Everyone in the start-ups community is aware of global trends nowadays. IoT, big data with all it's privacy concerns, robotics, 3d printing, mass customization, start-ups disrupting traditional business models, demographic and generation changes, changing structures of global customers - with 4billion or more ready to purchase in mobile, changing structure of job positions - losing 50-60% of job types in the nearest' future.
If you're not working on your best idea right now, you're doing it wrong.
David Heinemeier Hansson
We all watch them, however only a few alert entrepreneurs manage to fit into the right window of time. How many of your friends identified the IoT era? Some entrepreneurs experimented, however, some of them had successfully identified the right moment. Ifinity. com, kontakt.io, oort.com - those start-ups were a long way from unihtendecl coincidence.
On the other hand, one can look for start-ups identifying a market niche in the mature, maybe even declining markets, like cellphones. Can you innovate in cell (not smart) phones? Maybe, like phones for your grandparents, with huge buttons: old market, the product even older.
However, WristyTechnologies addressed a niche in the market for parents who want to be in constant contact with their 7-12 year old children. In fact, this niche appeared in the market for the first time; ever. The older generation used to have regular cellphones, the new generation of teenagers is already equipped with smartphones for IK USD, which have been on the market just a few years (2007 - iPhone launch). Would you give your 8-year-old child a 500$ phone and let it play outside? All that was a planned, positioned, and successfully executed 250 page long business plan.
However, that's a huge exception when talking about start-ups, because search and selection is not what start-ups usually do. Experimentation, lean start-up, effectuation, business model generation, is that what you have been taught today[, didn't you] ? These experiments can lead you toWards the nascent market, however it's you who have to identify that big trend, the entrepreneurial opportunity to exploit.
Taking 50-over-lbillion-dollar start-ups from a rdcenbEorbes list, you will find technology based start-ups settled in traditional markets like accommodation & real-estates, transportation, health care, food delivery, communication, retail, payments, advertising, 34 music & film, consumer electronics, energy, and now things like data analysis, data storage, online video games, data search engines, data collection (survey monkey), and a few software companies. All of those over-l-billion-dollar businesses solve traditional, sometimes redefined, customer problems in new ways, due to new technologies and new customer preferences. If you were to define the start-up, would it be a new Internet shop selling cosmetics on-line. Maybe that would be true 15 years ago, before the shift in customer preferences.
So what is a start¬up? For sure it's a stage in a new organization's development process. However, not all new organizations are start-ups. Only those, according to Blank (2012), that "search for repeatable and scalable business models" and exploit entrepreneurial (not market) opportunities. What is the difference? When exploiting market opportunity it means that you use existing knowledge, understanding the relationship between means and ends that you want to achieve. You simply use identified needs, with identified products/services, to address the identified market in the previously known way.
So what does the start-up do? It creates a new means-ends relationship, something that nobody else spotted before, nobody else managed to exploit for profit in the past (at least in your customer segment target group).
So where is that innovation: new customers, new products and/or services, new business models, in an uncertain environment. What is the difference between risk and uncertainty? Simply, you can assess the risk as high, low or moderate, because you can collect data on the known problem, however, when talking about uncertainty nobody can predict the future. It's dynamic, it's changing. You just spot the right trends at the right time and, with some luck on the way, you have a chance to succeed. Product/market fit means being in exactly the right market with a product/service that will satisfy that market (Andreessen, 2007) and it is an essential stage before scaling-up.
So when you have identified your entrepreneurial opportunity, and started with your new venture, what do you focus on? Products or services? Is there really such a question today? IoT, which the Internet embodies, like Steve Kelly the Wired CEO used to say in 2005 (!), makes no difference between material and virtual. If you have a start-up, which by definition means that you are exploiting entrepreneurial opportunity, so you probably have new products/services based on technology, your chances to sell both increase.
Of course, if you stick to data, information processing, analysis or mediation (i.e. intermediary model) or software development, you don't bother about products, however there are a number of examples when pure service projects evolved into material products: DuckieDeck's (games for kids) tablet, sher.ly's (file storage) external hard drive: sher.ly box.
It's a two way shift: one of the companies in the 3D printers market started a new project and is leasing 3D printing infrastructure for schools; according to recent Morgan Stanley predictions, Tesla Motors might shift towards shared transportation and "sell miles in addition to selling cars" in the next 18 months, which simply means that your Tesla will cash- in additional revenue in the self-driving Uber model.
In the case of hardware start-ups, the competitive advantage will (almost) never be located in products, in the same way as in software businesses. The key today is data and knowledge on how to exploit this information for profit. Looking at recent trends, the marriage between material and virtual, focusing your start-up on building knowledge about your current and potential customers seems like a good idea, no matter if its a hardware or software business. The key question today is "would you like your customers to open-up their wallets for you?". The business model innovation does not distinguish cash from products or services, and depends on the answer to this question. The key challenge today is to gather data for your competitive advantage either for building your customers' lifetime value or for earning profit on targeting your customers with partners' products or services. Recent research trends in business model innovation help to better understand the complexity of cashing in on your new idea. In the first case scenario, when your users become your paying clients, you have a number of monetization options, however, even when you customers are not expected to open- up their wallets, you can choose between free for user or cash the third party models (see the Table 1).
So what to start with? If today's 50-over-the-billion-dollars start¬ups list might be a trend source for any prediction, you will see both manufacturers and service companies. Common for all is their data and information focus. Even in this unpredictable environment, there are usually symptoms confirming your hypotheses and intuition like trends, early adopters feedback. Usually, the most intuitive and experienced entrepreneurs dare to take the risk to build a successful organization in those markets. Based on their experience, intuition & trends, they are able to identify the right moment and be persistent enough to deliver their vision.
Table 1. The third party models
Source: Own compilation based on Board of Innovation (2015).
The third party models | example |
---|---|
User = paying client | |
subscription | dollarshaveclue.com |
leasing | leaseplan.com |
pay-per-use | blendle.com |
up-selling | wordpress support |
flat rate | vpnunlimitedapp.com |
razor-blade | keurig.com |
fractional ownership | fundable.com |
dynamic pricing | sfpark.org |
presales | kickstarter.org |
Free for user | |
freemium | clashofclans. com |
donation | wikipedia.org |
barter | homeexchange .com |
pay-what-you-want | wyndercar.org |
nonmonetary | |
Third party pays the bills | |
advertising | pinterest.com |
referral programs | asap54.com |
data resell | datacoup.com |
matchmaking platform | jobr.com |
marketplace | airbnb.com |
Previous materials on the topic:
based on the product of the Wolves Summit, in which our team has participated
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