Business exists in habitable zones
And you are a naked blind mole rat.
Note: Take the following with a grain of salt. At the time of writing, I have not personally achieved what I consider to be a "successful" startup. However, I have tried enough times to recogize some common pitfalls. My intention in writing this is to provide a metaphor for why technology startups are so hard and hopefully save some poor entrepreneur a bit of grief in their own journey.
Your genius idea
A lot of would-be tech entrepreneurs think that a startup is a four-step process that goes something like:
- Think of a genius idea
- Build an app
- Find customers to use the app
- Once customer growth is self-sustaining, buy yourself a Tesla Roadster
Most entrepreneurs get stuck between steps 2 and 3. You come up with an amazing idea and tell all your friends. Your friends are all excited and supportive. You then set out to build your app. It's a lot of time and hard work but that's the price of success right? Then comes the day, months later, when it's time to show your app to the world. This is your big launch! You put it on Product Hunt and get... five likes and three signups. It's less than you expected but it's a start! You keep pushing. You might even pay Google or Facebook for ads. But it slowly dawns on you. No one wants your product.
Most ideas are bad
Think of the "space of ideas" like the space of... space. And by that, I mean outer space. Outer space is simultaneously full of stuff and exceedingly empty. There are billions of stars in our galaxy. But, imagine that I picked you up and teleported you randomly somewhere. The chances that you would be in the habitable zone of a star are incredibly remote. Most likely, you would die immediately from freezing at about -273°C.
The space of startup ideas is surprisingly similar. It seems like everyone is getting rich except you. You see successful entrepreneurs getting obscene amounts of funding on Tech Crunch. But their ideas aren't even any good! There are so many stars in the sky! The galaxy is so full!! Yet your app dies for lack of users like thousands of other apps that day. Why? Because you put your app out in interstellar space and it died of the cold.
Just like most of space is empty, most ideas are bad.
When you think of an idea all-by-yourself in your head, you might think that you know the market. You think that you would pay for that. You can even imagine that with enough scale, this would be on the first page of everyone's phone.
These thoughts are your brain trying to trick you. Don't fall for them!
Human beings are finicky and have no social obligation to you. To earn just one customer requires jumping over a series of surprisingly high bars:
- They need to actually have the problem you are trying to solve.
- This problem must be sufficiently acute that they actually make an effort to try to solve it. Never forget: humans are lazy calorie-hoarding monkeys.
- They need to trust that your company will actually solve their problem.
- Once they try your product, you must solve their problem so well that their life becomes SIGNIFICANTLY better. They must be able to clearly distinguish two eras - life before your product and life after your product.
Even if you manage to nail every requirement above, something else needs to be in place for a successful business. The amount of money that your customers are willing to pay for your Significant-Life-Improving-Idea (SLII) must be more than you spend to bring the SLII to them. In other words, your revenue must be greater than your expense. And when you consider your expense, don't forget about your rent!
Think of these requirements like the habitable zone around a star. Businesses can survive in the habitable zone when all of these conditions are met.
Some examples of different habitable zones:
- Bicycle manufacturers
These are ancient habitable zones, colonized long ago by our intrepid species. And they are crowded! Real estate prices are high. They are so crowded that people scramble over each other for the tiniest square-foot of land to get at those sweet sweet customers.
What all these habitable zones have in common is that they can all sustain a business. In other words, there is a proven market. If you build in one of these existing habitable zones, you have a ready supply of customers. You just need to convince those customers to visit you instead of your neighbor.
There are lots of habitable zones in our galaxy. Say you are opening a restaurant. Restaurants are a well-known habitable zone - which is to say, the business model is clear. People find you on Yelp, they come into your restaurant from the street, you hand them a menu, they tell you what they want, you cook it, they eat, they pay you, and they leave. It's a simple business that generations of restauranteurs developed over hundreds of years. And it is one that will certainly yield some level of success. While restaurants fail all the time, they don't fail like apps fail. No matter how bad a cook you are, you will sell at least a few tacos before you go bankrupt. The customers are there because restaurants are in a habitable zone.
Now let's look at another list of well-known habitable zones:
- Online advertising
- Aerospace manufacturing
- Online retail
- Mineral mining
This list is similar to the list above but with one key difference. These habitable zones often contain vast empires. For example, if you try to set up shop around the online retail star (ship-me-shit-alpha-zeta), you will have a massive space empire to contend with which is ruled by Emperor Bezos the Impaler. The existence of this vast empire makes everything harder but not impossible. You can start a business selling flip-flops from your little Shopify site but you will be competing against a ruthless trillion dollar company.
To take another example, say you are trying to start a company that builds container ships. There is not much to stop you if you can build a higher quality container ship for a lower price. The problem is that starting a container ship company requires incredible capital resources! In other words, you need very rich investors and a lot of know-how to build a container ship.
Why do these habitable zones contain empires while the others do not? Because these habitable zones are inherently favorable to the formation of empires! There are many reasons for this. The markets might have low marginal costs (SaaS). There might be strong patent laws (pharmaceuticals). Branding might be very important (fast food). Or there might be high initial capital requirements (container ships).
Why tech startups are especially hard
Chances are good if you are reading this you aren't a restauranteur nor are you building container ships. You want to do a tech startup. Great! But if you remember nothing else from this article, remember this. Tech startups are FUNDAMENTALLY DIFFERENT from other businesses. Why? Because by definition, you are trying to start a company without a proven market.
As a tech startup, you are a scrappy explorer. You think these existing habitable zones are too crowded. You know that the real estate is too expensive. You know that Bezos is a powerful and ruthless space emperor. As a startup, you are trying to find uncharted stars. You are looking for unspoiled planets covered in lush fields of golden wheat and poppies.
Here is the problem though. In this world, we more like Naked Blind Mole Rats than humans. As a Naked Blind Mole Rat, you put on your tiny adorable mole spacesuit and blast into the center of the galaxy looking for new stars to settle. You are blind so you can't just look out the window. You need to feel your way towards the star. All too often, as a mole rat, you will feel a bit of heat on the window and decide you are close to a star. You'll open the hatch and step out - not realizing that the heat was just your space cat. Far too late, you will realize that there are no customers in interstellar space.
Don't build an app, build a business
If you are looking for a new star to settle around, your first step is NOT to construct your planetary lander. Your first step is to find a warm star! As Naked Blind Mole Rats, here are some tips to help you find that star
Tip 1: Your problem != other people's problems
If you build something because "I have this problem", that is like sitting on the space couch for a while, getting up, noticing your tiny ass-print is warm, and getting excited because you think you are close to a star. No! You need to find OTHER PEOPLE. What's more, it's not enough for these other people to say they like your idea. It needs to CHANGE THEIR LIFE! That's a tall order to fill which is part of why success is so rare in tech startups. Google changed our life by making it infinitely easier to find things online. Airbnb changed our life by giving us the option to stay in nice homes instead of bleak hotels. How will you change your customer's life? I'll give you a hint, it's unlikely that a newsletter or an event-aggregator or a habit-tracking tool will do it. These ideas exist only in cold interstellar space.
Tip 2: Talk is cheap. Money is money
As a Naked Blind Mole Rat, imagine that infrared sunlight represents people who are interested and ultraviolet sunlight represents people who will pay money. Imagine further that most stars only emit infrared and only a trickle of ultraviolet. (I know. This is funny physics but stick with me)
It's hard to separate ideas that people like from ideas that people are willing to pay for. Most startup ideas I see, I actually do like. However, most startup ideas are ideas that I can live without and certainly would never pay for. Because of that, you must validate that people will pay for your product as early as possible. Ideally, this would be BEFORE you start building anything. But, absolute validation before you build anything is rarely possible. Usually, you need to string something small together.
Your strategy for sensing those ultraviolet cash-money rays differs depending on your type of business. If you are a B2B, there is a somewhat straightforward path. Your first few customers should be more like a contracting gig. If a company has a big enough problem that they are willing to pay someone to solve it, then that is a faint signal that others might have the same problem. If you are instead building a B2C, this might be harder. You need to find some way to get your customers to part with something of value. For certain physical products, Kickstarter is a fantastic option. People buy a discount on a product that has not been manufactured yet. If you meet your funding goal, you get to keep the money and they get a cool product at a discount. If your product isn't the sort that can start as a contract or a Kickstarter, be creative and find another way to make people give up something of value. An email address is something that, while inexpensive, is nevertheless something of value. If you can't even get an email address, this is a sign. You are not anywhere close to a habitable zone. You are still in interstellar space.
Tip 3: Pivot early, pivot often
Pivots can sometimes seem like a failure but the reality is the opposite. Amongst successful startups, the original idea is rarely the one that actually gets built. Facebook started as a take on "hot-or-not". The Reddit founders originally pitched an idea for food delivery. Airbnb originally required hosts to be present because otherwise, "how would you feed them breakfast?" As a Naked Blind Mole Rat, once you get to a warm star and land on your first planet, don't fill up that tiny hot tub just yet! Chances are good that even if you have customers, there would be a way to situate yourself better. Look around and see if there are more customers down that canyon or a gustier wind for your space turbines over that ridge.
In practice, how do you do this? Set up a series of low-cost experiments. In this stage, these experiments aren't like "what color should this button be". That comes much later. These early experiments are more like, "what variation of my business plan gets me the most email addresses", or, "how do I improve my 0% conversion rate to make it a 0.2% conversion rate".
Tip 4: Avoid "easy" startups
This tip was the reason I started writing this post so listen up because this is pure gold. Perhaps the most common newbie mistake intrepid Naked Blind Mole Rats make is this: They sense a fertile habitable landscape on an asteroid near a habitable zone and decide to settle there. Let's say this star system is called school-is-hella-expensive-sigma-tau and it represents the education market. People spend thousands of dollars on education every year for themselves and their dependents. So you make an app that makes it easier for students to learn science. They'll subscribe and get higher test scores. It's an easy win!!
The idea is plausible and it's easy - and that's exactly why it's so dangerous. Everyone can see the science homework asteroid in their telescope. You can certainly fly to it, it wouldn't require much gas, it looks lush and green, and no one has colonized it! So you fill your spaceship with gas, travel a few days to get to the asteroid, and immediately die some horrible death. Silly you. You didnt realize that the atmosphere was poisonous and the surface was littered with the corpses of thousands of other dead space rats.
An app to help with science homework is an obvious idea and it's not hard to build. The Apple App Store was launched in 2008 and as-of the time of this writing, it has published almost 2 million apps. If a science homework app could have worked, someone would have built it by now. If someone could have landed on that alluring asteroid, it would have happened already.
As a new business, there are three ways to actually succeed. The first is one we've already somewhat covered: set up shop in a market with a lot of competitors and therefore an obvious supply of customers. You don't have to open a restaurant to do this. You can do Amazon drop shipping or open an Etsy shop. If you want something a little more involved, why not a new niche search engine? You could even build a simple distributed computing framework (Shameless. Sorry!). Sure, you'll have competition but in many cases, there is some market niche that the main players are overlooking.
The second way to succeed is to find is an idea that's HARD to build. Even better if there is some reason that you yourself can build this while most others cannot. Anyone with a brain, some high school algebra, and an internet connection can put an app on an App Store. How many people can construct better light bulbs, self-driving cars, nuclear micro-reactors, or reusable rockets? If you're qualified, why not? It will certainly be easier to find cofounders. And, if there is a hint of success, investors will come running.
The third way to succeed is to start a business immediately after the launch of some new ground-breaking technology platform. These events are rare and each one uncovers a globular cluster of previously unknown stars. Recent examples include the first smartphone (2007), the first web browser (1993), and the first desktop computer (1977). The first few years after each groundbreaking innovation always see the birth of new behemoths built on top of each platform. Within 10 years, all the obvious good land is taken and only a handful of hidden fertile valleys remain - along with a plethora of poisonous asteroids.
Let's say you've found yourself a promising planet in a habitable zone. This planet is quite empty - you might even be the only one on it. What now? Is it enough to deploy your solar panels, sit back, and maybe broadcast a message to TechCrunch? Sadly, this is almost certainly not enough. The planet you're on is probably more like Mars than Earth. You are hypothetically close enough to your host-star but all available water is frozen at the poles and your planet can't even support so much as a dandelion! If you want customers, you're going to need to do some terraforming. Now this doesn't necessarily need to be a hundred-year process of pumping the atmosphere full of fossil fuels. Think about your job more like building a small geodesic dome that functions like a greenhouse. Your first goal is to attract a handful of customers to this dome. This doesn't scale but it's how most startups get their start.
Over time, you'll add increasingly larger domes to your base until one day, you notice a speck of moss outside. Congratulations! Your domes have been leaking and the area around you has become marginally habitable. From here-on-out, the planet is engaged in a positive feedback loop and will slowly terraform itself. This doesn't mean that you stop though! Waiting for the moss to cover the planet could take centuries and you've got competitors on-the-way. Instead, you'll need to keep building domes - albeit with increasingly thin walls. Customers don't just arrive on barren planets - they need to be cajooled over with plenty of marketing and some good-old-fashioned sales.
Tech startups are counter-intuitive. They are not like other businesses. Traditional businesses have a ready supply of customers because they exist in a proven market. Restaurants will always have at least some customers because people must eat. As an innovative tech startup, you are fundamentally different. Your innovation and scalability are both your curse and your blessing. It is your curse because it is HARD to find real untapped markets. Even if you find one, chances are good you'll have to develop it. It is a blessing because if you can find and develop that market, that warm planet, you can start your own little space empire.
Good luck, space rats!