Too Many Companies??
I've gotten a couple emails lately from would be entrepreneurs that go something like this: "I'd like to start this new company that I've had an idea for, but there are so many companies launching now and the market for software startups is so crowded, that I wonder if it's really a good time to dive in".
I don't recall that my cofounders and I have considered what "the market" was like when we started a company. I can't imagine serial entrepreneurs like Mark Fletcher, Mike Cassidy, or Elon Musk ever give even the slightest thought to whether the general startup environment (economy, access to capital, access to talent, etc) is good or bad.
There aren't "too many companies in the market right now". Even if there are 90,000 more companies, there still aren't too many companies. Neither is there too much capital or too little capital or not enough engineers in this market. There are only specific market forces that you should weigh vis-a-vis your specific company. If you are starting a me-too software startup right now (eg, a video sharing site), then yes, there might be a lot of well-funded companies chasing that specific opportunity and you would be wise to consider that fact in shaping your strategy.
It seems silly to me that one would worry about the general market when starting a company, but obviously it's a bit of a common theme. So, that led me to wonder what would cause you to have that kind of mindset, and what I think I am really hearing is fear of failure. I think the questions are really "is this environment one in which it will be harder for me to succeed?", and I will therefore provide a simple answer to this question: Every market is one in which it will be harder for you to succeed. If access to capital is plentiful, then there will be more companies chasing that capital and more well-funded ventures against which you must compete. If access to capital is scarce, however, it will be harder for you to raise money and you will have to endure more investor-friendly terms on financing and have to show more business model progress in advance of further funding. If there are few competitors in your market, then you need to evangelize your value proposition more passionately to the market in order to gain traction. If there are many competitors in your market, then you need to distinguish yourself from competitors more thoroughly. If you're a first-mover, why should anybody need your new service, if you're a follower, why should anybody switch to your service?
On a psychological level, I think a lot of people confuse fear of failure with not having enough confidence in the ultimate success of their idea. They thus conclude that they aren't confident enough in their idea or their strategy because it seems to have holes and flaws for which they don't have answers. This is a tremendous mistake. While I won't pretend to speak for the entrepreneurs I mentioned above, I bet if you asked them if they were confident on day 1 that they had a winner with each of their previous successes, they would look at you sideways and say "of course not". Speaking for myself, I can say that my cofounders and I try to find a market opportunity that seems like it will need to be addressed and for which we think we have some angle and then we just pull out shovels and start digging and figure other things out as we go.
Personally, I know going into any new company that there is a 90% chance we have the business model wrong on day 1. I also know that I have a historically poor track record for understanding what will and won't attract customers or defeat competition (I didn't get Twitter when Obvious Corp first launched it without an "e" in the name, I thought eBay would be out of business in six months after Amazon launched auctions, and I was certain Netscape would crush Microsoft in the browser wars because Netscape was more nimble). But the opposite of 'fear of failure' isn't confidence. The opposite of 'fear of failure' is just not bothering to think about failure (BIG difference between this and thinking about risk profile for your idea/company).
Of course there are entrepreneurs and CEO's who pitch their supreme confidence in themselves and point to some ability to work out all the angles that guaranteed their success. Most of them do this in retrospect after they've been successful, and maybe this leads other would be founders to think "I don't have the faith in my idea this guy/woman does. I'm passionate about my idea, but i don't have that supreme confidence in it". The key is to just get on the bike, and the key to getting on the bike is not the confidence in knowing you will be successful if you do x,y,z. The key to getting on the bike is to stop thinking about "there are a bunch of reasons i might fall off" and just hop on and peddle the damned thing. You can pick up a map, a tire pump, and better footwear along the way.
This set of mixed metaphors and loosely coupled analogies was brought to you by guy-with-no-formal-writing-experience.
Comments
porter says that highly concentrated industries are ideal. intense competition forces you to upgrade and innovate faster.
Posted by: jeremy | March 14, 2007 05:54 PM
I don't know how many posts like this you have in the bag but I am loving the quality.
I agree completely about the environment affecting the approach not the effort. Though I would suggest that competition in the specific space is very real and needs to be very closely examined before entering and constantly there after. If there is too much competition and no clear niche I can snap up I don’t care how good my idea is I am not going to play.
Posted by: Zach Coelius | March 15, 2007 11:33 AM
You've missed one possibility - from some subset of these entrepreneurs, what you are hearing is that they want to launch when it's "easy" - i.e., when investors are throwing money at them, M&A is hot, any crazy concept gets funded, etc. You know, like 1998-9. They're trying to be market timers rather than entrepreneurs.
But I think you're right about most of them.
Posted by: Dave | March 16, 2007 06:30 AM
One of the biggest questions small investors asked us about our technology was what if someone else gets to market first? I kept explaining my concern was the exact opposite. That if we had no competition chances are it meant we had no market. Besides, when Google launched there were many search engines (oh sorry Portals with search). And yes, Google had great technology but initially it was their user interface and the simplicity of the experience that had me switch to using them.
Technology and communications are a funny business. I mean where would Ben and Jerry be today if they worried about the fact that there were so many other ice cream companies out there when they launched!?!
Posted by: Leigh | March 16, 2007 12:16 PM
awesome. You should start a company :)
Posted by: howard Lindzon | March 17, 2007 12:18 AM
Absolutely spot on. I've been having the same fears / doubts.
I keep telling myself, "if Google took on Yahoo and won, there is no such thing as a crowded market".
There's always room for innovation. Just make sure you dont fall in love with the idea, and adopt some healthy criticism.
Also, I like to think that if I have 10 rounds to go before succeeding, then at least it'll be 'one down, 9 to go' (actually, 8 to go in my case ;)).
Half of the war is in our own head. Good to know I'm not alone.
Wonderful, wonderful post!
Posted by: Itamar Shamshins | March 17, 2007 06:10 AM
Just as there are not too many houses in the real estate market, there are never too many companies in the marketplace but for startups the survival statistics are the ledge that one must not look down from and no wonder people say that land is a safer investment. I think the line from the song "Dusting down the Stars" by Mobile is so appropriate "...shall we give up so easy, here we are dusting down the stars" and that only happens when we see ourselves as heroes rather than constructors of something bigger than ourselves.
The crux of life that each entrepreneur faces is uncertainty and my hats of to any woman or man who can walk and spread their message, their service, their passion beyond the financial tightrope of managing a cashflow of a business while managing expectations and faith at the most human of levels.
When anyone talks of fear of failure, they are examining the flip side of winning. I ask myself how can we lose if embrace fear of failure so we can see it as an energy rather than the battle of our inner demons. Fear of failure is an easy discussion without the scars so I will be respectful not to teach anyone and let it be known that this is ramblings of person committed to their own particular way, not an advertising boarding that is interested in how anyone is touched by it.
These are thoughts that flow from heart, not particularly from mind. At the end of the day, the only thing any entrepreneur loses in failing is heart. Our heart is the only thing demons can possess, otherwise it will continue to beat energy and bring strength to one's mind, what is wrong with us if the first ounce of compassion we lose is, is our own life journey.
Is losing a business worse than death? If it is then just like facing death, we should remind ourselves the nature of an entrepreneurial contract is no different to that of life, one we sign on the dotted line, that what we have incorporating is an entity that is the only foundation stone that any human being can actually physically create. After that it is a question of dusting the memories down and rising again or having an honest conversation that one can personally live with. That means listening to ones heart, for where else is anyone's truth buried.
The question isn't how we deal with the pain or the pleasure of entertaining hard decisions but whether we have the heart to do what we did yesterday all over again. That question only becomes relevant if certainty is what we crave is certainty, is what a weakens any heart. Uncertainty is the DNA of the startup life and the spiral linkages of the entrepreneurs compass point is the scaffold to be climbed. The issue of fear of failure isn't one of fearing the abyss but having not created something that fills the abyss.
I know of entrepreneurs who enjoy creating the life of a new business but who re-engage a new startup when it seems easier to watch their baby grow. We are fond of our Googles and eBays because they have acquired a life of their own. Entrepreneurs however are not in the midwife business, but simply people who sit on the edge of reality, who are most able to know what reality looks and smells like.
What tomorrow brings no one knows, especially the entrepreneur who is building today someone else's tomorrow. There are plenty of people who contemplate building tomorrow and the one thing that entrepreneurs are not wishful thinkers or daydreamers. Each entrepreneur is a sculptor of shared design that may one day emerge, or are purchased by caretakers or whose designs simply evaporate into the very dust of reality, into the hands of undertakers. (Why fear the undertaker if one fully believed in the undertaking.)
Why should anyone fear dust (even the daydreamers), for when we evaluate what the entirety of human life is, dust is all that we all really are. That much is the burden of those who commit to this path but with this burden also comes richer reward - a heart that has found out its capacity to handle come-what-may truths. How can you tell any entrepreneur who begins to face the fear of failure that their daily pulse of enterprise and steady beat of ideas and transformations is a reward in itself - and who can live live in a state of fear if their own heart speaks of values that one did their utmost to breath life into.
Superstition and magic is for those blow candles on cakes; what the entrepreneur who can comprehend the fear of failure is that the entrepreneur is one of the few people in life who can have their cake and eat it. This is just one more truth in a shop of tools that can shape truth and if there is one truth I can leave here, I leave for myself, which is to keep a firm eyes on one's own business (so if this is the case, I know why it is I think out aloud like this, but as to why you are cared to read this passing thought, that is not my truth, that is not my business).
M.
This post is explorative thinking
http://alwayson.goingon.com/user/Syven
Posted by: Syven | March 17, 2007 08:02 PM
Hi Dick,
Thanks for your prompt post. We started Anothr.com just the same thinking as you. I wish Anothr.com can become great partner to Feedburner someday. It's now booming, too.
Posted by: Jim | March 17, 2007 09:08 PM
I found you through Howard Lindzon's Blog, and thought that this was an awesome post on the required perspectives of Entreprenuers.
I left a "big job" to start my own business, and without a doubt we have changed and re-evaluated it on many occasions. Because of this, we have become one of the fastest growing companies in our Province, and certainly in our segment. Awesome work, and thanks for providing an editorial outline of what we are going through, and might still.
C
Posted by: Chris LaBossiere | March 17, 2007 09:58 PM
There was a link on some blog I had read, which said that if you are an entrepreneur, go to this page and read everything that's there. Now I hate it when people give advices without explanations, so I just added the feed and went on with the usual business.
Today I come back to my links and open you page, and I can't tell you how much I loved it. You bet I'm going to use some of these next time I get into a debate.
But the reason I wanted to comment was that the idea that you mention in this post is exactly what I am planning to use as the tag line and philosophy for my company.
The concept of 'Karma' originated here in India, and it states essentially what you have written. The point is to get on the bike.
I would be using the very same idea to push my students (I'm planning to foray into e-learning, not just another CMS, but with content and all) to prepare for the onslaught in the examinations, without worrying about the rest of the 'competition' which you can do nothing about.
I do hope you keep coming up with beautiful posts like this. It really helps to get validated when you're just starting out. Especially like the post about launching late.
Posted by: Sudhanshu | March 21, 2007 07:10 AM
Great article! While you can't completely ignore the market and the competition, looking at the competition and declaring there are too many other companies just serves as an excuse. Instead you should examine the existing companies to determine where they fall short and where you can improve. There are few industries, if any, that have zero room for additional competition. Everywhere is ripe for innovative new companies!
Posted by: Zack | April 1, 2007 01:56 PM
The cream of the crop will survive. Even if you're in an ultra-competitive market like software you will rise to the top if you are the best!
Posted by: Spencer Ferguson | April 2, 2007 05:06 PM