9others, By Matthew Stafford, Insight, Investment
9th October 2015
There are generally three ‘idea challenges’ people worry about, especially when challenged by potential investors. The thing about these, though, are that you still have to out-operate the others and you can’t do anything about what they do anyway.
1. No one has come up with this before
This is the, “If it was such a good idea someone would have done it by now” challenge. People say they want original and creative ideas but when they hear of something truly original they no longer like it. The reality is that true originality like this is quite rare – there’s always a reference point somewhere in history to frame it. An idea in this category that the entrepreneur thinks is totally original could be a business model innovation (subscription razor blades, socks, coffee, etc…) or a human behaviour that’s long gone but technology can bring it back (AirBnB).
Perhaps frame the proposition in a softer way and look for patterns in past businesses. Ultimately you need the extreme confidence (which just can’t be faked long term) to be able to articulate that you’re doing something different and it’s the right thing to do.
2. Someone has done this but they failed
This is the, “I heard about this well-funded company and if they didn’t make this work then you won’t” challenge. It’s not just about having the money it’s all in the execution. Away from San Francisco it’s often the, “Yeah, but I heard a YC company did that and it didn’t work for them….”. Of the three challenges here this is the one that’s toughest in my opinion – Y Combinator and many other investors are amazing and it’s so daunting to think that you’re battling against those machines as well as the startup itself. The Homejoy example is a recent startup with lots of funding that just didn’t make it. An investor I met recently put it in a good way. It was along the lines of, startups that raise lots of money are under pressure to ramp up their burn rate and doing that right takes a long time, so many do it wrong. If the startup does it too quickly it’s likely that they will hire too quickly and the thing about hiring too quickly is that A- grade people get hired not A+. The compound 1 or 2% difference between A- and A+ over a year or so is massive.
Don’t confuse activity with accomplishment. So what if someone has had more money and not made it work – maybe they got sloppy with their discipline and decision-making. You can’t do anything about it and you won’t ever know the whole story. It’s easy to spend other people’s money on fancy offices or the wrong staff – being a founder is about being as resourceful as you can, not showing off.
3. There are loads of startups doing this
This is the, “The market is too crowded right now” challenges. Right now there are a lot of food delivery startups and quite a few ride-sharing app’s – is food tech really about getting your dinner slightly quicker than before? In this scenario the startup that will win has to out-execute the competition and make sure their economics are OK for the long term. Sam Altman share some concerns on unit economics here and I’ve also seen at fairly close hand how Uber operate and (to my knowledge) they’ve only acquired one company. They crush the rest. I’m with Sacca when he says, “Lyft just goes away….”