11/02/2020 2 Comments

Is the next big thing really worth the chase?

Is the “next big thing” really worth the chase?

Previously envisioned as a Hot or Not rip-off, the startup “Facebook” was not expected by anyone to explode and become an integral part of our cultural zeitgeist as it is now. Many businesses try to copy the winning formula but very few succeed in it. So, how to know whether the next big thing really worth the chase?

It was not the first social media website, but it was the first one to execute the concept perfectly. Until other tech companies like Google and Microsoft realized it’s true potential and considered social media the “next big thing” it was already too late given the examples of the slow decline of Orkut and immediate launch and discontinuation of Microsoft’s social media platform well before Instagram. What may be the reasons for their eventual failure? Clearly there was no lack of active funding as these were considered unicorn projects by their parent companies upon their launch then what went wrong with these initiatives?

In 2007, Groupon bagged first million dollars and eventually $1.4 Billion in venture capital, raised by keeping one aim in mind i.e. To reshape wholesale shopping experience. For a while, it looked like group buying, social commerce, daily deals. Time-limited sales paired with social pressure was really going to change buying behaviors in a big way. In the space of four years the category exploded:

The real story.

“Social shopping” wasn’t an as feasible platform like mobile, but everyone started thinking about how it would transform their market.

The business model just didn’t work very well. Brunch spots broke under the stress of baking beignets at bargain-basement prices. Daily deals turned out to be a great ad platform for indoor skydiving facilities and escape rooms, but that’s not the kind of business that changes commerce — It’s the kind that trades for 2X profits.

There was a flash sale on GRPN stock that saw its value drop by 85%. LivingSocial died a lonely death. The clowder of copycats screeched their last.

It wasn’t a total washout.

  • Zulilly IPO’d and was quickly acquired by QVC.
  • Wish has adapted the model and currently holds an $8.5B valuation.
  • Coupang, the Korean alternative to Amazon, commands a $5B valuation, though they thrived after pivoting into a full-stack e-commerce model.
  • Even after all the drama, Groupon is still around and has a $2.4B market cap.

Most of these companies were and are successful. They may have fallen short of outrageously high expectations, but the model worked in specific contexts. It just wasn’t a commonly applicable approach and a lot of startups paid the price for chasing a trend that had less materialization potential. The bigger loss was the years of effort wasted by entrepreneurs blindly chasing after the “next big thing.”

Media has a tendency to put a trend on the pedestal !

Are the reasons for Groupon getting overhyped? The media has to drive an exciting narrative every day. The problem is, truly disruptive innovations don’t come along often. Thus interesting yet marginal developments are oversold.

For instance, Personal RobotsGamificationWearables. These were all proclaimed as the “Next Big Thing” by major news outlets. Good businesses can be built in any of these areas, but in retrospect, they did not become broadly lucrative trends.

Today, “voice” is touted as a disruptive platform, but at present, it looks more like a new UI layer for Apple and Amazon services than a technology that will launch a hundred startups.

These reporters aren’t purposefully misleading people. They’ll make bad predictions in much the same way VCs will make bad investments. It’s the job of entrepreneurs to look at these trends critically and to remember that boring ideas may be deadly to reporters, they can be fabulously lucrative to founders.

Startups who chase after these trends often find themselves stumped by “The Platform Paradox.

For the record, VCs also have a role in this, hyping your startups is part of the gig, but they also pay a heavy financial penalty when their companies go belly up.

Then what’s the solution to this? Embrace the use case!

Try to build a product that caters to a specific use case.

The same year Groupon got started, Peter Gassner raised $3M dollars to fund Veeva, a vertically-focused (and very boring) CRM-style SaaS solution for life science companies. Its launch was little noted by the tech press. The product’s ability to streamline communication between pharma companies and clinical research organizations didn’t herald the arrival of any new tech paradigms. Incubators didn’t create special-purpose funds to spawn imitators.

 

Check out-: Why the innovator in you is supposed to helm their own operation.

 

The practical approach.

However, many life sciences professionals thought it was the best startup in the space since Emil Erlenmeyer got into the flask making business and were willing to pay accordingly. Veeva went public a couple of years after Groupon and today it’s worth over $10B. Considering Veeva only raised $7M in total venture capital, it is easily one of the most successful tech IPOs of the last half-decade.

Groupon was sold as a paradigm shift in e-commerce that would ripple through the broader economy. Veeva was “just” a well-conceived B2B product for a niche market. It turns out niches hold riches.

Don’t blindly trust the hype.

As David Frankel wrote, “By the time there is a special purpose VC fund devoted to a trend, it is probably too late to build a meaningful company in that space.”

Keep an eye on macro trends, but employ them in the service of a specific use case for a specific kind of customer. Technological fads come and go, but human use cases are durable and can be exceedingly valuable.

Meanwhile, if there is something worth investing your time and money, and you’re in need of onboarding technical expertise to pull off your vision, do let us know at AppVoir, we thrive in helping ventures and building businesses.

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02 Comments

    AffiliateLabz
    February 2020, 11 Reply

    Great content! Super high-quality! Keep it up! 🙂

    Anonymous
    February 2020, 11 Reply

    Really informative blog.Really thank you! Really Great.

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