When you are considering a business opportunity, one of the most important issues to really ponder is timing.
You may have the very best idea on earth. It could solve a huge problem. You could have a great team with phenomenal support. But if the target audience are bank tellers, I would beg you to reconsider. Bank tellers are a dying institution. ATMs, and now online banking, are making them essentially obsolete. Peter showed me that I can even write a check through the Wamu website and they will mail it for me at no extra charge. No more stamps, addresses and numb tongue.
Tom has often told me that the dumbest man can make money in an up market, while many smart people loose their shirts when a trend dies. Now you may be a genius, but I’d still hedge my bet and pick an idea and a strategy that takes advantage of industry timing.
Jarkko wrote an awesome post a few days back on How I Almost Invented Social Bookmarking. He got a response from Ron Wiener, the CEO of Earth Class Mail, which was pretty interesting in and of itself. Go read it and if you live in the bay area and want to hang out – we are going to the premier he mentioned Tuesday night. Ok, back on topic.
Jarkko sent out an email to a series of entrepreneurs asking how we pick THE idea. I sent him a response and will post my response after he and I have a chance to discuss it and figure out what he plans to do with it (don’t want to screw up his surprise). The question started me thinking about the decision making process and the role of an industry’s growth cycle in the success of a business venture.
About 3 years ago, Julie & I went to listen to Senator Bob McEwen speak on the inner workings of capitalism and how money works. He mentioned that all industries have a natural cycle of evolution.
Skepticism
Initially only a few visionaries see the value of an idea. These are people who live in the future as much as the present. People like Walt Disney. When asked during an interview how he knew he had a good idea, he replied: “I ask 10 of my friends what they think and if 9 of them tell me its a bad idea, I know I’m onto something.”
This is a perilous time for most people in an industry. It is tough to get customers. Imagine being the first guy with email or a fax machine. Not much use until the technology gets adopted. I’m sure the first nutritional supplement company had a heck of a time getting acceptance. After all, it only took the American Medical Association about a century to (published in 2002) decide that every adult should consider using vitamins. We grow up hearing tales about those innovators who were truly ahead of their time, Henry Ford, Ben Franklin, The Wright Brothers, Bill Gates & Steve Jobs, but most innovators never actually overcome the obstacles. When timing is not in your favor, few will succeed. Even those who do often get overtaken. After all, Google was not the first search engine by a long shot. Though starting a business at this stage can shape the world, it is not for the faint of heart.
We had to overcome nearly insurmountable obstacles to get the business to be as successful as it now is. It was actually started in January, 2004, not 2005. For six months I couldn’t even get my closest business colleagues to say it was a worthy idea (in its manifestation at the time it clearly wasn’t ready for prime time)…
it still took two more years to get funded – we went without salaries for even longer than that to get the technology to the point that we could prove we’ve removed the risks of execution…
Let me tell you, it was anything but easy! People would argue from their perceptions versus fact that “but mail is going away” (it’s not, it’s increasing in volume every year), the technology would cost too much (we eventually figured out how to cost-reduce it and cemented it down with a huge portfolio of patents), and that no one would pay for it (well, proof’s in the pudding – we have customers in 130 countries now, from individuals to governments and F500 companies).
-Ron Wiener, CEO of Earth Class Mail (from the comment on Jarkko’s post)
Adoption
Oh my god, Beenie Babies, eBay, Blogging, Online Video, Pet Rock, Social Networking … it is the newest, hottest thing and everyone wants a piece of it. In 1998 it was the internet or e-commerce. There was a site for everything, even if it made no logical sense. I remember seeing pinktoenailpolish.com, which has to be a niche market to start with, but makes me wonder if they had a sound business plan before finding investors.
We had the opportunity starting in February of 2005 to work with Blip.tv, an interesting startup, and were essentially the 6 / 7th on their team until they grew enough to staff up. They came onto the scene early and we got to see many competitors come and go as they grew and established themselves upon the scene. Video was hot and everyone wanted to play. Akamai event went as far as to put together a video player framework to allow developers to quickly build flash video players (nicely implement by the way). Entry is only getting easier though the window of opportunity is slowly closing.
This is definitely the most exciting time to start a company and the phase with the most potential. Everyone wants to go public. Hope is in the air and wallets are open. A boom is happening.
This type of explosive frenzy isn’t a recent phenomenon. In the 1800s there were thousands of railroad owners. Everyone wanted in. Fortunes were made and lost. The winners eventually earned the name of railroad tycoon (another Sim game), which lead us into the third phase.
Consolidation
The bubble goes pop. No shock to those who study history. It goes pop each and every time. That is true in business, true in realestate, true in governments. Those with sound plans, good funding and momentum survive. Many don’t.
The survivors begin to feed. In our current internet / information industry: Google, Yahoo, IAC and many of the strongest contenders begin to absorb all the smaller companies. Though you might still have a shot at being one the main players, the odds just went way down.
As their bureaucratic overhead has grown, the larger companies often stop innovating in their own right and rely on the absorption of new ideas through the acquisition of startups. The overhead of the bureaucracy is enough to stifle the quickness of foot that a startup environment requires. The victors of the previous phase become aggregators and serve as a pool of finance and talent for the next generation of companies and ideas. Now the plan becomes the buyout. Take an idea, flush it out and sell it.
Domination
In the end, a handful of companies usually win. Count the number of car manufacturers in the world: there are less than 17 major players who produce over a million vehicles annually. Of the seventeen, four of these (GM, Toyota, Form, WV) dominate the industry making up the large majority of all sales. I would not recommend trying to break into the traditional car market at this point. All industries eventually arrive at this point: steel, telecommunications, computers, pharmaceuticals, power and gas, all controlled by a few key companies. If you are looking for a job, I would look to these industries.
So When Should I Commit?
Anytime you review an opportunity, study the timing of the market you plan to enter. The tactics differ, as should your business plan based upon the phase of the industry.
Is it the skeptical phase? If so, do you have the vision, character and tenacity to handle the amazing amount of rejection you will inevitably face? If your niche is the hottest thing since Tickle-Me-Elmo and is in full adoption phase, make sure you have a sound business plan, are solving a significant problem for your customers and build a team that has a proven success record. Figure out how you will succeed against a horde of other hungry startups. In the third phase, you should might have a very specific idea and figure out who will buy it once you prove its worth. Don’t start a company in the fourth phase unless you are really looking for an opportunity to be self employed (nothing wrong with that). The odds of becoming a big company are against you. Finally, make sure the industry isn’t completely dying. When Peter & I saw someone open a local video rental store last month in his neighborhood (downtown in a big city in silicon valley), we we look at each other and asked, what the hell are they thinking? Don’t they know that within two years, five years max, we will all just get everything from the net instantly? Tragic if you ask me.
The internet has created a boom of micro-industries. Some are just being born, other have already been dominated. Just do your self, your family, your friends and if you have them, your investors a favor and do your homework. It will increase your odds dramatically to pick the right approach for the economic and social environment you are about to jump into to.
To all of you with dreams and with great ideas, I wish you the most fabulous of journeys. As it is written on some statue of a pioneer somewhere (pathetic I know, but I really like the quote): “Only the strong survived. The weak died along the way, the cowards never left.” I am on the 4th and soon we launch the 5th. It is absolutly worth it. Your destiny awaits.