Editor’s Note: This is a guest post by Mark Suster (@msuster), a 2x entrepreneur, now VC at GRP Partners. Read more about Suster at his Startup Blog, BothSidesoftheTable.
I’ve been thinking a lot lately about the proliferation of startups in the past 2 years. It seems almost incomprehensible that only 2.5 years ago we read the “RIP Good Times” presentation from Sequoia.
But what does this all mean? Are we headed for a long era of innovation in which startups are the new norm? Are we seeing a time in which pre-revenue companies are more valuable than our offline institutional brands? As with the late 90’s the answer is “Yes. And no.”
Yes, there is unprecedented innovation. I’ve never seen anything like it in my career. The era of cheap cloud computing plus open-source software plus digital natives unleashed upon society is creating some truly amazing products that will challenge the way we do business and the way we live our lives. I don’t believe it’s hyperbole to say that Twitter and Facebook are truly transformative at a societal level, for example.
No. It’s not all sunshine and candy canes. We are building a lot of stuff now that has no longevity. In a way, startups have become kind of like the video game industry. New stuff gets created, it’s fun to play with and talk about. You want to use it because your friends are doing it and you want to find out what it’s all about. You want to see what’s new. You want the dopamine rush.
You play with it for a few weeks or months. Then you stop. You stop because it was game like. Temporal. Non valuable. Not really helping you do something better. Not improving your life or business.
Not solving a real problem.
And so it occurs to me that many startups in the consumer world are now truly hits driven like video games or movies. They get marketed as such. We compare user numbers like box office receipts. Some become true breakouts that can be built into a franchise even though they started as just a game, like Angry Birds. They had the magic formula. Others like Words with Friends solve deeper problems than games, like meeting new people or curing loneliness.
The challenge that many startups face today is: Are you really providing enough value? Will you get the TechCrunch bump, the tier-1 VC anointment, followed by great PR firm support and then the NY Times or WSJ story that follows? Will that be enough or will high churn rates creep in, new toys be introduced into the market, new time sucks pulling user attention away? This year’s Tamagotchi?
If you’re building a startup today I would encourage you to think harder about how you’re going to win the battle for share of mind. That’s much tougher than getting people to play with your hot product for 6 months. To do so you must truly provide value that changes the way that end-consumers do something in their lives that will persist.
My example du jour is LinkedIn.
Why had it endured though market machinations and become this year’s darling IPO? I can’t comment on its stock price – I’m not a public market analyst. But the obvious value to LinkedIn is that it is the dominant online resume of our generation. They got us to fill out the details of where we worked in the past and the network effect compels us to keep it updated.
The second obvious value driver is that it was one of our first true “social graphs.” I often argue that this has greatly weakened because everybody I know accepts LinkedIn requests from strangers so it’s not really a true barometer of our graph anymore but enough of the remnants are accurate enough that value persists. So resume + directionally-correct social graph = goldmine for recruiting, networking and marketing.
It doesn’t strike me as a “social network” in the way we’ve come to define them. But its focus on solving a real-world problem makes it uniquely valuable to most other social graphs.
So as I get around the country speaking at college campuses in 2010 & 2011, I have been preaching the same theme. If you want to build enduring companies that weather both the tech market acceleration and the inevitable tech market correction as companies like LinkedIn have done, you need to ask yourself if you’re solving a real problem for users that will persist when hotness wears off.
That might be in online resumes. It might be in online game platforms solving the problem of entertaining people. It might be online videos targeting a niche audience. It might be a way to diet online or a way to manage your online scheduling / appointments. Or like a company I spoke to today, SportsForce, that is helping high-school athletes better prepare to get picked up by college sports teams. That’s a problem in need of a solution – I’m sure. Or the way Uber is shaking up the cozy, static world of taxi transportation.
Not every problem has to be a huge VC-fundable business.
But what I do see in the market in 2011 is way too many “me too” solutions where a bunch of founders have brainstormed a way to do a better Groupon, a better Gilt Groupe, a better Twitter or a better Quora. When pressed, not enough of these entrepreneurs can answer questions about why users would still be using this product in 5 years, about why their product is going to solve a consumer or business problem that isn’t being solved today. They pitch me features, not value.
I play with features. I’m a tech junkie as much as the next guy. But next month I’m on to the next one.
I would encourage you to think bigger. The market is over-weight in companies trying to solve problems for bars & restaurants. Sure, that’s a fine category. I have no problem with it. But what about education? Healthcare information? Energy? Housing? Auto? Financial Services? There are so many big inefficiencies in this country that need tackling. I feel quite comfortable that our bars & restaurant industry will be just fine.
When you solve a real problem you’ll win the true battle. The battle for share of mind. Challenge yourself to think harder.