Jul 02, 2012
Table of contents:
When you look at the technology and Internet startup industry from a distance, you begin to spot a number of interesting trends. One of the most interesting trends is the continually lowering of the barrier of entry to build an Internet startup.
As I’ve written in the past, it has never been easier to create an online company with the proliferation of infrastructure as a service companies that enable startups to outsource many of their problems and technical headaches. This is incredibly good for the future of the industry, however I believe it is making it too easy for people to found a startup that does not solve a real problem, and therefore one that is destined for failure.
Founding a startup that does not solve a real problem is a huge miss-step on the path to success. As outlined in The 4 Steps to the Epiphany, Customer Discovery and Customer Validation are two integral steps to finding a repeatable and scalable business model. If a startup chooses to skip this step, believing they should spend their time developing a product first, they are almost certain to waste their time and limited resources.
However, some startups are active participants in the Customer Development methodology, yet they still miss the most obvious first step, is this my potential audience’s number one problem?
It is no great secret that the startup failure rate is extremely high. The Customer Development methodology can go a long way to ensuring that you do not burn resources before you have found a repeatable and scalable business model. However, if you are not solving a big or important enough problem, is there any point in doing the startup in the first place?
The risk involved with founding a startup is extremely high. At the bare-minimum, you will be spending 5+ years trying to build this company. In those 5 years you will be earning far less than you would at a regular job, and working an order of magnitude harder and longer hours. If the “problem” you are trying to solve isn’t huge, is it worth the risk?
You only have to look at TechCrunch to see a huge number of fledgling startups who are riding the Internet startup wave of prosperity. Many of these startups are clearly more in love with the idea of founding a startup, than actually solving a real problem or creating a disruptive innovation.
Companies that are creating a perceived problem and an array of tools to solve that problem for a key targeted group of potential future clients. This is great except, it clearly isn’t the future client’s number one problem. If you have to suggest the problem, it is not a problem. A lot of these types of companies aren’t doing anything particularly innovative, but rather combining elements of other ideas in a new way.
Niche social networks usually start out with a strong vision for why users will want to choose that social network over others. However, not all social networks can achieve the growth of the most successful social networks, and so they must try to find a business model that will support their growth. Copying or replicating a business model from a company in a related vertical is a good way of convincing yourself that your product solves a need. However, it is extremely unlikely that you can use the same business model that has worked so well for a different product. Either it won’t work, or your product is not good enough (or different) from the other pre-existing and established successful product. A business model can not be brainstormed from existing products, you must find it within your Customer Development.
It’s easy to look at outlier successful startups like Instagram, foursquare or Facebook and believe that the viral-coefficient that propelled the product will also be relevant for your startup. If you describe your product as a “like Instagram but for __” or “like foursquare but with __“ it is unlikely that you will have the same kind of adoption. Instead of looking to emulate the success of someone else, find your own niche to target and your own reason for your users to love your product.
The Internet has disrupted a huge number of incumbent industries, business models and methods of distribution. It is incredible to look at a company like Amazon and be in awe of what they have achieved in a relatively short period of time. Amazon started out as an online bookstore with a vision to be able to deliver any available book where bricks and mortar bookstores could not justify that book’s shelf space. In the time since, Amazon has become the undisputed number one online retailer and has built one of the largest worldwide distribution networks ever.
You are not Amazon.
If your future vision relies on delivering physical products in a distribution network that you will need to create, or a supply chain that you need to orchestrate, you best get your fundraising suit on, because you are going to need a shed load of capital.
You have probably picked the hardest startup business model to execute. You are going to need to validate your Customer Development and business model as quickly as possible and within a repeatable and scalable subset. Then, building a distribution system will either propel you to greatness or destroy you.
In order to successfully build this type of business, you need to discover a problem within a niche that is then able to expand into other niches once you have built your business and you are completely dominant. Deciding on the correct vertical is imperative to one day expand past the initial niche.
The final common startup is when you piggyback of an extremely hot, growing startup with a complimentary product or feature. The classic example is Zynga who piggybacked on Facebook. Piggybacking is good because it exposes your product to an established and quickly growing audience. However, piggybacking is no way to build a successful business. Zynga have been fortunate in that they could spin their games business away from Facebook so they don’t have to completely rely on the big blue giant. But if your company is a feature, rather than a product, or you are entirely reliant on the company you are piggybacking, you could wake up one day without a business at all. Piggybacking is good if you are only looking to be eventually acquired, it is not a good way of building a business.
There seems to be countless examples of startups essentially wasting their time without a clear problem to solve and without a business model or strategy for growth that supports this vision. If your idea or fledgling startup falls into any of the problems outlined above, I would highly recommend Steve Blank’s, The Four Steps to the Epiphany.