Too many entrepreneurs fall into the trap of releasing underwhelming products that have already missed the proverbial boat.
By Robert Carroll
An all too common mistake made by entrepreneurs is to create a product that’s only marginally better than its existing counterparts. It appears safer to work on these kinds of incremental innovations, but the danger is in getting sucked into a saturated market. In this sense, PayPal founder Peter Thiel sets a simple bar for any new product to meet. “As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension,” he said. “Anything less than an order of magnitude better will probably be perceived as a marginal improvement and will be hard to sell, especially in an already crowded market.”
A 10x improvement may seem daunting, but it’s not impossible. Consider Tony Fadell’s unveiling of Nest, a smart thermostat that performs at least 10 times better than traditional thermostats. Or look at Jack Dorsey’s most recent startup Square, a do-it-yourself credit card reader that makes it 10 times easier to sell anything.
In the same way entrepreneurs tend to think too small when developing new products, they also tend to show up too late to hot markets.
The story of LinkedIn is an amazing one. Reid Hoffman launched the professional networking site in 2002, long before the birth of other networks like MySpace, Friendster, and Facebook. As each new social network came and went (and a few survived), Hoffman slowly and methodically scaled his company. Now LinkedIn has over 300 million users and employs 5,400 people around the world.
When he launched LinkedIn, Hoffman wasn’t trying to compete in a market; he created a market. There was a lot of speculation back then about where social media would head. Amid uncertainty, Hoffman took a chance. From there, the LinkedIn team labored for nine years to refine the product and grow its user base before eventually filing for an IPO in 2011. What’s incredible is that at the time of LinkedIn’s listing, thousands of new startups were just barely entering the social media space. Blinded by the excitement of a new market, the new startups didn’t realize they were nine years too late.
Technologist Tren Griffin said: “There are always areas of an economy in which there are significant uncertainty. These areas are excellent places for a startup to look for opportunities.” The problem is that most of us only look for opportunities in markets that have achieved relative certainty. If you’re entering a hot market, you’re probably too late. If the market is still unstable and uncertain, you may still have a chance to make an impact.
When competing in the startup world, too late or marginally better won’t cut it. To leap frog current trends and build something for the future, explore uncertain markets and seek to solve problems in a big way.