Slashdot linked to an interesting article today entitled 20 Smart Companies to Start Now. It’s probably worth a read for the entrepreneur wondering what kind of business to start, but only as an example of how to think about and present ideas that you want to get funding for, and not as a formula for what kind of business you ought to be starting.
Why not start one of the businesses defined and get your millions and live happily ever after? Well, there’s the sardonic answer that I could use: Most of the ideas are just plain stupid. But I would never say that, because I don’t want to offend any potential investors. (Quiet in the back! I am not saying that most of the ideas are just plain stupid, I’m merely saying that one could say that.)
The longer and more useful answer is that most of the ideas are mountain-top ideas. In the sense that the VC has come down from the mount of money upon which they normally perch and granted us a glimpse of their dreamworld. There is no interaction with users to shape these ideas. The value in a startup, and the value that VCs can’t bring to the equation because they don’t usually bring huge numbers of real users, is that you get real feedback and you shape a product that has value, even if the initial idea was somewhat different. If you created one of the products defined by the VCs here as being shoo-ins for big funding, and immediately took it to the investor in question, I’m almost certain they would pass because you’re not bringing customers to the table (though they might claim it is because the idea doesn’t actually match their vision). And, with many of the ideas, you couldn’t bring customers, because there are none to be found for those products, or too few to justify the costs of running the business.
This is certainly painting with a too-broad brush, but my essay hero, Paul Graham, does it all the time, so I’ll do so now without feeling too much guilt and I’ll try to refrain from constant parenthetical concessions that there are arguably many different and valid opinions.
The Good Ideas
Before I tear into the bad ideas, I’ll pluck out a couple of good ones, and explain why you, assuming you’re a small fry entrepreneur like me, probably shouldn’t bother trying to enter them even though they are cool ideas.
Car Computer with Heads Up Display
The first one in the list, a car-based computer with a heads up display, is probably going to be an extremely profitable area. I agree with them on this. I’d love to have a proper computer system in my car. Navigation has been hugely successful, despite being deeply flawed in its current incarnations. Everybody loves MP3 players and cell phones. Why not bundle them all up into a cool car computer? Great idea, indeed.
So what’s the problem? It’s already underway, and you won’t get there in time. The players already moving in this space have been there long enough to have a lot of relationships with car dealers in place, but are small enough to be reasonably nimble. Of course, if you have the team handy (I doubt you would need more than three or four to do the technical side of this, though, so I suspect the 20 number suggested is way too high, if your people are smart), and can get rolling immediately, you might stand a chance. If you can get big enough seed capital to build your prototypes.
Another problem with this suggestion, possibly the biggest one for folks who might have access to the team and the inclination to work on this problem, is the offered investment: $5 million for a deeply qualified 20-person team to deliver a prototype and a plan for pitching a commercial version to automakers within three years. Wow. $5 whole million dollars for 20 deeply qualified people over three years? I’m guessing he’s planning a trip to Bangladesh soon, or he doesn’t want to take a very large stake in this business (which makes me question how much he really believes in this idea). $5m would cover a shoestring team of 4 nerds, a part-time lawyer to handle the patents/copyrights/trademarks, a business manager, and a sales person pinched from Garmin or AC Delco (they’re needing to lose some employees anyway, so you could probably get them cheap) to line up your car manufacturer deals, plus all of the prototypes. It’s definitely not covering a 20 person team.
Mobile Health Monitoring
This probably has huge potential. I think it’s even coming within reach of small entrepreneurs within the next couple of years. Actually, this one is probably an idea worth pursuing. It isn’t Web 2.0. It isn’t cool. It won’t involve much Ruby On Rails (though your website can use it, if you want). In fact, it’ll involve C or assembly or that abominable embedded BASIC, and a lot of dealing with stupid and archaic systems (medical technology moves at a speed only attainable when a failure may result in someone’s death…i.e. really, really slowly). The boxes you’re building and integrating with will be shiny on the outside, but you’ll hate the crap that’s going on inside. You’ll probably get rich doing it though, so you won’t have to do it for more than a few years. And, hell, you just might help save someone’s life.
I stand corrected. This VC is almost certainly on the right track.
Super Batteries and/or Capacitors
This one is a no-brainer. Just about everything new that we do over the next 50 years is going to require good portable power.
You shouldn’t work on it because you aren’t the guys who came up with idea for capacitors with nano-fur, nor do you have the expertise. This is deep magic. At least, I’m not gonna try to touch it.
But it is a good idea. Not really interesting for someone to say so, though.
The Bad
When I say “bad”, I mean, merely, that the idea seems stupid to someone who has never made millions investing in tech companies. Everyone of them may very well go on to be the next Google for all I know.
Cell Phone Spam
This one clearly has a lot of demand from VCs, as it is the only idea that got two nods in the article (I guess portable power got two, as well, though one wanted capacitors and the other wanted LiIon). Basically, there is a desire from marketers to be able to call you up and spew ads at you any time they like. The buyers for the service are definitely there. I’m certain that if an ad service provider could convince a reasonable number of people to allow ads to be phoned in, the service would sell, and for a lot of money (to start with).
But, who in their right mind agrees to have ads follow them everywhere they go? There is, however, a way to turn this problem on its head and offer a service that people do want and occasionally throw in some ads. Y Combinator has funded Loopt, which seems like a potential service that ads could be injected into. I’m not entirely sure I would even want the “service” that Loopt is offering, but I’m a bit of an asshole who’s not entirely sure he likes people all that much, so I suspect I’m just missing the very real appeal of such a service. Maybe once they support T-Mobile and I get Loopt in and find loads of cool ways to meet up with my two friends, I’ll change my tune.
Offering ads as a service all by itself is doomed to failure, though once services like Loopt become commonplace, the need for ad networks that have small screen capabilities will grow rapidly. I reckon they can throw away the first prototype and re-use some of the code to repurpose it as an ad network, and come out alright. But they’ll waste a lot of money and time getting there. And the people who were working on the small-screen ad network to start with will probably already be the winners.
Web Search for Mobile Phones
Again, mobile phones are rightly seen as the next big market. A great convergence will occur, and the PC shall die a slow and agonizing death (OK, that part is probably over-reaching a bit). I reckon it’s true that billions are going to be made on mobile services, and I understand the desire of VCs to be there when it happens. I just think they’re all looking in the wrong direction.
The problem with this one is that web search is a gigantic problem. The actual presentation to the user is nearly trivial, in comparison (insert caveats here). With the biggest tech companies in the world battling it out, no mere $2 million startup is going to be able to solve this problem faster or better than Google, Yahoo, and Microsoft.
So to be a success with such a startup, you’d have to make use of one of the big search engines. Google, preferably. With that as a given, you now have as your primary business goal getting an iron-clad long-term contract signed with Google that allows you to use their results in your products. The API is there, so the technical side is easy. But if the market is really big (which it is), Google is going to want a stake in your profits when signing this deal or they’ll want to be able to inject the ads so they’re taking all of the profits from the actual searches. At this point, your only income is from the carriers that signup to carry your service. Maybe this can be profitable, I don’t know. I suspect they’d rather pay no one, and let Google solve the problem for free.
One way to turn this on its head into an idea that might actually work is to work on the small-screen interface problem in a generic way. It still hasn’t been solved, though there are a lot of people ahead of you in the race. The Palm interface isn’t bad, my Sidekick is pretty easy to use and reasonably quick, but both of those have access to a lot more input capability than a normal cell phone. So, if there is a solution to the “doing useful work with a numeric pad and a 240-pixel-wide 2-inch screen” problem, and you find it, you’re probably going to make some money. You’ll be in the patenting and licensing business, however, and not dealing directly with consumers, which is an area with wholly different skills than making technology products for end-users. That’s OK, of course, just not where I’m interested in going.
A New Database Company
Hmm…Really? A new database company? This new database…should it be: Lightweight? Cheap as free? Proven? Definitely!
I’ll concur that there’s plenty of room at the bottom for nimble companies to eat Oracle’s lunch. So, maybe this one isn’t such a bad idea after all. Everybody needs a database. But I’m doubtful of the ability of any small company to compete with IBM and Oracle for the big deployments and the Open Source options for the small to mid-sized deployments. I mean, I never stop to think, “Hmm, should I buy a database?” I always just install PostgreSQL for big jobs or SQLite for embedded jobs, and never think another thing about it. I guess there are customers out there who don’t think that way, but they probably just install SQL Server for big jobs and the embeddable SQL Server for smaller jobs or use Access when they don’t know better. I understand MySQL is also pretty popular.
A Make Your Own Video Kiosk for the Web (or “A Matchmaker for Mashups”)
This one is just sad on so many levels.
I’ll grant that there is a lot of content out there, and the studios would love to monetize it.
I’ll grant that people want to be able to mix up existing content with their own. Twenty minutes at YouTube reveals that people want to dance, play, sing along, make goofy faces, act out scenes, and pretty much live their (made up) lives on camera with a soundtrack of their favorite music and firmly immersed in popular culture.
So, there’s definitely demand for access to that precious content. But injecting video of myself into a scene in Glengarry Glenross? I don’t know anyone that wants to do that. Sure, there’s a small contingent of people that find it amusing to make a record of themselves singing over Celine Dion or something, at the local amusement park, once. Same concept here. Nobody is making millions off of this idea.
In fact, I’d suggest that if the studios figure out how to charge these folks for making ads for the studios products, they’ll move along to something else. It would suddenly become a job, and it wouldn’t be fun anymore, and they’d go do something else. Then YouTube (and the other fee-based services that the studios would like to replace it with) would have entirely become the ad-laden, boring, pointless, waste of bits that it has already started to become.
In short, it’s just a bad idea with nowhere to go. Though a web-based basic video editor might be cool, nobody is gonna get rich off of it.
Anyway, interesting read, for a look into what VCs are thinking right now. But I’m not planning to work on any of those problems today (I’ve got my own problem and it’s interesting and proving pretty successful), but I’m always happy to learn a bit more about the way VCs think and what their up to. They’re generally pretty damned smart, and they’ve got more money than I do, so they must know a few things I haven’t learned yet.
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