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Click on the chart below to get to an amazing interactive visualisation of 15 years M&A by Apple, Amazon, Google, Yahoo, and Facebook.
From our perspective as ecommerce investors the most interesting thing is confirmation that Amazon is the only volume acquirer in our market, and generally not at huge valuations. That makes it crucial that ecommerce startups can get to high valuations based on fundamentals – i.e. the ability to generate profits and cash.
Click image to see the interactive version (via Simply Business).
It’s well understood now that at many of the best startups the founder remains at the helm until the company is very large – Facebook, Google, Microsoft and Oracle are four great examples. It’s also pretty well understood that founders have to be incredibly adaptive to stay effective as their companies scale. This description of changing requirements from CEOs is a helpful guide to anyone involved with fast growth startups (credit Venturebeat):
We invest at the very early stages and look for our founders to excel as innovators and entrepreneurs first with the potential to be great builders. We hope they will go on to become great operators and enablers but it doesn’t make sense to think too much about that when the companies are still tiny. For a long time now I’ve thought that the biggest challenge founders face in adapting is the need to ditch the stubborn-ness that served them so well in the early stages. Gail Goodman, the founder and CEO of Constant Contact, which provides online marketing services to small businesses and has grown to some $285 million in annual revenue since it was founded in 1998 put it like this:
being relentless in your perseverance can eventually become an obstacle to change … Every founder [eventually] needs to face two ugly truths. The first is that you’re doing something wrong all the time. The second is that your flaws are harming the team.
The trick is to maintain self-belief through this realisation.
This Tweet from my friend Nicholas Lovell got me thinking about the changing dynamics of starting companies generally:
RT @LewieP: It is easier to make a game so more people make a game so it is harder to sell a game. <- this is something many miss.
— Nicholas Lovell (@nicholaslovell) April 9, 2014
Just as it is getting easier to make games so it is getting easier to start companies. Both the amount of money required and the depth of skills required have fallen precipitously, the first driven by open source software and cloud computing and the second by the improving quality of tools, services and advice available to entrepreneurs. (Note building a successful company is still very difficult, it is just the starting that is getting easier.)
As with games the result is that increasing numbers of companies are started each year.
As with games that makes it harder to stand out from the crowd.
The keys to standing out from the crowd are to have a great idea, to execute well and to generate momentum. Early adopters, investors, and the press are always looking for hot new companies that exhibit these characteristics and they have good systems to find them. However, because the number of startups is increasing the bandwidth available to look at each one is declining making it harder for companies to get anyone to take a second look if their execution and/or momentum falters.
Hence it is increasingly important to execute right first time.
(Side note: experimentation and failure are part of good execution in a modern startup so long as the experiments are thoughtful and learning driven.)
At a recent XOXO conference Ev Williams, founder of Twitter and Medium, gave his formula for a billion dollar business (as reported in Wired):
Here’s the formula if you want to build a billion-dollar internet company. Take a human desire, preferably one that has been around for a really long time…Identify that desire and use modern technology to take out steps
He gave Uber as his example. People have wanted to get from A to B since the beginning of time and Uber has just taken some steps out of the process.
The lesson here is that at the end of the day there is nothing new under the sun. We all still have the same basic needs and high potential consumer startups should be able to make a link between one of those needs and what they do. For my money Maslow’s Hierarchy of Needs is the best framework for understanding those needs. Whilst our basic human needs haven’t changed the extent to which they are sated is definitely evolving. That’s where Maslow’s Hierarchy is powerful. By listing our needs in the order in which we need them to be satisfied it makes it easier to see where the gaps are.
The dominant meme in this area is that our physiological and safety at the bottom of the hierarchy are largely taken care of, and that the opportunities now are in helping people with their needs for ‘love/belonging’, ‘self-esteem’ and, particularly ‘self-actualisation’. What’s interesting about Ev’s formula for a billion dollar business is that it shows how to look for opportunities anywhere in the hierarchy – there are opportunities in needs at the bottom of the pyramid if they can be satisfied with fewer steps. The more efficient delivery of health is one such area that a number of entrepreneurs are working on now.
This chart is taken from a presentation to DemoLabs by Helen Greiner, founder and CEO of CyPhy works and formerly of iRobot. It’s a capability timeline for drones.
At Forward Partners we invest in the ecommerce ecoystem and one of the sub-areas is innovative product companies building their brands online. I’m interested in the way drones and robots are changing the economics of manufacturing and enabling innovative product companies by enabling greater precision at lower prices, through mass customisation, and through cost effective small batch runs.
According to the timeline above it will be in 2017/18 when drones and robots are “evaluating and managing” that they are having the impact that I describe above. I think we will see the first innovative startups leveraging drones and robots to make amazing products before then. Indeed, I wrote about one example in the bike industry last year.