With So Many Startups, Where Does One Get Customers?
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With DEMOfall 09 now behind us, pitch season has given us a lot of "Wow": solid businesses with promising applications. The majority of new ventures we're seeing today are variations on familiar themes, new combinations of old technology, and niche plays. Not all of them have convincing business models, but the bigger challenge seems to be acquiring a customer base at all.
At the earlier TechCrunch 50, Paul Graham of Y-Combinator asked a number of the startups that presented, "Who do you think your best target is?" Acquiring and retaining a large enough customer base to make a venture worthwhile has always been a challenge for young companies, but it seems particularly an issue these days. Here are a few reasons why.
Increased Competition
New companies are facing talented, quick-responding competition at a pace never before seen. New teams can be formed in days, and new products launched in weeks. The marketplace is global, and the next competitor could come from any one of a dozen innovation hubs. The window of opportunity is shrinking, and differentiation is harder to claim. For some, this means less attention to protecting intellectual property and more attention to getting to market quickly and then iterating.
Stronger Incumbents
Creating completely new value is rare. New companies typically get their customers from existing companies, and those companies aren't letting go easily. Many incumbents were themselves new companies less than a decade ago, and they are nimbler than the big guys they toppled. They constantly work on innovating, staying ahead, and keeping customers happy. Disrupting their market is possible, but being just a little better is certainly not enough.
New Product Fatigue
The Web is not new anymore, and anyone who is not an early adopter is not interested in the latest thing. Consumers will occasionally fall for gimmicks, but startups cannot build a business around a $0.99 iPhone app that people use only once. The vast majority of consumers usually prefer to leave things as they are rather than add yet another complication to their busy lives.
History Proves It Is Hard
The simple fact is that the list of companies that have tried and failed is growing. Those companies know it's hard because they've actually done it. Despite what so many founders of startups think, there is no pent-up demand for their products from customers ready to pounce. Most products fail to gain attention, create value, impress, or sustain interest.
Despite these challenges, the tone of presenters at these events are notable for their optimism. We were on the precipice of a global financial crisis one year ago. Now, we're all talking about opportunities and how to thrive (rather than merely survive). Hopefully, many of the businesses that have emerged this pitch season will find a way to overcome these risks, attract paying customers, and build their brands.
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I am all for realism but this seems a bit of a defeatist attitude. Yes, competition is fierce and it is important to be quick to market, but it is also important to try. Out of all of the start-ups that have failed there will also be a significant number that have made it. How many of the failed companies wish they had never bothered? How many, despite the failure, have tried again with all of the valuable lessons they have learn't under their belt?
Not all companies can succeed but a positive attitude and determination can go a long way.
It's one thing to be a start up in the web buzz world offering the latest inconsequential location based social app. Its another thing to be a well established, small yet mature provider of B2B infrastructure services, and introducing new products.
My client is opening their EDI messaging Grid via a Web Services API, and the fences we have to climb are very high. In the EDI industry, there is such incumbent lock-in, that to even suggest that services can be consumed via remote invocation via API, rather than solely via HUGE licensed software investments, is like blasphemy.
We have had to focus very carefully on approaching and qualifying partners, and the cycles to establish revenue are very long.
The business of API marketing is strange, outside of the Web 20 playground. When I see some of the API aggregation ventures, I am astounded by the listings of very inconsequential services that just do not seem (to me), germane to real business operations.
It us has been such a challenge entering our home market with an API, that I have been forced, so to speak, to look at other, EDI virgin markets that might make use of our hosted, secure private messaging Grid for functions other than EDI communications to global trading partners.
I agree with Jane Fisher. I have a small business that I work very hard at keeping afloat. It has been a struggle have I have lost near everything to keep it going. I overcame my competition and learned from my mistakes throughout the process. I found a way to make my company stand out. Make it apear different than the rest. I now have made it past the 2 year mark and am back to the life style I had before I started. I took a few steps back to get here but I have no regrets.
The reason this is so difficult is that the customers face the same problem: "With so many products, how do I find the one that solves MY problem ?"
Especially "web 2.0" products where "New teams can be formed in days, and new products launched in weeks" leads to tens (or hundreds) of similar products all trying to get attention from potential customers.
The customers are out there, but they are suffering from information overload and noise and are having trouble finding you....
Hey Alan, can you translate that comment into english?
Hi Jane, thanks for your comments.
I wasn't meaning to be defeatest at all. I'm actually very optimistic about the chances for sales of these companies if they are focused on a small segment first.
From my experience new companies tend to over estimate their value early on while their still nailing the delivery and they underestimate the inertia to move from an existing option (even if that is doing nothing).
So my main thrust was to find that segment that needs you the most and start there. You'll make mistakes, but if you do them in a single segment then your learnings will amass and start to be useful. If you are making mistakes in more than one segment then you're diluting your wisdom.
I see more companies fail in their first 3 months through lack of focus than any other reason, including capital.
I can arbitrarily, yet confidently, state that 70% of all websites are garbage and are not being maintained.
Secondly you are not directly competing with the remaining websites. People do not spend all their time online. If you convince them to use your product, it is not as if they will take time away from HN to read your blog. They will simply take that time away from their offline activities or hours of boredom.
I can arbitrarily, yet confidently, state that 70% of all websites are garbage and are not being maintained.
Secondly you are not directly competing with the remaining websites. People do not spend all their time online. If you convince them to use your product, it is not as if they will take time away from HN to read your blog. They will simply take that time away from their offline activities or hours of boredom.
As the cost to entry in web services has come down, more people can envisage to develop and offer a web service to the market. Some will survive - many will fail.
Maybe the market for each of them needs to be found in the Long-tail. The problem is as a starter you don't know exactly the market segment that will embrace your product. This requires to shoot at a large segment of the long tail in order to find out.
We are shooting.
'New teams can be formed in days, and new products launched in weeks.' Really? Pieces of functionality perhaps but a meaningful product, I do not think so. A 'serious' product still takes time, effort and therefore a fair amount of money. Less than 20 years ago perhaps but still a non trivial amount.
And maybe that is the issue. Several years back it was relatively easy to get someone to fund a startup for quite some time whilst they developed a product. Now though it's not so easy. So people are rushing out small bits of functionality and calling them a business. But they are not.
As an existing small business we developed our online Project, Contact and Image Management service - www.glasnost21.com - initially because we needed the product it now is to run our own business. It has taken over two years: one year to get a product we could use and a year to flesh it out and refine it. The cost has been considerable.
Now we have a product we can use with our own clients and one that is available on demand to third parties. Business is growing incrementally - that is the rule not the exception. Hardly any businesses 'do a Google', or a 'Dell' and go from a standing start to being huge in no time at all. Mostly it's like compound interest: not much over a year but really quite a lot over a few.
So given that, if you are running your startup on your credit card or with VC funds you are most likely to run out or use a great deal before you get anywhere. Is that so different to how it's always worked, mostly?
New businesses are hard. But quality pays, and what goes around comes around. Build something great, that people either love or makes their life better (in whatever way), work really hard, do not waste or run out of money, and you might be OK. Or you might be a billionairre. Either way, you will probably be more fulfilled than if you hadn't done it.
Bon Chance !