A research article published in 2006 stated that first-time entrepreneurs only have an 18% chance of success
(it's worth noting they didn't define "success"). As entrepreneurship gains popularity, we see more companies popping up, which means we'll see more failing companies. To avoid becoming one of those failed companies, I tried to think of some basic rules that might help identify a good company:
- Find an advantage that big companies have, and make it available to everyone.
- Build something that invests in itself.
- Look for high-paying jobs that are largely rule-based and automate them.
It's worth saying that these three techniques do not lend themselves well to people who want to build a company to solve a personal problem. Instead, by looking for opportunities that meet the above, you'll find solutions to problems you may not be excited to solve. And from what I've been told, passion for what you do is a must for any entrepreneur.
Bring it to the Masses.
A favorite strategy of the late Steve Jobs, he sought to bring cutting edge technology to mass market. In an interview he did while at NeXT, Jobs talks about his vision
of making the most powerful computers of the 1990s affordable and attractive to college students. Computers had been around for a while before Jobs started NeXT, but they were only used by big businesses and researchers. As Jobs put it:
"If we can take what we do best, which is to find really great technology and pull it down to a price point that's affordable for people, if we can do the same thing for this type of computer [...] then I think we can make a real difference in the way the learning experience happens in the next 5 years."
In many ways, the graphical user interface (GUI) that Jobs helped bring to Apple was paramount to its popularity. Macintosh users didn't need to know DOS commands or work in a terminal to use a computer. Jobs made computing easy and affordable, thus making computers accessible to nearly everyone.
The Perpetual Motion Device.
If you're a Marc Benioff fan, you might also be a fan of this tactic. In his book, Behind the Cloud
, Marc Benioff talked about how useful it was to be building a sales tool (Salesforce) because the company was able to use it themselves.
This is one of the things that makes companies like Salesforce and HubSpot known for their sales and marketing, respectively. The money that you're investing in technology, in theory, improves your product and empowers the function of your business that uses it. By doing this, you also eat your own cooking, which makes empathizing with your customers even easier.
Some products that I think are great candidates for this:
- Sales and marketing tools: improve your ability to acquire customers
- Support tools: deliver premium support at extremely low costs
- QA tools: redundantly monitor the health of your own tools
Because this category pays dividends, it's a good place for any company to invest in internally.
Displace a Human.
Years ago, in order to do search engine optimization correctly, you needed to hire an SEO guru (or worse, a firm) who would research your keywords, do detailed analysis and invest time into auditing your website. They would then spend several weeks harassing you about updating the pages of your website until everything was picture perfect.
Today, you can instead use RavenTools or SEOmoz to audit your website in a matter of hours. Their tools will automatically recommend keywords to you and maintain a detailed analysis that's frequently updated, so you can spend your time insightfully harassing someone else to fix your website.
This kind of software carves out a portion of the industry's "pie," but only "eats" a portion of that slice. For instance, if SEO consulting was a $100 billion market and SEOmoz replaced half of it while only charging 10% of what people were previously paying, they'd have $5 billion dollars while simultaneously depriving consultants and firms of $45 billion. That money either disappears or is reallocated, and SEO professionals may or may not see any of it.
Because of this situation, companies that compete with automation products fight over an already small portion of the larger pie. If SEO consulting is a $100 billion industry, and you plan to automate half of it for 50% of the cost people traditionally paid, your market would be worth $25 billion, and $25 billion would disappear. Now, your competitor can't simply take the other $25 billion that you're not collecting, because customers are either going to choose your product or your competitor's, not both.
Bottom line: if you're looking to replace people with a product, you have to be the best.
Choosing the right startup idea is less important than choosing the right team, but it's always good to have that edge. If you're confident in your ability to lead an early stage startup, why not start thinking about what that startup will be?