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As VCs enroll the startup class of 2016, it’s RIP for ‘me too’ companies

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Longtime Facebook VP Mike Vernal joins Sequoia Capital

Many of the world’s legendary tech companies got started just as the public markets were cooling off; Microsoft, Apple, HP, IBM, Oracle, FedEx, etc. The most recent case in point is the startup class of 2008-2009: Dropbox, Airbnb, Pinterest, Uber and Tiny Speck (Slack) all got their early funding in those dismal years.

And, while not everyone agrees that there is a massive downturn in the startup world right now, many are acting as if there is. This herd mentality is both a crisis and an opportunity (or a “crisi-tunity”) — just as in the last cycle, I believe the category-defining companies of the next decade will be launched and funded in the next couple of “less exciting/slower” years.

I meet with hundreds of ambitious, passionate and insanely talented tech founders every year. They are all working hard 24/7 to make their dreams come true. But it breaks my heart when I see talent wasted on solving derivative problems a bit too late in the cycle.

I understand if a given problem is a founder’s passion, and respect that. However, if they aren’t crazy about the idea in the first place, it’s better to give up the “Uber for X” ghost and instead focus on more original inventions — ideas that could create new markets and enjoy infinite runway in terms of growth.

That ambitious founders learn from the successes and failures of other category-defining companies is of paramount importance. However, even if a young startup executes flawlessly on all the tactics of an incumbent company, it won’t work out as well.

Why? Because you can never step into the same startup zeitgeist twice. If something isn’t original, but well-understood as a successful strategy (e.g. for distribution), the barriers to entry will be low — and many will jump in to take advantage.

The strategic visions outlined below would have been revolutionary five years ago. In 2016, they would be the quickest route to failure.

Coming up with an idea

  • “Messaging is taking over the world. Let’s launch a new messenger, but only for cool teenagers.”
  • “My photos aren’t organized; I can’t view them and share them easily with my friends. Let’s build  a fully automated and intuitive photosharing app.”
  • “Airbnb for X, Uber for Y, AngelList for Z. There are 123 verticals that are waiting to be disrupted. Just look into the food-delivery space for example; huge companies are being built there.”

Distribution tactics

  • “FB ads are still very cheap. All the large CPG brands are spending a ton of money on Facebook user acquisition now. Let’s rely only on Facebook.”
  • “Let’s recruit campus reps to spread the word about our product.”
  • “Influencer marketing is huge. Let’s make a celebrity CEO.”
  • “Our plan is to acquire high school kids first and then their parents will sign up and use our product. ”
  • “If Apple and Google Play feature our app, we are done. Only scale problems from here on out.”

Product strategy

  • “We should care a lot about beautiful design. Let’s copy Pinterest for our website and Tinder’s interface for our mobile app. It will help a ton with increasing conversion and engagement.”
  • “Let’s use Facebook’s Login SDK; all of our users love signing up for their favorite products with Facebook.”

Business strategy

  • “We don’t care about monetization today; we will grow big and then figure it out. We just have to raise a ton of VC money in the interim; that’s easy.”
  • “Let’s ignore the regulators; they will be begging us to work together later on.”
  • “All the Silicon Valley influencers are our early users. We will be the next Facebook.”

PR strategy

  • “I need to build up my profile as a founder. I hope I get nominated for the “Forbes 30 Under 30” list. It will help a ton with fundraising.”
  • “I will start blogging and will be tweeting a lot more moving forward. Startups are cool and everybody wants to learn more about founder struggles. Reporters and job candidates will be begging to learn more about my company.”

The good news is that in 2016 the field is level again. Startup folks have ideas about what may be coming next, but nothing is as obvious now as it was for the last cycle, e.g. AWS, cheap and fast Internet connections, Facebook for distribution, mobile.

So now is the time to innovate… If you do something hard and break new ground, you’ll have the chance to build a category-defining company. That is what you should aim for: The “it” company in a new space enjoys a huge premium over its competitors.

However, the next Facebook and Snapchat will look nothing like Facebook and Snapchat. And if you are lucky enough to build this cycle’s Uber, be forewarned that it will serve as inspiration to many more founders who would love to emulate your success. They’ll replicate it in other verticals and markets ad infinitum until the cycle resets … But for now, I can’t wait to meet the startup class of 2016.

Featured Image: Ben/Flickr UNDER A CC BY 2.0 LICENSE