Or: How to create the next ‘X’
One of the most frustrating parts of my early investor pitches for LabDoor was my inability to generate an appropriate ‘X for Y’ comparison. The easiest way to help investors ‘pattern recognize’ and understand the concept and business model of a startup is to connect it to past successes. You’re bound to hear companies pitch ‘Uber for healthcare’, ‘AirBNB for boats’, or ‘Kickstarter for science’ these days. But think back to the launch of the predicate startups. How did Travis Kalanick, Brian Chesky, and Perry Chen first pitch their companies? The same goes for oft-imitated startups like Twilio and Jeff Lawson.
The hidden fact is that these startups faced serious hurdles in their early fundraising process. AirBNB and Twilio both repeatedly faced insolvency in their early attempts to gain traction. Good investors capitalize on a trend and ride the wave to outsized returns. But it takes a visionary investor to predict a new trend in its infancy. There are too few true visionaries in VC offices, just like there’s a limited set of real disruptors leading today’s startups.
The worst way to innovate is to find the last product with a billion-dollar exit and set up shop nearby. A number of startups jumped into the ‘Instagram for Video’ space right around the big Facebook acquisition, raising huge money at unearned valuations. A year later, Viddy and Socialcam were smaller, not bigger. What happened? Two things. First, market conditions change. Instagram definitely wasn’t the first photography app, but it was the best positioned for shifts in social and mobile usage. Second, platforms change. Viddy and Socialcam’s main distribution funnel was shut down by Facebook, which had been the major reason why they rose to prominence in the first place. Third, market leaders change. Facebook, Twitter, and Instagram itself all now have video sharing tools. The copycat applications usually have two fates, either get acquired quickly, or face a slow death at the hands of stronger players.
Founders have to resist the urge to chase incremental efficiency in established industries. It’s worth it to innovate in all aspects of the startup ecosystem, including the business models. Creating a new path certainly isn’t the fastest way to a million dollars, but it’s where most of the billion dollar companies start.
I absolutely expect to see ‘LabDoor for Y’ comparisons spring up in the upcoming decade, especially in industries where LabDoor itself opts not to pursue. It is part of the startup cycle of life. While we will be mildly flattered by this imitation, we will also be preemptively moved to lead this movement away from incremental improvements and rapid exits and towards the creation of long-term value.
An ‘X for Y’ comparison may make it a little simpler to fundraise at the seed-stage, but most entrepreneurs miss the fact that it’s now easier to launch a startup than practically any time in history. The hard part is building it into a real business. Work diligently to innovate in that part of your company. This won’t make you an overnight success, but it will help you avoid becoming a one-hit wonder.