Gradual Change

Investors and entrepreneurs often pitch business models by describing them as a fresh or niche-focused take on a high profile success story. Angel investor Jeff Clavier allegedly described parenting social network, Maya’s Mom, as “Dogster for moms”, but this unfortunate example aside the point is simple: apply a business model that worked elsewhere to a different audience.

On the surface this kind of thinking makes sense, particularly if one considers how effective it can be to grow a business within a tightly defined demographic or vertical niche. But in other respects it makes no sense at all, because it discards so much of what actually ensures success.

Marc Andreesen, who should know a thing or two, has some fantastic insights into what makes a new venture successful, and he flies in the face of conventional VC wisdom by insisting the market is much more important than the team or product. His argument is that a great team can execute flawlessly on a perfectly engineered product which in the end fills no significant gap in the market, is too early for significant adoption or which users simply don’t want. By contrast, a company that identifies a pressing, unfilled need may succeed in spite of its team’s limitations, and users may gobble up a product that isn’t yet perfect because its fundamental value is so great. To make things more complicated, timing is everything, since the real genius of great start-ups is to deliver what the market wants neither too early when there will be too few buyers or too late when others will have already seized the opportunity.

At first glance it reads as if Andreesen would advocate the kind of business model replication I described earlier. Surely success with one audience is a good indicator that the market will respond similarly if the same model is applied to a different audience? But what Andreesen is really saying, I think, is that the market simply doesn’t shape itself around these kind of contrivances. In turn, the assumption that the structural elements of a business are what ensured its success is likely to be just as flawed. The dramatic growth of MySpace and Facebook around communities of musicians and college students, for example, logically implies that social networks for other communities will be successful. In fact their initial explosions of growth indicated that musicians really needed better tools to publish information for their fans and college students desperately wanted to manage and expand their natural networks online. Unfortunately their success says virtually nothing about the prospects for the same model deployed for old people or celebrity-obsessed teens, among others.

So in the end the trouble with pitches that claim to be about creating the Digg for tweens or the LinkedIn for senior citizens is that in most cases they’re assuming that different segments of the market respond to products and services in essentially the same way. If that were so then oddly enough all that would matter would be execution rather than innovation.