In my previous blog post titled “How making money changed my perspective on startup ideas“, I argued that business ideas don’t have a lot of value in isolation. It is the market opportunity coupled with good execution which generates value and revenues. In this post I want to go one step further and argue that most successful (software) companies got there by chasing a market opportunity and not by having a unique business idea.
Take example of any successful software company and you will find that their business idea was not unique. You say Facebook, I say Friendster. You say Google, I say Altavista. In fact, I think citing such examples is not a good idea because odds of a startup achieving a billion dollar valuation (and becoming a brand) are close to none. I am more interested in knowing how the “long tail” of software companies achieve million dollar plus revenues. That’s a realistic, achievable target and the odds of your startup becoming a Fortune 50000 business are much higher than it becoming Google. So, we should drop the dreams of IPO (for now), let’s just see how businesses make million dollar revenues.
How software businesses achieve million dollar revenues?
Go to Inc’s listing of 5000 fastest growing companies and sample a few company descriptions. For software hackers, go and study Inc’s listing of fastest growing software companies. What do you learn from this list? I realized two main patterns:
- I only recognized a few companies there (apparently you don’t need to be on TechCrunch in order to be successful)
- I did not see many “unique” business ideas here (all operate in generic industries such as backups, SEO, encryption, sales automation, etc.)
Almost every software company in that list is chasing a generic, huge market opportunity and executing really well. They have a 1000%+ growth rate today because they chose the market wisely and provided a solution that people wanted. They are not making millions today because they had a crazy good idea.
So, what’s the key point?
My key point here is that instead of coming with a business idea and then trying to validate it, why can’t you work backwards. Why can’t you first choose a market and then come up a solution to ease a recognized pain in that market. Even if you don’t make millions or achieve a spectacular growth rate, you will be at least profitable because your market is large and has people who are already spending money (I’m assuming your solution/product is good!). This scenario of slow growth and profitability in an already validated market is much better than the scenario in which you have one in a million odds of achieving hockey stick growth because of your new, revolutionary idea.
Key lesson: choose a market/nice first, come up with “idea” later. And then, execute really well and persevere for years before hitting million dollar revenue!