Pick a Big Ass Market

You are starting a company. You have this ‘great’ idea for an app or something. You’ve read The Lean Startup. You know exactly what to do. You are going to launch an MVP, iterate and going to raise millions of dollars. Your face is going to be on TechCrunch. It’s so clear and the crowd goes wild?

Wait. How big really is your target market? Even if you do achieve product/market fit, is this really a venture-scalable business?  Is your company merely a feature or a company trying to own a big market?

Below are some examples of big markets.

PayPal, market: payments

Instagram, market:  mobile photos

Foursquare, market: mobile location 

Spotify, market: music

Boxee, market: TV

Kohort, market: groups

Facebook, market: social!!!

Picking a big-ass market ensures you have the potential to pivot your product significantly because you have room to do so. It helps give you the confidence that you can one day pay back your investors. It allows you to gain significant market share once  you create a product/market fit (assuming a viral loop is built-into the product).  Most importantly, it takes just as much work to create a small business than a big-ass one. 

So don’t forget, find a big ass market.

So You Want to Change the World Through Tech? Go to Silicon Valley.

Attention Non-Silicon Valley Residents,

            Is your dream to change the world through technology? I know it’s mine, but I’m going through an internal crisis. Because I can’t live in my city (Montreal, Canada) if I want to follow my dreams.

Don’t get me wrong, I love Montreal. The quality of life is unmatched.  My friends and family are here and I recognize the importance of that. I also strongly believe that the city can produce companies with exits in the 1-50MM range. But, people who believe they can come up with the next Facebook in a city like this must realize the huge disadvantageous forces at play.

 I’m not talking about 1-50MM exits; I’m talking about changing the world. To change the world through technology means creating a startup that seriously disrupts huge markets. For example, Paypal (payments), eBay (commerce), Facebook (social), Zynga (gaming) and Google (information) have all achieved this.

My thesis is that these world-changing companies are ripe only in first tier cities (NYC, London, Hong Kong…), and the ripest in Silicon Valley. It is substantially (100-1000x) harder to successfully create a startup that changes the world in other cities. It is naïve to think otherwise.

There are three main reasons:

1)   The high level of social capital concentrated in these areas. I.e: if you have a Facebook gaming startup, perhaps you have a connection at Zynga headquarters in San Francisco that can give you some pointers that makes the difference between success and failure.

2)   The abundance of capital and access to sufficient follow-on financing to really scale the business. In places like Montreal, there is no VC firm that can scale a company the size of  Twitter, for example.

3)   The sheer experience of entrepreneurs and employees .  I.e: in Silicon Valley, there are bigger failures and bigger successes, and employees have the opportunity to learn from the experience of this elite set of entrepreneurs. In cities like Montreal, the amount of 100MM exits are a small fraction of what they are in the Valley. The management of those companies have a tremendous amount of knowledge that they can convey to other tech entrepreneurs. With less big exits and successes, less knowledge is conveyed, the talent is less knowledgeable and thus the ecosystem is less competitive.

 A startup is like a plant. The environment in which a plant is in is like the city where the startup is located. Sure, a plant can grow with just sun and water, but with the perfect combination of water, sun and even vitamins, the plant has a much better chance of reaching record growth heights than an environment with not the right mix of variables.

I wanted to write this post, because I believe there are many entrepreneurs and future-entrepreneurs, who have the intellectual capacity and entrepreneurial vision to be the ones to shape the new world, but they are stuck in environments which inhibit them.

We must come to terms with the reality of the situation and the continued significance of geography in terms as it’s significant factor in seeing success.

What are your thoughts?

 

The Rise of the Anti-Social Network

 

Last week, Google offered to buy Path, a private mobile social network for 100 million plus a 25 million dollar earnout over four years. Path, an “anti-social network”, rejected it. This signified the beginning of the rise of the anti-social network.

Definition anti-social network: A social network that allows a limited amount of people to communicate and connect, with a user-experience created that is focused on creating a environment that is respectful to privacy.

Anti-social networks like Path would have not succeeded a few years ago. It has to do with the maturation of social media and the associated societal effects of the widespread mainstream consumption of social products.

Let’s talk about how we got here.

We are all addicted to social media. 2005-2010 really marked the golden age of social. Web startups tried to socialize everything from music (Rdio) to videos (YouTube) to business listings (Yelp). This converged with the rise of smartphones and made social media accessible everywhere, anywhere and of course, freely. The iPhone App Store allowed for the socialization of mobile with companies like Foursquare and Gowalla popularizing social check-ins.

Social media succeeded because it spoke to an inherent human need, the need to connect with one-another and to communicate. Along with that, social products had little-to-no user-acquisition costs because they were inherently viral in nature. This allowed many entrepreneurs to create social products at a low cost. This was very different than the 1990s when web companies needed to raised money through IPOs largely to acquire users.

Another inherent human need however, is the need to remain private. People don’t want to share everything. Consumers have already begun to realize how much they are losing when they are sharing (reputations, jobs…). “Anti-social networks” act as solutions for these consumers as they allow them to share, but with a certain degree of privacy.

The large social media players will not be able to be a social network and an anti social network at the same time. For example, although Facebook has added a layer of privacy features, they are largely hidden and the focus remains to create the product as social as possible. After all, their mission statement is “to make the world a more open and connected place”.

This leaves a void, an opportunity for startups like Path and Diaspora to own the anti-social network space. A plethora of interesting anti-social networks will succeed over the next few years. Welcome to the rise of the Anti-Social Network era.