The problem with so many "startup ideas" is that they are a solution to the problem, "I want to create a startup and don't have an idea." Not surprisingly, this tends to produce copycat concepts, products with no real market fit, services that target sexy but oversaturated markets, etc.
There are lots and lots of problems that are either unsolved or are being solved in ways that are less efficient and cost-effective than they could be, particularly outside of the consumer space. In many cases, these problems can be solved with relatively unsophisticated applications. But the folks who sit around thinking about the usual consumer internet suspects (Facebook, Twitter, Instagram, etc.) never discover these problems because more often than not, they have no domain expertise.
Sadly, it seems to me that many technical wantrepreneurs have no real interest in developing domain expertise because they believe there's more value in mastering the framework du jour than focusing in on a vertical and developing a real understanding of it over time.
I have come up with a lot of ideas to solve business problems, but I am reluctant to implement them for the concern that selling to such businesses would be a far more difficult problem than simply creating something that works better than what they are currently using. Business often make stupid decisions based on relationships with sells people or brand recognition more than merit of the solution. Of course, this problem exists in the consumer space as well, but the market is so much larger (everyone is a consumer, not everyone makes decisions on what solutions to deploy in a business).
First, it should be noted that if you're actually in the industry you're targeting, chances are you have relationships that you can leverage. Your comment seems to imply that you're an outsider with no domain expertise who believes he has ideas to solve problems in various markets. If that's the case, you have the aforementioned domain expertise shortcoming.
Second, far too many technical folks seem to believe that they have to sell what they've built. That's almost never the case. There are people who make a living selling all sorts of products and services in established B2B markets. If you have a product or service of merit, chances are you'll be able to find somebody with sales experience who will be interested in selling for you.
Now here's the key: you must be prepared to invest money into your sales efforts. You're probably not going to find many good, experienced salespeople who will work on commission only. And depending on the market, you'll most likely need to budget for tools that will help your salesperson succeed (trade shows, etc.).
Bottom line: it takes money to make money. If you're not willing to put cold hard cash on the line to sell your solution, you have no reason to expect results.
Sales is a bitch if you are not good in it. I complete agree that almost everyone can learn to become a mediocre sales person, yet this is not what you want foe your B2B start-up. But yes, chances are that you will ultimately find someone to sell your product. Even it is not a trivial task to do so.
The pint where I realy don't agree are relationships the typical start-up founder can leverage. My impression is that this kind of decisions are met in a, for me, not really understandable way at levels a founder that worked for a couple of years in company X in industry Y is unlikely to have. These kinds of caontacts don't come from domain knowledge alone.
Agree on most of the rest, although I would stress the importance of sales in a B2B environment even more. Would help to get really early on some good business guys for that. And I mean business in terms of I-did-sell-fridges-to-escimos sales people, not I-had-a-good-prof-during-my-MBA types.
you have the aforementioned domain expertise shortcoming
This seems a little harsh or judgemental.
Big Co's don't care about your 10pc better product, because it may be 10% of a cost center that is maybe 15% of revenues. That makes it a 1.5% margin business for them, which is literally not material. Given the politics of BigCos, the top guys have limited bandwidth. They typically don't want the brain damage associated with taking on operational risk for non-material benefits on the upside. Its a distraction, and a fundamental conflict of interest for them. The quality of your sales guy, is only so good as he helps develope a product with lowe operationa implementation risk and has the already-in-place-relationships with a BigCo to de-risk their adoption. even in the best case, its a tough sell. The better bet is to show up with a 10x solution. That turns a 15% cost into a 1.5% cost, and creates a 13.5% increase in profitability. Now that you are moving the needle, you will get people's attention. Even at sr. levels...Just some things worth thinking about. As petet thiel rightly notes, there are varying abstractions of 'sales' skills that come into play, not all are of the door-to-door "sales guy" variety.
It wasn't. My statement was prefaced with "If that's the case..."
> Big Co's don't care about your 10pc better product, because it may be 10% of a cost center that is maybe 15% of revenues. That makes it a 1.5% margin business for them, which is literally not material.
You're missing the point: you realistically aren't going to know what product to build, or be able to assess its value before you build it, if you have no domain expertise.
An entrepreneur with domain expertise is far less likely to build a product that doesn't create enough value to be viable than an outsider who doesn't understand the businesses he's targeting. In other words, the entrepreneur who actually understands what he's doing because he understands the industry probably isn't going to build a 10% better product that is 10% of a cost center that is associated with just 15% of revenues.
i agree and am also a big believer in the notion that your product usually needs to be 10x better to displace the competition. however, sometimes there is benefit in not being a "domain" expert. naivety can drive an entrepreneur to do what industry insiders have been conditioned to believe is impossible. while young entrepreneurs are inexperienced, their age also works to their advantage in certain situations.
> i agree and am also a big believer in the notion that your product usually needs to be 10x better to displace the competition.
Do you have any evidence whatsoever to back this notion up?
Without much effort, I can think of a lot of markets in which this isn't the case. One example: eDiscovery software for law firms. There are young companies gaining traction in this market and they're absolutely not "10x better" than the competition as far as technology, usability and overall sophistication go. Some are actually less robust than the competition but are able to compete on price alone because there isn't always a need for the Cadillac offerings.
in the example you bring up, these new eDiscovery software providers are competing on different dimensions. in fact, i would argue that they're carving out a new market (smaller law firms who don't need the cadillac)/disrupting incumbents through a simpler product that better fits the needs of a different type of law firm customer. in this situation, they are a "10x" better product in terms of a better product-company size fit + pricing that is orders of magnitude better (enabled by the focus on a different customer set with a simpler product).
> in the example you bring up, these new eDiscovery software providers are competing on different dimensions.
Uhm, most businesses compete "on different dimensions." What's your point?
> in fact, i would argue that they're carving out a new market (smaller law firms who don't need the cadillac)/disrupting incumbents through a simpler product that better fits the needs of a different type of law firm customer.
Ironically, you're providing a perfect example of the importance of domain expertise because I can tell from your comment that you're not familiar with this market:
1. Not all of the eDiscovery upstarts, many of which are engaged in offering hosted document review, are targeting smaller law firms. In fact, this really isn't such an attractive target market because small law firms are far less likely to have cases large enough to warrant the use of a hosted document review service.
2. Large firms have relationships with multiple eDiscovery vendors, so an upstart vendor has the opportunity to play ball without having to displace entrenched competition in one fell swoop.
3. eDiscovery is ultimately paid for by the client, so clients make the final decision on which vendor is used.
my point (agreeing with yours) is just that if these startups are getting meaningful traction, they are probably 10x better in some way or through some combination of factors, be it being simpler, cheaper, etc. if they aren't "better" by 10x, then they're probably just nibbling at the edges of the incumbents' market and their traction isn't really worth noting. there's always a way to make sales to some small percentage of people in any market, even if your product is worse. getting some revenue traction is no proof point that you're really doing something disruptive in a major way. but to really change behavior at scale, i do believe you need to be "10x better."
Phrases like "meaningful traction" and "at scale" and statements like "if they aren't 'better' by 10x, then they're probably just nibbling at the edges of the incumbents' market and their traction isn't really worth noting" might sound good at a Silicon Valley mixer, but they don't really mean anything.
There are lots of people who have mid-to-high six and seven-figure a year businesses who are "nibbling at the edges" of markets. To those who aren't impressed I say: don't knock it until you've tried it.
i'm not saying i'm not impressed. in fact, i think anyone who can start a business and be self-sustaining deserves praise. all i'm saying is that there is enough inefficiency in any large market to become a 7-figure business even if your product is no better than the competition. you can get customers through personal relationships who are doing you a favor and sometimes customers don't have the time to do a full evaluation of all your competitors. so, if you happen to reach them at the right time and solve their problem, even if you don't have the best solution, they still might choose your product. all i'm saying is if you want to create a truly disruptive company that can get to $100MM in sales, you do need to offer something 10x better. if you want to start a business in any given market and get to high six figures or seven figures, you just need to create something good enough and hustle. but you won't start displacing your competitors at scale if your product isn't significantly better.
Uhm, most businesses compete "on different dimensions." What's your point?
Your definition of domain expertise seems self-referential. If you define it as "knowing everything which makes a business in this area successful". That's like marketing/consulting speak, so its ok, but Its not adding much explanatory power to the analysis.
Can you explain why chipotle and chobani are massively successful? Fast food and dairy grocery are classic commodity products in the US. That's broadly defined. Narrowly defined, the markets in which they compete, their products are also not amazing vs. direct competitors. But they are both massively successful.
Why? Domain expertise? Harldly. They are merely competent competitors, making OK but not class leading products.
But how do they succeed ast selling at 2x competitor prices? Is it a 10pc better product? Or a 10x one?
What is the definiition of domain expertise that reverse engineers the secret to this success?
One likely answer is that they dimensionalize their product in certain ways, when bringing them to market, that changes/highlights their relative performance. By bringing a different class of commodity product to bear on an existing market, they mimic/synthesise a class leading product.
So, chipotle takes a bog-standard SF burrito and makes it go head to head with pastrami-deli sanwiches for lunch in nYc, where nobody would otherwise touch tex-mexican food. Likewise, chobani takes 2nd rate strained yoghurt and goes head to head with watery americanized stuff. Its quite similar to how starbucks took italian espresso-based coffees mainstream 20 years ago. In other workds, yeah, they are competing in different dimensions by using a different class of product to compete in a commodity industry.
But note the prices are not 10% deltas, they are 1x-2x (ie 10x 10%). So in that sense, they are coming to market with products that have if not an order of magnitude higher performance, a significant premium that commands a whole new tier of pricing.
This is the equivalent of North Face and Patagonia selling street clothes to urban your and college kids. Again, these are brands that may or may not be class leaders when viewed apples to apples, but they profit from marketing to people who compare them to choices which haver weaker performance in certain dimensions. Its another variation of making a 10x product out of a 10pc product, by altering the product/market fit...not the product. These are abstract market plays, not "marketing" driven plays, in the first instance...they historically gain their nich/cult status through WOMO not traditoinal advertising. In other words, these are considered "hacks" by early adopters (using a product for some other purpose), which then become popularlized by followers and ultimatley are adopted by the mainstream.
> Your definition of domain expertise seems self-referential. If you define it as "knowing everything which makes a business in this area successful".
Your if is a big, incorrect one.
Expertise is defined as "expert skill or knowledge in a particular field." It does not mean "knowing everything which makes a business in [a particular industry] successful." There is no way of knowing whether a new business will be successful, but I think most reasonable people would agree with the statement, "An experienced individual who knows a thing or two about the industry he's in almost certainly has a better chance of being successful than a person who knows very little."
> Can you explain why chipotle and chobani are massively successful?
Chipotle was founded by Steve Ells, a graduate of the Culinary Institute of America who worked as a chef before he opened the first Chipotle.
Chobani was founded by Hamdi Ulukaya. He worked on a dairy farm his parents owned as a child and ran a cheese company prior to starting Chobani.
I can't respond to your meandering analyses of these companies, which seems to be based more on assumption and personal perception than fact. But if you believe that the experiences and domain expertise of these two successful founders did not help them spot opportunity and did not contribute greatly to their success, we'll have to agree to disagree.
In my experience, you have the difficulty backward. It's just fear of the unknown that keeps too many technical people from attempting it.
If your product has a demonstrable return on investment, then it is far easier to sell to businesses. Because businesses actually make decisions based on ROI, and consumers mostly don't.
Remember that to make a fair comparison, you need to do it per dollar, not per sale. Even if it's 10x easier to sell to one consumer than one business, if a business customer pays 100x more money, then it is still vastly easier to sell to businesses.
Sure, but the same objection applies to consumer-targeted products. If your product is for "everyone", you may need to spend large amounts of money to get attention.
You are mostly right, but then there are other issues to consider: why would a business buy from you who is just starting out? They would like to have some guarantee you will be around after a few years..
Reputation definitely counts for something. But there's a slew of businesses that would likely buy from you in the early stages. They may be much smaller businesses, and possible not even in your long-term/medium-term target market, but it's a stepping stone.
Selling can still be a challenge. But if you have a valuable product, and an A* sales team, it's much much easier.
>Because businesses actually make decisions based on ROI
They like to say they do, but they very frequently don't. I'd say easily 80% of the software and hardware purchases I've seen corporate clients make are based on things other than ROI. Things like "the sales person for product X always takes me to nice lunches" or "everyone else is using Y so we need to use Y too".
That's why you need to sell first and build second. You have a good relationship with your first customer, who has a real problem and real money to solve it.
Yes, of course if you have domain expertise and there is a need you can recognize a niche to fill with a company. I think getting domain expertise is easier said than done and could probably require quitting one's day job to go work in industry X for 5 years. Possibly just to find out that filling a niche is hard.
1. I didn't suggest that domain expertise is easy to develop. Nobody gains expertise overnight. That's the point.
2. You don't have to quit your day job to develop domain expertise. Be strategic and try to make sure your day jobs are related to a specific industry. Far too many people hop from random startup to random startup. That's not surprising: the pay can be excellent, you get to work with the latest and greatest technologies, and you get a lottery ticket in the form of equity. But many of these jobs won't provide enough exposure to a vertical to actually gain meaningful knowledge of it.
3. If you get involved in an industry, you should take the time to establish relationships, especially with folks who are non-technical. If you nurture those relationships and keep your eyes open, you will often meet highly-knowledgeable, well-connected non-technical individuals who make for perfect non-technical co-founders. These are not the "non-technical co-founder seeking technical co-founder" wantrapreneurs with no domain expertise of their own who you run into all the time in Silicon Valley.
4. If you're not prepared to invest the time in understanding a specific market, that's fine. Be the best engineer you can be, try to maximize your income and consider whether it's worth continually beating your head against a brick wall to find an "idea" so that you can create a "startup."
Let me put it this way: in all of the industries I've been exposed to, I've never encountered one that had a) no pain points or b) companies entirely happy with their current vendors.
Note that you don't necessarily need to find a market that's underserved. Plenty of markets are served, but not well. Sometimes, doing something marginally better and/or doing it for less than the entrenched competition is all you need to create opportunity.
The size of that opportunity will vary of course. A lot of wantrapreneurs look at huge markets and think in terms of 8, 9 and 10 figures, but if you're more realistic (i.e. you'd be happy with a six or seven-figure annual top line with healthy margins), I would suggest that opportunity is abundant. The easiest way to find that opportunity? If you meet people in unsexy markets, talk to them. Most wantrapreneurs won't give these folks the time of day.
Not that difficult. Instead of starting a start-up when you come out of school, go work in a few IT departments. You will find something that is needed somewhere.
Write articles and go and interview people as a journalist/researcher. You can do that in your spare time and you will get good access to decision makers and find out all about industry perspectives and pain points.
We recently had a hackathon with a multilateral rice science nonprofit - they had very focused challenges http://rice-hackathon.irri.org/challenges using their domain expertise - the results of the hackathon was eye-opening!
I agree that domain expertise is often lacking in startup founders, especially the "business" founder. For several years I wanted to form a recruiting startup without having built up a solid understanding of how recruiting works. After I had several years of recruiting under my belt, I was able to build a reasonably successful small business (originally a startup that couldn't scale) that exploited a nice little niche in the recruiting world. That small business wouldn't have been possible if I hadn't known a lot about recruiting.
There are lots and lots of problems that are either unsolved or are being solved in ways that are less efficient and cost-effective than they could be, particularly outside of the consumer space. In many cases, these problems can be solved with relatively unsophisticated applications. But the folks who sit around thinking about the usual consumer internet suspects (Facebook, Twitter, Instagram, etc.) never discover these problems because more often than not, they have no domain expertise.
Sadly, it seems to me that many technical wantrepreneurs have no real interest in developing domain expertise because they believe there's more value in mastering the framework du jour than focusing in on a vertical and developing a real understanding of it over time.