They say nine out of ten new businesses fail after two years.
This statistic agrees with the JFDI theory of new venture creation: we believe that every possible startup idea is being tried all the time, in every place. It’s a bit like quantum foam – virtual particles constantly appearing and disappearing.
For your startup to not vanish, some new condition must tilt the balance of probabilities in favour of continued existence. Of course the world is constantly changing, but are the conditions changing for or against you?
New ideas fail all the time. Apple spent ten years and $100MM on the Newton, which failed. Aptera took $30MM in funding, and failed. Cuil raised $33MM, and failed.
And those are only the high-profile failures; most failures sink under the waves of business history without even a ripple. A thousand startups fail every day, so far below the radar that you never even hear about them – unless you happen to be really close to their industry.
Why do they fail?
One reason is that tech innovations depend on enabling technologies – trends such as growing mobile adoption, growing broadband penetration, and of course Moore’s Law.
You want realtime speech recognition in your phone, you need a dual-core CPU. You had to wait until 2011. Couldn’t have had Siri on the iPhone 3G. Prior to 2011 everybody who tried to build speech recognition into their PDA would have failed for purely technical reasons.
Another reason is that consumer product design takes both taste and imagination.
Taste requires immersion in a discourse: deep familiarity with accepted forms and current trends. Imagination allows one to extend that discourse in a new direction.
That’s pretty much the history of art.
You know you’re on the leading edge of art when people can’t even agree if your art is art: in photography consider Stieglitz and Steichen, in sculptureBrâncuşi. Remember how the iPhone’s virtual keyboard was greeted with shock and dismay? Now we understand why it was only ever a stopgap: Siri is a game-changer, just as the camera obscura changed the face of pictorial fine art.
What does this mean for JFDI startups? It means that we select for teams who are applying their domain experience in a new way.
For every business idea, there is a dream team, and that dream team usually includes people with deep experience in the appropriate industry. Technology innovations necessarily emerge from the minds of technologists: Heroku could only have been founded by a bunch of web systems engineers. In addition, they were jumping on an opportunity newly exposed by trends in EC2 adoption.
Want to start an online fashion shop? Your team should include someone who, in a past life, was a fashion designer, retailer, manufacturer, model, or clotheshorse. And you should be trying some new approach that just wasn’t feasible until this year, this month, this week.
If your market beachhead is horny undergrads with chancy social skills who want to do two previously incompatible things at once: hide behind their laptop screens and, simultaneously, angle to get laid, then your dream team is pretty much Mark Zuckerberg – whose innovation was to do it as a platform, not just an SNS.
Only if you have an authentic connection to an industry can you realistically hope to make a valuable contribution to the discourse.
One red flag: if you don’t know who the competition are (or were), you probably aren’t close enough to the industry to sell to it.
There may not be any competition today, but maybe your industry landscape is littered with the ghosts of startups past. The dream team knows the industry well enough to be able to converse with those ghosts. Mentor and investor networks are valuable for this very reason: we know someone who can channel those ghosts and get you a séance with the ex-CEOs of failed startups to find out why they died.
Or maybe there is competition, and you just don’t know about them. If you spent half an hour Googling, you’d find them, but you have to work hard at it. That tells you that the primary business problem in this industry is one of promotion: reaching potential customers is a hard problem, and for some reason nobody in the industry has gotten it right. Most apps in any App Store suffer this problem. (In today’s world, the solution usually involves viral marketing.)
The right startup idea for your team should be one that you have an authentic connection with. It often takes self-discovery and soul-searching to discover that idea. Consider a team who met because they all suffered from juvenile diabetes, and later discovered a love for programming. Diabetes is so much a part of their lives that they may not even think about it any more. But they have a wealth of experiential knowledge that other teams don’t have. In any creative writing class, the writing teacher encourages you to write what you know. In tech startup land, that’d be one of the best-qualified teams in the world to build apps around management of juvenile diabetes.
What’s your diabetes?
What’s your story?
What’s your startup?