Interesting article - a lot of good stuff in it but I found it a bit to general to be really useful. As an example, the author states: "So you need to get to market with a viable product before anyone else does."
That's the type of statement that I question - there are plenty of examples of companies creating products in saturated markets where they were not the first mover. In fact, sometime being a first mover can be a disadvantage as you must, as a startup, spend huge amounts of time and money educating the market.
Now, the author's approach of "look at the trend, get in front of it" is great - but it's pretty rare that someone can do that. In startups, I've usually seen that luck plays a bigger role in it than anyone wants to admit - that is, you start a company, and you happen onto the right market wave at the right time.
I found the article great in forcing me to reconsider my goals in that space. I'd always had this belief that it was possible, eventually, to find the right idea and break through and become the next Microsoft / Google / Apple. The more I actually understand about the broader economic environment, and the more I read about the people in question who started these companies, the more it just looks like right-place-right-time luck.
The article puts that neatly in proper perspective. And that changes the personal self-actualization path calculus for me considerably. Targeting "building a rocket ship" as a goal doesn't make you any more likely to actually build a rocket ship than just starting a company in wherever you find your passion. Where you find your passion is, just due to the way humans are, more likely to be rocket-ship-worthy than any idea borne out of any rational brainstorming process aimed at producing one.
Theres no denying the importance of luck in the outlier outcomes. Thats why a fundamental heuristic of any startup idea you work on should be: "would i be proud i worked on this problem even if i don't get an outlier outcome?" If you can't say 'yes' to that, you probably won't have the fire to overcome the unpredictable obstacles that will fight you every inch of the way.
Ultimately, that means shifting from a 'risk calculating' mindset to an 'exposure mindset.' Instead of 'what are my chances of success', 'am I cool with potentially spending years of my life on this problem regardless of outcome'? The exposure perspective is the basis for 'antifragility' and honestly makes life quite a bit easier and more satisfying to live.
> the more it just looks like right-place-right-time luck
That's confirmation bias. There are tons more people than you know of in the right-place-right-time, but couldn't/wouldn't act on it. You still have to build the start up and be persistent at it, have the right vision, do the right adjustments when competition comes around. These are also features shared by the Microsoft / Google / Apples out there.
It's not an either/or: almost every successful company requires both hard work and luck. In very rare cases one or the other might be sufficient, but in the vast majority of cases both are necessary. The amount of luck required can be reduced by hard work, but it can't be taken to zero.
In the usual case, picking a product that turns out to have high demand is the biggest area where luck matters.
There are two kinds of high-demand products: the things that everyone wants but no one knows how to do, and things that no one knows they want but everyone knows how to do.
Fractal image compression is a good example of the former.
Almost everything else is a good example of the latter: smart phones, Facebook, Twitter.
There are some things that are both: the Model T ("If I'd asked my customers what I wanted they would have said a faster horse") and so on.
If you choose one of the former, the odds are you'll fail because if no one else can do it, you probably won't either.
If you choose one of the latter, the odds are you'll fail because if no one knows they want it, it's probably a stupid idea--which is often a smart idea whose time has not yet come.
This is not to say you shouldn't go for it! "The odds are you'll fail" is a simple statement of fact with regard to starting a business, but only for certain values of "fail". You'll learn a huge amount, grow in ways you never knew were possible, and have the adventure of a lifetime. Just be really, really careful about not getting wedged financially, and especially make sure you don't let friends or family members over-invest.
I'd question whether 'everyone knows' how to do smartphones, or social networking, or any number of other innovations. The winners in these fields prove the opposite - hardly anyone knows how to do these things well enough to keep growing a customer base.
I still find an inexplicable number of startups apparently unaware of the critical importance of market-building and networking.
A poor product marketed well will always outcompete a better product marketed badly - or not at all - as long as it has acceptably basic functionality and isn't completely unfit for purpose.
There are so many examples of this in tech it's baffling that it doesn't seem to be considered more often.
And I think the article is just plain wrong about innovation, because in fact there's a constant stream of possible new innovations. The stream comes in waves, but anyone who isn't thinking about what's going to be possible soon isn't paying attention.
'If it was possible someone else would have done it by now' is a Dilbert argument, not one based on evidence.
What doesn't exist is a constant stream of opportunities with instant Apple/Google/FB/MS earning potential.
But these corps got big in many steps, which included choices about products and services, marketing and ecosystem building, customer lock-in, brand management, investor relations, management culture, and worker culture.
They didn't just make a thing and instantly kill the rest of the market because it was just that awesome.
The more qualifications you pile on in the competence vs. luck equation, the more it looks like just luck. And the more it looks like any other field where many enter and few win.
The market selects for increasingly subtler and harder-to-attain qualifications, and while you could conceivably stay on top of what the market is looking for through careful reading of history in the short and long term, time spent doing this is time not spent preparing for actually starting an enterprise. The people who do succeed seem to only read history after the fact.
> there are plenty of examples of companies creating products in saturated markets where they were not the first mover
There is an "exceptions" section closer to the end of the post that discuss this, though it probably should have been longer.
The biggest issue with exceptions like this is that first-time founders often jump into a saturated market and think "we can do better -- look at all the counterexamples", but they end up losing the overwhelming majority of the time. You can jump into a saturated market, but you need a hypothesis as to why you're going to win (a distribution edge that existing competitors don't have, a new trend that existing competitors can't capitalize on, etc.) Especially in the latter case, one could make an argument that you will have discovered a new trend/market, though at that point it's a matter of definitions.
"The biggest issue with exceptions like this is that first-time founders often jump into a saturated market and think "we can do better -- look at all the counterexamples", but they end up losing the overwhelming majority of the time."
I'd be curious to find data to back up that assertion - I've personally seen way more people/companies fail trying to skate to where the puck is going to be vs. just going after businesses where there are already existing solutions. But again, this is anecdotal data.
The best example I have of this is Google. Search was done and owned by a handful of players - they innovated and won. But to your point about definitions - did they win on that, or win on creating Adwords (which they were also not the first mover on)?
Perhaps it comes down to this: entering a market where there are low switching costs means that you can enter late with a significantly better product - but it has to be 4x better (that's my rule). Meaning the product has to be 4x better than the existing solution.
If, however, you're entering a market with high switching costs, then the benefit probably has to be great than 4x - maybe 8x. As an example - look at all the people trying to get people to switch off of Salesforce.com. I don't know anyone that likes this product - but no one can switch because the costs are too high across the board - organizationally, data-wise, software - while the resulting CRM might be marginally better. That means that startups going after that can get traction with people who don't have a CRM, but not with existing CRM customers - and thus bang their head against the wall/fail.
Differentiation is much broader than just the product. It could be in targeting a particular geographic niche, offering different financing, more convenient packaging, etc.
In marketing, they have a concept of the "four Ps" - product price place (distribution) promotion; all of these can be fertile ground to set yourself apart from the competition.
A nice read. I am going to adopt alot of practices from this article. And yes i think alot of times you just get lucky in a few things that can make or break your product. Good affiliations early on can give your product good PR.
What he refers to as "technology" companies are not ones innovating in any technological area. He's really talking about online application business-to-consumer startups ("appcrap"), for which there's a well-defined assembly line process. A real technology company is defined by their ability to do something hard that others have trouble doing.
The first mover has an advantage, but it's not overwhelming. IBM didn't come out with the first personal computer - Apple and Commodore did. Microsoft didn't have the first operating system for x86 machines - Digital Research did. AOL once dominated social networking. Facebook moved into a quite mature space - Myspace, Geocities, and several others were big companies when Facebook started.
Luck does indeed play a big part. If Gary Kildall, the author of CP/M, had been in the office the day IBM was looking for an OS for their new PC, the history of personal computing could have been very different.
> IBM didn't come out with the first personal computer - Apple and Commodore did.
IBM wasn't a startup -- it had massive distribution resources. When you have access to an enormous distribution channel and massive marketing budgets, the rules are obviously different.
> Microsoft didn't have the first operating system for x86 machines - Digital Research did.
Yes, but Microsoft piggybacked off of IBM's distribution channel. That's extremely rare, and 99.99% of startups can't swing that sort of deal.
> AOL once dominated social networking. Facebook moved into a quite mature space - Myspace, Geocities, and several others were big companies when Facebook started.
AOL, MySpace, and Geocities effectively committed suicide. It's nice when that happens, but you can't count on it.
There are no guarantees, it's all a balance of probabilities. The point isn't that the first mover always wins, it's that if you aren't the first mover the balance of probabilities is against you.
First movers have an advantage when they can raise entry barriers (economies of scale, network effects, switching costs).
However, fast followers or late movers have some important advantages, and if the early movers don't have significant barriers they can pull the rug from under them if they have a superior product or better business model.
>>> He's really talking about online application business-to-consumer startups ("appcrap")
No, I don't think so. The author is Slava from RethinkDB. His company is definitely not "appcrap" (as you put it), and I think his same line of reasoning applies equally well to "real technology" companies (like RethinkDB), it just takes place on a longer time horizon. If you extend his metaphors to include the time to competitively create "real technology" they apply equally well.
Exactly right. If Google can make self-driving cars, there are at least two other companies in the world (and probably many more) that can (and will) make competing self-driving cars. The timeline is a big longer, but the basic rules are the same.
As much as we all like to think we're exceptional, we aren't.
I just heard of them from a friend who will be joining and I was skeptical at first. Their model seems to be to attach/install peripherals to a non- self-driving car and turn it into a self driving car. That way they can compete on a level with Google (optimistically) but don't need to manufacture vehicles.
Two efficient market theorists are walking down the street. They see a hundred dollar bill on the sidewalk but keep walking. One turns to the other and says, "If that was real, somebody would have picked it up already."
I like this article. Much of the advice on startups is biased from an investor perspective, this is something that's very real from a founder's perspective.
If I had to summarize and riff off of the ideas here, I'd phrase it as "Be very careful about where you're getting your information from." If you got your startup idea because you heard about something from a news article, you are way too late. If you got it from an Internet forum, there's a chance that you might be on to something, but it depends on how niche the forum is and how close to the bleeding ege. If you got it from a problem that you or a friend personally had and you know how to solve it right now, you may be on to something, but you have to carefully consider how many other people are like your friend and whether that's going to grow in the future. If you're in a niche community yourself and that community is growing rapidly, there are probably lots of things you can explore that might be fruitful startup ideas.
nah, I had to stop reading when it said that First Mover Advantage was the key to success.
That's been so thoroughly debunked (try and think of a single successful startup that was First Mover with its business model). The First Mover spends all its time educating the market, the businesses who follow soon after can take advantage of that.
This article is built on top of many faulty assumptions...
Most notably,"When you’re second to market with a viable product, your customers will compare you to the company and product that got to market first."
This assumes that the entire market knows about a solution the moment a first mover comes to market.
The reality is that building a brand to the point where every prospect you approach is comparing you to an incumbent takes years.
The first couple years of a new market opportunity, even with dozens of competitors, there are enough prospects in the market that you can be first to market with the people you reach and your competitors will be first to market with a different segment of the market.
That being said, it is ABSOLUTELY CRUCIAL for every company to differentiate themselves in a way that they can't be compared to a competitor.
There are some nuggets of wisdom sprinkled throughout this post, but It is clearly built on one subjective individuals perception of things that are beyond our control to really grasp. (i.e. the surface is successful because of a massive ad budget. I would argue the surface is a new category by itself.)
That's true, but you also need a story about how you're going to grow your reach & influence faster than your competitor does. It can work, for example, if your main competitor is a hobbyist who doesn't take his product seriously. Ditto a major corporation for whom this is a sideshow that can't get resources from execs whose attention is focused elsewhere.
But anybody can spend more money to tell more people about their product. This is not a competitive differentiator; if you do it, and the company who got to market first does it, they'll win simply through Gambler's Ruin, since they start from a bigger base.
> This assumes that the entire market knows about a solution the moment a first mover comes to market.
It doesn't. The first mover will start getting customers before you do, and as they do their ability to reach customers will grow exponentially. You might start reaching a segment of the market they aren't reaching, but they'll trivially be able to lock you out.
My argument is that it will take at least 2 years for any brand to lock you out. This post assumes that the moment the press knows about a market, it's too late.
Plus, even if you are late to the game, you can position yourself opposite the market leader and overtake them.
Altavista falls under the "parent company believes it's an inconvenient sideshow, a technology demo for the company's main products" clause. The point of Altavista was to demonstrate the power of DEC's Alpha chips. That made it politically unfeasible to adopt one of Google's key innovations, using large quantities of commodity hardware to power innovative new algorithms.
In my experience, PR and third party validation will build a brand, not advertising.
I do agree that the person who wins the perception of being first in peoples minds will win the branding battle...but I do not agree that the second place competitors won't build strong, viable companies.
In fact, there are many examples of big brands being overtaken by smart positioning.
Avis claimed, "we are number two so we try harder." to overtake hertz.
Enterprise overtook avis by differentiating itself with a different distribution channel (central biz district instead of airports)
IF you aren't the first mover, you need to position yourself opposite the first mover and you will gain market share. This doesnt mean you shouldn't try. It means you should be smart about how people perceive your brand and your competitors.
In my experience, rental cars are commodities. I search on their websites for the lowest price and go with that. On my last 4 trips I have used all four of Avis, Hertz, National, and Enterprise.
If they're trying to build a brand, they suck at it.
(I guess that what they have managed to do is distinguish themselves from no-name budget operators...I wouldn't really consider going with a rental car I haven't heard of, even if it's mentioned in the press. But then, that's validating the original article's point, first-mover advantage is immensely important, and no amount of spending is changing that.)
You are right, They are commodities, and commodities are where branding matters most.
I guess I should differentiate two types of brands. There are category defining brands (i.e. Kleenex, Xerox, Google) and there are recognizable brands.
The fact that you dont differentiate between avis, hertz, enterprise, and national, but exclude rent-a-wreck, which is almost always cheaper tells me that the commodity you are convinced you buy in price, is in fact driven by your perception of those brands.
Being first in peoples minds is the BEST way to build a brand, but it's not the only way. The fact that Enterprise overtook Hertz as number one, even though they were late to the game...and the fact that you don't buy from only one brand, tells me that being first mover is not the only way to win a market.
Although,to be fair, enterprise was a first mover in the "central business district" car rentals.
I guess my point is that every business has the opportunity to define themselves in their own category, regardless of market conditions. That is the job of your branding. To create the perception that you are first.
many of the companies you've never heard of made their money building an easier to use X in a saturated market.
If the dominant company in the industry has not made significant changes to their product in 10 years, then that's an obvious opportunity for a startup, even if the market is completely saturated.
at least in B2B i've found that many companies solve a problem for their customer demographic in year X, grow pretty big, and rake in the cash. They stay stagnant for X+5 to 10 years and they leave their customers frustrated without any real options.
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Another fallacy I hear from people thinking of ideas has to do with "solved problems"
A "solved problem" is just a problem with 1 solution. People are different, customers are different. Is there another way to solve the problem that obsoletes the previous solution?
ex: transportation; solved by "horse and buggy", and then obsoleted by cars and public transportation.
Search on the web was a "solved problem" until Google came along and showed that all of the search engines before then were actually pretty useless. However, until Google came along we didn't know they weren't very good as any kind of web-scale search seemed like a miracle at the time.
Really engaging post. Placed in the context of RethinkDB though it is a bit contradictory no? RethinkDB does not have first mover advantage and they are against the likes of Riak, Mongo, Couchbase, Cassandra, etc. All of those I believe are in a much stronger position according to the criteria in the post.
Many of Slava's past articles have been written from the POV of "bitter experience", i.e. he made all these mistakes in the past, he deals with the consequences every day, and this is what he's learned from them. That's part of what makes them so valuable. I recall pg responding to one of them with something to the effect of "If you're founding a startup and don't understand the points he's making now, you will probably be making the mistakes he details in a year."
RethinkDB won't be in this position for long (and in fact, most lessons in the article came directly from the mistakes made in the process of building RethinkDB).
We found a big point of a differentiation (http://rethinkdb.com/blog/realtime-web/), which, depending on one's definition, can be considered discovering a new market, and we'll be the first open-source scalable database in that market. The upcoming 2.0 release will reposition the company around realtime web/push database. A huge part of the reason why we chose this path is the lessons in the article.
The shift from spinning hard drives to SSDs is an environmental change like the ones you describe in the article. What made it hard to exploit? Not enough improvement, compared to legacy databases on SSD?
Yes. There were many, many companies that attempted to exploit this trend in databases and caching, and all of them are now dead, zombies, or pivots.
The reason is that there is no valuable product there one could ship. Putting an existing database on an SSD gives you all of the benefits and none of the drawbacks.
Isn't that something like SQL Server Query Notifications, where you can submit a query and the DB lets you know when the results have changed? Albeit your API looks much smoother.
Speaking of which, I really hope at one point you reconsider the driver model. Having official drivers for only a few not-so-awesomely-typed languages is a big turnoff.
> Isn't that something like SQL Server Query Notifications
Yes, very similar, but there are a few major differences -- open-source product, horizontally scalable, json data model, packaging/api designed for web developers from the ground up. When you add all of these up, the differences are quite dramatic.
> I really hope at one point you reconsider the driver model.
Yes -- after 2.0 is out, we'll start bringing the community drivers under the official umbrella.
I am yet to read that blog post, but it seems to me that this problem should be solved at a different level.
The issue is that modern application need to work on mobiles and browsers, and be responsive. To be responsive you need to bring the part of the state that can be reached via the UI to the device. This suddenly makes your database distributed among your servers and your client devices.
The device may be a mobile phone or a laptop in an airplane, and it needs to work offline and on networks with high latency. This means you need to have an eventually consistent AP database across servers, browsers and mobiles.
Currently databases assume they live on servers and we hack our way with distributed state on the clients, but I hope this won't last.
- Eventually consistent systems are fundamentally more difficult
to program for average developers than immediately consistent
ones (and when a more convenient system is an option, it wins)
- Connectivity is improving and will continue to improve, so
immediately consistent systems will always be a strong option
It remains to be seen whether these hypotheses prove to be correct in practice. We'll find out soon.
That's excellent. I was recently looking for a simple storage system and went with Elasticsearch despite it not fitting perfectly, because the interface worked well from Rust and F#. I was mainly interested in auto replication/HA. Rethink would have been a better choice, but the driver situation made me decide I didn't want to take on the risk.
This articles makes sense, but it's hard to step back and be so reflective without being victim of analysis paralysis. Many times, you build a toy, something you like, and it turns out big. If you over analyze it, you may not build it because you can't predict the future no matter how well you think you can.
In many cases, analyzing your startup idea with such a complex framework will stop you at your tracks.
I prefer to follow the basic rules PG laid out (there are some overlaps) in his article on startup ideas.
I agree with the statement that startups are like biological organisms evolving in the broth of an economic environment. In @pmarca's words "the market needs to be fulfilled and the market will be fulfilled". Once we move on from this fact (that we can't create startups out of thin air without there being an underlying wave ...without a "why now"), the rest of the actionable advice here will work better for an investor and/or the entrepreneur who views herself more as an investor than say a hacker. Alternative advice is to "live in the future" as PG would say it or to be different as Peter Thiel would imply. What I think this means is to ask yourself how similar what you do for fun/ for projects is to what everyone else is doing[similar --> bad]. How often do you work on that stuff? Do you collaborate with people? I am convinced ideas emerge as a natural consequence of working on ideas at the fringe with interesting people. What is hard is a) working on ideas and b) finding interesting people to work with. Another thing that doesn't help is committing to a company prematurely. Easier said than done, but i think if we as entrepreneurs took it a little less serious...we'd net out with more successful companies.
It's an interesting argument but I can think of so many counterexamples. A guy named Michael Wolfe (pipewise founder) wrote an interesting quora answer on dropbox. Dropbox was way late to the file syncing party.
The answer:
Well, let's take a step back and think about the sync problem and what the ideal solution for it would do:
There would be a folder.
You'd put your stuff in it.
It would sync.
They built that.
Why didn't anyone else build that? I have no idea.
"But," you may ask, "so much more you could do! What about task management, calendaring, customized dashboards, virtual white boarding. More than just folders and files!"
No, shut up. People don't use that crap. They just want a folder. A folder that syncs.
"But," you may say, "this is valuable data... certainly users will feel more comfortable tying their data to Windows Live, Apple's MobileMe, or a name they already know."
No, shut up. Not a single person on Earth wakes up in the morning worried about deriving more value from their Windows Live login. People already trust folders. And Dropbox looks just like a folder. One that syncs.
"But," you may say, "folders are so 1995. Why not leverage the full power of the web? With HTML5 you can drag and drop files, you can build intergalactic dashboards of statistics showing how much storage you are using, you can publish your files as RSS feeds and tweets, and you can add your company logo!"
No, shut up. Most of the world doesn't sit in front of their browser all day. If they do, it is Internet Explorer 6 at work that they are not allowed to upgrade. Browsers suck for these kinds of things. Their stuff is already in folders. They just want a folder. That syncs.
This is the best start-up lesson I've seen this year. I wish more people followed it, though cynic in me thinks it's irrelevant because most of the time, it's not customers that are the users - it's investors and potential acquihirers.
Excellent essay. I feel like the emphasis on "the story" reinforces pmarca's point in his "product market fit" article (http://web.stanford.edu/class/ee204/ProductMarketFit.html): that more important than the team or the idea is the market (in coffeemug's words: the environment).
You can obviously screw up a great market -- and that has been done, and not infrequently -- but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure. Market matters most.
And neither a stellar team nor a fantastic product will redeem a bad market.
The whole essay is really a rip off of pmarca's product/market fit argument, and Peter Thiel's contrarian but right argument. I just rewrote it through the lens of my own experience.
The only truly new thing that I discovered was the "story" bit. I haven't heard that anywhere else before.
What an excellent post! I don't agree with every point, but this is thoughtful, clearly articulated, and the thought process reminds me of PG's best writing.
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Paradoxically, the solution is to stop thinking of startup ideas in terms of solving problems in the early stages of startup germination, and instead start thinking in terms of changes in the economic environment and the opportunities these changes unlock.
==
strong point, exactly what I have been thinking lately while trying to understand every single products Google acquires. I still think there are rooms for innovation.
It's a good article and has some good points.
But after some thinking, it seems that almost none of successful startup ideas come with capturing the change of environment. Instead, most of successful startup ideas come from hobby, solving a problem, iteration, improving existing products, etc.
Besides a good idea, building a successful startup requires a lots of other stuff like great team, good fund raising, great execution, great user growth, etc. I guess all the other parts are much difficult than finding a good idea. If you don't have a good idea yet, you can just focus on other parts: building a good team, or learning to executing well. You can start with small projects with positive cashflow like consulting, etc.
The best way to pickup a startup ideas is to look at new startups and find the ideas that you like and that you can improve and execute well. Just as some other posts mentioned, if you are smart, you can make difference even in mature market. Market is not efficient at all, especially for new and emerging market.
Question -- is there any good place to post ideas for startups? Quite often, I'm looking for a company that provides X, and there is no one that I'm aware of that does X. However, I can see how X could be a profitable business for someone, even if I'm not in a position to start X myself.
Thought this was a great article and found the Pixar storytelling framework particularly interesting. Thank you very much for taking the time to put this to paper. I'll definitely check out RethinkDB!
"Market efficiency implies that if a problem is valuable and solvable, it’s overwhelmingly likely that it already would have been solved."
I think it depends on many things, including the size of the market. I'm willing to bet there are many profitable niches which are served currently with only sub-optimal products. But to find these one needs domain knowledge od the niche, and I think these are served best by teams of adventurous established experts rather than teams without domaim knowledge.
Solutions to problems, be those problems you personally experienced or in the workplace, is what creates a successful product. Without a successful product, you can't have a successful startup. That being said, a successful product doesn't guarantee startup success.
That's the type of statement that I question - there are plenty of examples of companies creating products in saturated markets where they were not the first mover. In fact, sometime being a first mover can be a disadvantage as you must, as a startup, spend huge amounts of time and money educating the market.
Now, the author's approach of "look at the trend, get in front of it" is great - but it's pretty rare that someone can do that. In startups, I've usually seen that luck plays a bigger role in it than anyone wants to admit - that is, you start a company, and you happen onto the right market wave at the right time.
Definitely bookmarking it!