Today I was thinking about ways to succeed as a startup. Subjective and objective factors. Let’s get the subjective out of the way: You have an idea? Great. What else do you have: you’re coming from the bleeding edge of technology — best university/company, deep technical knowledge of what you want to build plus you know all the competing products on the market. You’re even able to persuade your super smart friends to join the journey.
It looks pretty awesome so far: you’re able to recognize a need in the market, you can build a product that addresses that gap and you’ve assembled a team of exceptional people you trust. Is this the recipe for success?
Whether you’ll be successful I think ultimately comes down to the market. Size and maturity matters. Timing is everything.
Which markets are the best? Well, in the mid 90s — at the beginning of commercial internet you had to focus on core technology to break through (Google, PayPal etc.). From the mid 2000s, it was about connecting offline to online (Facebook, Dropbox, AirBnB, Uber etc.). Now is about making everything better with design and catchy UX (Snapchat, Robinhood, Medium etc). Where are the new opportunities?
Growth vs. RevenueThe better question to ask is: Where’s the growth going to come from? There are only so many people in the world, and the pace of connecting them to the internet is slowing. What does it mean to the company that owns social media and makes a living from selling ads? What about the company that owns search, email, maps and video etc. — and also sells ads? Millennials don’t want to pay for anything on the internet, so this is the only way to make money and grow fast.
On the other hand transaction (TransferWise, AirBnB, Uber) or subscription (Slack, Spotify, Salesforce) based businesses are pretty scalable and you can make money without selling ads from day one. Rake and recurring revenue proved to be extremely powerful. Licensing inventions is also scalable and can fall into one of these categories. Selling individual physical products directly to consumers is probably the hardest and least scalable business model a startup can pick.
What direction do we go from here? Do we need to think outside of computer science or even technology to tap into new areas for growth? Maybe the answer is somewhere in between e.g. Soylent, Theranos, uBeam, uBiome. Or maybe we just need new platforms like VR/AR, Bitcoin/Blockchain, Cars or Messaging with AI where startups can build products to attract people away from existing ones.
There are legacy systems almost untouched or just being touched by technology like finance, law, housing, transportation, logistics, healthcare not to mention the energy market. Also, Moore’s Law and the growing amount of data about ourselves and our surrounding enabled supercomputing and AI to gain momentum again.
Startups vs. IncumbentsWith decreasing barriers to entry it’s increasingly difficult to compete as a startup. And it isn’t necessarily because the rate at which new entrants are coming is higher than the rate at which the market is growing. The real threat comes from the startups of the last decade.
You can try to be better at what they do by unbundling their products — by redesign and simplification. This certainly is one way to build a viable business or to encourage an acquisition by one of them, as many examples show. These are the lowest hanging fruits that can be done with limited resources an average startup launches with. If you however, you want to be the leader of tomorrow you may need to think a little further.
The internet and mobile market is maturing and we may have reached the end of a technology cycle where new opportunities arise. The new winners will be the ones who provide the new playgrounds that let people show off creativity in new and different ways. The enablers. Technologies that let people interact with each other and get things done more naturally. Increase efficiency, convenience and security at the same time.
Entrepreneurs, please look a few steps ahead and don’t let the big guys eat your lunch. Get inspired by what the leaders of today are working on in their free time. Looking at you Zuck and Elon. It doesn’t matter if you’re not the first one. If you have an idea the best time to start is now. Be ready. Be smarter.
First published on Medium by Andy Toth.