In my previous blog post titled “How making money changed my perspective on startup ideas“, I argued that business ideas don’t have a lot of value in isolation. It is the market opportunity coupled with good execution which generates value and revenues. In this post I want to go one step further and argue that most successful (software) companies got there by chasing a market opportunity and not by having a unique business idea.
Take example of any successful software company and you will find that their business idea was not unique. You say Facebook, I say Friendster. You say Google, I say Altavista. In fact, I think citing such examples is not a good idea because odds of a startup achieving a billion dollar valuation (and becoming a brand) are close to none. I am more interested in knowing how the “long tail” of software companies achieve million dollar plus revenues. That’s a realistic, achievable target and the odds of your startup becoming a Fortune 50000 business are much higher than it becoming Google. So, we should drop the dreams of IPO (for now), let’s just see how businesses make million dollar revenues.
How software businesses achieve million dollar revenues?
Go to Inc’s listing of 5000 fastest growing companies and sample a few company descriptions. For software hackers, go and study Inc’s listing of fastest growing software companies. What do you learn from this list? I realized two main patterns:
- I only recognized a few companies there (apparently you don’t need to be on TechCrunch in order to be successful)
- I did not see many “unique” business ideas here (all operate in generic industries such as backups, SEO, encryption, sales automation, etc.)
Almost every software company in that list is chasing a generic, huge market opportunity and executing really well. They have a 1000%+ growth rate today because they chose the market wisely and provided a solution that people wanted. They are not making millions today because they had a crazy good idea.
So, what’s the key point?
My key point here is that instead of coming with a business idea and then trying to validate it, why can’t you work backwards. Why can’t you first choose a market and then come up a solution to ease a recognized pain in that market. Even if you don’t make millions or achieve a spectacular growth rate, you will be at least profitable because your market is large and has people who are already spending money (I’m assuming your solution/product is good!). This scenario of slow growth and profitability in an already validated market is much better than the scenario in which you have one in a million odds of achieving hockey stick growth because of your new, revolutionary idea.
Key lesson: choose a market/nice first, come up with “idea” later. And then, execute really well and persevere for years before hitting million dollar revenue!
Resigned so early in your life, Paras Chopra? “Business ideas are dead” – are you in your senses?
Twitter, Segway, Salesforce, Virgin Galactic and hundreds of other companies (and you need to open your eyes wider and get outside the technology box) of past and future have proven and will continue to prove that innovative business ideas, at least based on historical statistics, are and will continue be killer.
“My key point here is that instead of coming with a business idea and then trying to validate it, why can’t you work backwards. Why can’t you first choose a market and then come up a solution to ease a recognized pain in that market.”. Whoever said you can’t? People do it all the time.
Pointless post.
Not saying it is impossible; just saying that probability of getting successful is much higher if you choose the market first.
Thanks Paras for this post.
If you’ve read any of the copywriting gurus of age – you’ll know that they had a similar conclusion as you’ve just reached. Claude Hopkings, Gary Halbert, Eugene Schwartz – all have written that it is less riskier to start off from the market demand side. Figure out what the market wants. And give it to them.
Henry Ford is true when he says that people don’t know what they want. If he would have asked them, they would have said they wanted a faster horse. So asking people does not work. You have to rely on your powers of market observation. And realize that the problem people were facing is faster travel. And then solve that problem.
So the steps are: figure out a mass problem – the big picture problem. Then solve it.
If you do the other way round – come up with a solution, and then try to find a market whose problem it solves – you will have to pivot. Or else you most likely won’t succeed.
I Completely agree with you Paras.
Its much better to provide the market what is already in demand instead of making a new product and then going out to teach people how it can useful to them – this has been beautifully explained by “Norm Brodsky” in his book “The Knack”.
As for paul’s point of view he can refer to the to the “Smartups” section of the article by Dyske Suematsu “What Is The Point of Building A Business?”- “http://dyske.com/paper/921”
Paras, what you suggest makes a lot of sense, there being a market already in place will already make it significantly easier.
Though i wouldn’t suggest that business ideas are dead, its just doing things in the opposite direction as already said.
There are markets where lots of business is lost out on because lots of people dont even know that something exists, or they find it hard to understand a particular service or product but would use it if it was easier to grasp, so opportunities clearly exist there too.
Nice Post and Quite agree, but then innovation always have a chance. Doing enough market research and observation could be very useful.
But can;t disagree with paras. there was always email services, but when google launched gmail, it killed yahoo/hotmail etc. So may be do something better than what already exists and you could win.
Very nicely explained and I completely agree with you.
Sadly, the whole startup ecosystem is talking only about ideas and ideas- startup idea, scalable idea, failed idea etc and not about the market need. An idea can never fail as long as it has scope. What matters the most is execution.
One idea can be executed in a lot many ways but only the right one, executed with enough determination and enthusiasm can succeed. And this is probably the reason that only few players will be finally existing in the space.