon both the current and previous experiences of the early team.

Perhaps the most radical conclusion for entrepreneurs in the string of pearls theory is this: there are no great ideas - just great starting points for building a successful business.

Here are two short case studies:

Case Study: Compaq

From its founding in 1982 to its acquisition by HP in 2002, Compaq had one of the greatest business successes in our industry. When the founders left Texas Instruments, they had only a partially formed vision of making add-on boards for the emerging PC market. But over the early years, the string of pearls that emerged included:

Portable personal computers (market segment) - The decision to focus on portable PCs allowed Compaq to steer clear of the 800 pound gorilla (IBM) for a few years, while focusing on an underserved market segment.
IBM PC compatibility (product) - While it sees obvious today, the near fanatical focus on IBM compatibility was essential to the mainstream adoption of Compaq computers.
Dealer distribution (distribution channel) - IBM regularly undercut their dealers by also selling direct. Compaq's solution: a commitment to distributing exclusively through dealers.
Open standards (brand) - Compaq both promoted and supported open standards for PCs, creating a counterbalancing force to the power of IBM.

Case Study: Facebook

From starting in a Harvard dorm room in 2004 to its $100+ billion IPO in 2012, Facebook has been a social networking rocket ship. While they were certainly not the first social network (e.g. Friendster, LinkedIn, MySpace), they have without a doubt been the most successful. But underneath their success was a string of pearls:

College students (market segment) - You could not have found a better target market for an early social network than college students. They were highly connected, interested in social status, slightly voyeuristic, and wanted to meet new people.
Features (product) - Facebook’s early site catered to the needs of its college student market (e.g. see what courses your friends were taking, lookup a classmate by their dormitory).
Vertical college rollout (distribution) - Facebook was rolled out one college at a time, initially Ivy League only, and requiring the signup of a certain percentage of a student population before adding a new school.
Advertising (business model) - Contrary to the movie The Social Network, Facebook was an early pioneer of advertising (often accompanies by pithy disclaimers from Mark Zuckerberg).

Conclusions

Just like an irritant in an oyster shell can produce a pearl, so too does the friction of building a company with smart and motivated employees, customers, investors and partners. But you cannot invent pearls - you can only discover them. So instead of trying to find the one great and defensible idea for you business, try operating it with an increased eye out for the epiphany that may be your next pearl in your string.