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 insurpassable 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.
Yup, i remember when i first learned of domain names and made a list of them but being 12 i couldn’t afford 3 weeks allowance to buy some useless name that probably won’t really ever be worth anything. Would someone really pay me more money for loan.com? Nah.
You know, I read this through, and I was nodding. Makes sense, sounds good… But then I hit the part about the video store opening up and how you thought that was a bad idea.
It very well may be a bad idea, depending on where you live. Live somewhere else, and it might be the best idea since sliced bread.
Lately, I’ve been thinking a lot about where technology is at and how far it’s come – and also how far it still has to go in many areas of the world.
We all think we’re so smart and fast and hip and in and changing the world. We’re online entrepreneurs, shaping the way people use the ‘net. Sounds great. Yet one of my buddies held a mouse for the first time in his life just yesterday. Where he lives, high-speed connection is not available. His neighbor doesn’t even have a computer. My local bank manager had me explain for an hour what the Internet was and how I could run a business from it. My photographer friend has no website and is currently out of a job. In fact, 90% of small businesses around here do not have websites. Those who do advertise it in tiny letters.
Neglecting these opportunities to create change, bring someone out of the VCR age into the DVD rental, would be… well, a little elitist, in my opinion. (Speaking of VCRs, we can easily still get those around here.)
Those who want to be great leaders of innovation and technology can’t get so caught up in their own little world that they forget about Mr. Regular Joe.
oh man, i am screwed!
what i do a lot of is ask friends when i think i have the bestestest idea and 9 times out of ten it gets shot down (i think i mentioned this on jarkko post) and thats where it stops. fast foward a few months/years later and there’s some other motherfucker making money with my idea. solution: stop making friends.
PEACE!
First off, WOW. Again, excellent post. You really are an amazing writer Shane.
James, very interesting comment.
Living in the Bay area, wireless internet, iPhones, Mac computers, internet startups, venture capitalists, these are everyday words. Heck the whole city of San Jose has wireless thanks to Google. You can sit at an intersection (don’t recommend it) and check your email or look up a website.
But, four hours south (where I spent the weekend visiting my in-laws) it took over an hour to find a coffee shop that had wireless.
When I asked if they had access to the internet they looked at me like I was from another planet. Granted I was in Santa Maria – an agriculture town – but still you’d think they would have an idea. I mean come on – this is California.
I ended up spending $10 at Starbucks just to check my email.
I talk to my parents in Texas and they still don’t understand what a blog is. I try and describe what type of work I do to my grandma in Iowa and she’s convinced I’m unemployed and on occasion sends me $5 to “help out.”
So I can definitely understand that in some parts of the world, the internet is still a rather new concept.
This is funny. Right now, I’m sitting next to my husband and he needs to send his a document over to a friend that is a technical writer.
I told him, “Why don’t you just work it up in a Google doc and send it over to him.”
He looks over at me and says “I don’t even know how to access Google docs.”
LOL. Even my husband doesn’t get technology as much as some of us do.
Thanks again for the great info Shane. I will also see you two tomorrow night! I’ll be sure to make it to that premier.
“Jarkko wrote an awesome post a few days back on How I Almost Invented Social Bookmarking.”
Shane can you re-post the link to Jarkko’s entry? The link comes back to this start-up post.
Thanks!
Found it!
How I Almost Invented Social Bookmarking”
Shane,
I have to agree with James. I was reading the post and appreciating every point when I got to the video store part. In my neck of the woods (metro Philadelphia) maybe the 5-years-until-its-all-instant theory might hold sway but I think only for persons of a certain income, anyway.
My parents, on the other hand, run a motel in delightfully rural Hampton, NY, on the Vermont border, and they wish for the day when someone would open a video store. In fact the Panorama (their motel) has a video borrowing area precisely because there’s noplace one can rent a video for many miles!
I know it wasn’t the whole point of the post, but there is still gold to be made in low-end industries if you are in the correct area, going for the right market.
Regards,
Kelly
I think the point about video stores isn’t about now. it’s about in 5 years. Often success is marked by how your business is doing in 5 years. I predict that between netflix, blockbuster mail, and online video, video stores will be suffering everywhere.
Eventually the internet will be available at increasing speed and in increasing locations. It’s not always going to be how it is now.
I see what you’re saying, Peter. Why invest in a dinosaur that will eventually go extinct?
My answer: To learn, experience and build a business while you can – while the opportunity is there, and then adapt when technology changes. A person knows a video store works and can learn the ropes. Why ignore that business to open another type of business that may be less interesting to the person? Why try to predict what might work in five years when you need income or want to dip your foot into something now? Why not open a business now, get it set, and then learn how to make it better to survive changes?
A store opened now on the traditional basis that has proven to work can change and adapt as technology comes along. The reputation and credibility and clientele is built. They can, in five years, invest in learning and embracing new technology knowing they’ve acquired enough business savvy to do so.
Nothing will be how it is now in the future. But I don’t think that’s any reason to ignore the now or neglect the opportunities there are now in favor of a future that isn’t here yet.
If we paid attention to the now, maybe there wouldn’t be so many animals going extinct. Just a thought.
Thanks for the heads up Stephanie – I fixed the broken link.
@ Kelly & James. A few thoughts occurred to me. First, you are both right that I do live in a pretty unique microclimate, which does not necessarily represent the global market.
But Stephanie is on the nose about it too. The video store happens to have set up business right in the middle of this particular local community, which has almost 100% connectivity – free wifi for all – and happens to be one of the largest tech centers in the world. So, upon reflection, I still agree with our initial reaction. Stupid move to open a video rental shop in the heart of silicon valley. Part of timing is to know your specific market and client base.
Now onto the general. Even though the death of a market might be 10 years out if you take rural areas into account, or even 15 … can anyone argue that its demise is not a sure bet? If you know beyond the shadow of a doubt that your industry is doomed (though you could argue that for a lot of industries) eventually, I would honestly question investing in it for the long term. I guess in the ends it depends on your goals. Even if you are looking for a healthy self employed opportunity though, I would still tend to pick something on the upswing. Just my personal thoughts.
That was a great point and I am glad you brought it up.
“Can anyone argue that its demise is not a sure bet?”
Nothing is a sure bet until it’s all over, Shane. Sure, all arrows point in that direction, but until it’s gone… I won’t be the one to say I can see into the future. Who knows what might happen?
Wow, how the hell did I miss this topic in my reader? Far too much to absorb all at once, so let me just say great conversation going on here.
You make a strong argument, though something about the idea bothers me and I am having a heck of time pinpointing it – which probably means when I figure it out, it will make a great blog post. (thanks for the push – it forces me to think things through)
Having the ability to adapt to a changing market is vital, I couldn’t agree more. No doubt on that. But this isn’t principle. People mortgage their houses, test their marriages and go to extreme personal risk to start a company. Wouldn’t you want all the advantages you can have? I can promise you that loosing a company is no picnic.
I am down with learning and have lost two business myself. You can learn and fail on something that has better odds and at least have an increased chance of success. To go into business expecting it to be a learning experience and a failure sounds unwise. Don’t go into business unless you plan to win.
I am not sure I would ever think it wise to invest into a slowing market. If you are looking to own your own job and there is enough work to cover yourself, that may be enough, but if you plan to grow a company that supports many, I still think it is wise to pick a trend and grab on its coat tails.
How does this apply to your industry? Does it? Writing is one of those areas that has been around for centuries. What are the trends in writing right now? Do they garner different opportunities and different incomes? Is there a type of writing business you would consider unwise to launch?
After watching the company I’ve worked for the past two years fail, I’ve come to realize that “vision” and “passion” are vital.
There are so many start-ups that really – to me – don’t make sense. You can tell they are just wanting a piece of the pie.
Starting a business with hope of having it bought out, in a sense, is a get rich quick idea. Which of course is nice, but in my opinion, isn’t a Alexander Graham Bell or Thomas Edison idea. They were inventors. Not copiers.
What I see lacking is uniqueness. What makes you stand out from the rest? What is missing in the world?
A great question that I’ve been pondering lately is:
“How does what I want serve me and how does it serve everybody I come in contact with?”
@ Shane – Glad I’m making you think
I’ll say one thing: I am in no way encouraging people to start a business with the idea that it will fail and you will learn from the experience. Not at all.
I believe you must go into any business with the attitude that you will achieve success and will do what it takes to make that success happen – but that you should be prepared to make changes, adapt and possibly fail. Anyone who walks into business thinking it will be a 100% success is chasing fool’s gold.
Plan to win, yes. Be conscious that you may not win. This is not expecting failure – this is knowing the risks and doing what you can to prevent them.
Yes, I think choosing a thriving industry to tap into is a good choice. I think that choosing a business with long-term potential is wise. I do not agree that a person should choose a business outside his or her personal interests based on the potential of success. There is money in accounting – damned if I’ll do the math.
People expect success without failure – they expect all the advantages, benefits and dreams to occur. When something does fail, be it a marriage, a house mortgage or a business, they don’t analyze how they could prevent that same situation the next time around, or they don’t work on finding solutions. They crap out. I don’t blame them, either – any failure is tough to go through.
It may be wise to invest in a slowing market if you know that you can do something different to turn the market around. Everyone sells hot dogs, but fast food is on its way out. So restaurants are turning the market around by offering something different – fast, healthy food. They are using a slowing market and investing in change and adaptation.
Had McDonalds gone with your line of thinking – that growth in a slowing industry is impossible – the Golden Arches would’ve crumbled. And yet, up here, people are now buying salads and wraps. The chain survives.
Pick a trend, sure – but to me, this is more risky. Fads come and go. Trends boom, then crash. Who can guess what the next hot market will be? It’s impossible. Picking a trend to invest in and grabbing onto coattails might leave you holding an empty jacket.
My industry… *sigh* Ah, you would ask questions.
Trends are changing, yes. Snappy, fast, Web 2.0 writing is in. Lots of personality and a young, dynamic tone. Corporate-speak is out. Bland and informative is dying. People want entertainment and to stand out.
Different opportunities? Yes, absolutely. Adaptation required? Definitely. Will many writers die off? Of course – plenty of people cannot change and adapt quickly enough or effectively enough. Do we need to invest in our own adaptation? Yes, of course – we need to learn and change, stand out as Web 2.0 writers and cutting-edge scribes. (There’s an anachronism for you!) We’ve done it, we’re onto it, and we’re adapting.
But we can do this because we invested in a business that we loved, first. Not because it was a fad or trend or had opportunity for growth and success. We write because we love to. (Much in line with what Stephanie just wrote.)
That passion, first and foremost, seals our success.
@Stephanie
I think your point is a very romantic point. The world is a better place for ingenuity.
I also think that while business can be romantic, it often works best given a proven formula.
I think the best business to start is one where you have a path to follow but the path doesn’t lead to a cliff.
A video store has a path to follow. But I don’t have faith that it as a business, will grow. I think it will diminish – i.e. the cliff.
If you knew the titanic was going to sink, would you get on it just because you know it would be an adventure? Because it was different?
Shane and I have this debate a lot. Should we work with innovative new bleeding edge alpha technologies (we think they’re fun), or should we work more with standard websites, blogs etc. Generally, we always find repetitive things are profitable, while new engagements are risky and often lead to loss.
We still play with bleeding edge tech because we’re romantic, but not so much because we’re being rational.
Great post, great discussion!
I’m currently in the middle of an internal debate on whether an idea of mine would be worthy for implementation or not (I’m starting to believe it is) – that’s where I got the idea for post which Shane linked to as inspiration for this post.
This morning I had already packed up my computer for work and was taking a shower when I realized that what makes a big difference in deciding whether you should start a specific type of a business or not is how you see the state of the market. I had to come back, start the computer and comment.
You say it doesn’t make sense to start a video rental store anymore. But still, people start them all the time. Why?
I don’t think the person who starts a video store thinks that he will fail in five years or less. He plans to succeed, just as everyone. But the mistake (?) he makes is that he misintreprets the state the business is in, thinking that it is in a steady phase that can go on for decades instead of the fading away phase.
It’s easy to see that someone thinking this way about a video store might be mistaken. But what about a web based startup that wants to start a new social networking site? There are already tons of these, so would you say it’s too late to enter the market, or are we in a state where a new site can still kick the current competition out?
Google did it when it entered the search engine market. But most will probably fail trying to beat Facebook.
The lines between the different stages described in Shane’s post are blurry. That’s what makes the start interesting. (And that’s just the beginning…
My husband and I thought very seriously about selling mp3’s online a few years ago. We had a good niche, an established audience, the business plan prepared, and were actively looking for investors. Then, we realized that we didn’t have the resources to do it right away and decided that if we waited, we would miss the train. So, we let it go.
It was a letdown to see it not work out, but now that I think about it, I’m kind of glad it turned out that way. It’s hard to make that type of business lucrative. Even Apple has admitted they don’t make much profit from iTunes. It’s just a platform to support iPod sales.
Besides that, I love making web sites and can’t imagine doing anything else. My husband feels the same way about doing illustration. I’d rather find a way to be successful doing what I love than start a business just to sell it later or watch it get obsolete.
Cuz I just can’t let go – today apple announced movie rentals via itunes. One step closer to extinction. Can you fit your VHS tape in your ipod?
(guess I’m feeling feisty – bring it on)
Ah, but a smart entrepreneur sees the demand for all those people left holding VCR tapes who really don’t want to spend money investing in the new technology and equipment.
What’s old is new again. “Can’t get VCR anymore? Don’t scrap that machine – come see us for our collection of retro VCR tapes!” or something like that.
I need wine.
We just bought this thing that lets you convert your vhs or anything else on the tv to digital format. It’s a big pain to do. That would be awesome if someone came out with something that made it easier.
@James – I like your idea! The other thing is that lots of video tapes can’t be replaced by new technology such as family videos, bootlegs, and other things like that.
Great post, you described the Product Life Cycle in terms of a startup and ideas.
To go back to the video store, I can see that industry declining heavily in the future but not really dying. What will happen is it will be dominated by a few huge players like Blockbuster. The “mom and pop” video stores will be all but closed unless they branch into another business model.
(Aside: a video store crossed with coffee shop might be cool. Watch a free movie while you drink. Then you can take it or another home…)
I think the best ideas are formed from an actually need of the founder. del.icio.us was founded because the founder needed to manage his bookmark collection, everyone knows how Google was founded. Like the saying in the Open Source community, “scratch your own itch”.