Most new markets are ten years old, if not older. Ecommerce, Online apps, disintermediation platforms, social, mobile, games, enterprise SaaS, etc. are all mature or maturing markets. What this means to new startups is when they try to scale user acquisition they are up against serious competition:
- Mature startups with a full product suite and a sales & marketing machine staffed with teams with a track record of growing, maintaining and monetising user bases. They are either already profitable, or have raised tens of millions of growth capital.
- Mature global companies who, when it’s clear there’s a sizeable market opportunity, they move into this market.
Gone is the day where customers will mix together products from dozens of new startups. Apart from a few early adopters who will buy the best tool for each task, most see this as too complicated. Instead it’s easier, less risky, to by a product suite, one tool which does everything OK, works together and has enough customer references/online reviews to say it works.
These mature startups and global companies have mature sales and marketing operations – to them it doesn’t mater if it takes a couple of years before a new customer is generating revenue for them. Their products are bigger than the “minimum viable product” from a young startup – they can sell it for more so they can outbid the young startups in all user acquisition channels. This dynamic has always existed – it’s about scale. However in the past there’s been several paradigm shifts which have shifted the power from mature products towards startups:
- Exponential growth of internet users starting in the 90s – a rising tide raises all boats meant success for many who were one of the first to see an opportunity
- Disintermediation (many players in a value-chain were no-longer adding value in an online world and they could be easily disrupted by startups starting off small – eg. Ebay)
- The first wave of agile product development (in 2000 mature products were built on Oracle & coded in C or Java, and along came Linux, Apache, PHP and Mysql which was free and easy to update your product continuously)
- The techcrunch effect circa 2006 was strong enough to launch new products
- The rise of social
- The second wave of agile product development – the move to the cloud, SaaS, cheap and scalable
- Exponetial growth of smart phones (Mature products were slow to adapt to building mobile versions)
Maybe there will be new paradigm shifts which will create opportunities again. However the main shift I see is working against startups. It’s the convergence of hardware, software and services with the internet of things, sensors, wearables, increasingly complex smart phones. It’s difficult to see what a “minimum viable product” is in a world where everything is converging and the tech giants (Google, Apple, etc.) are sucking in more and more data.
As a tech seed investor, it’s become increasingly difficult to judge what’s going to succeed. For a startup to see off the mature competitors it will need a VC to back it all the way and a team which is motivated to build out the product until it and the team have matured – its a long and uncertain journey. In this interconnected world, the halfway solution (that we’ve used in Europe where startups raise a tenth of what they raise in the US and find a niche) is going to be increasingly difficult to make work. Even if the IP (intellectual property) is compelling, it’s risky to try and build an industry from scratch unless you have access to the full US scale VC capital (tens of millions) and a team with a track record to scale startups big. The default European option will continue to be to sell the startup early to avoid the risks of going it alone.
My guess is somehow this maturing will play into the hands of the multinationals. They have the scale, and somehow the combination of them, their corporate VC teams, kickstarter/indigogo (as a means of testing product/market interest), accelerators/incubators (to process ideas in large batches), VCs and angels will have work together to get new products to scale.
But (except for the rare exceptions) it’s not going to be about startups going it alone. As markets mature, its brutal out there for startups.
P.S. Here’s an example of Apple’s software maturing and competing with many startups https://www.cbinsights.com/blog/apples-wwdc-startup-losers/