Are Entrepreneurs Being Commoditized?
Is it possible that entrepreneurs are being commoditized? And what does that mean?
These are questions I discussed after a meeting this week in Singapore with two young entrepreneurs who were seeking investment capital. We were quite impressed by the team (I’ll withhold specific information about the business given we’re in the process of considering the investment). The two founders have an idea with significant disruptive potential. And it isn’t just an idea on paper. They have a functioning website with more than 100 active users.
During the meeting we asked the founders how they got the funding to develop the first version of their offering. They looked at each other.
“Well, we’ve really spent just a few hundred dollars,” one founder said. “We did the website in our spare time then did some word-of-mouth marketing to drive people to the site.”
Of course, the two had poured significant time into the business, but the marginal cost of getting the business off the ground was close to zero.
Think about that. The “supply” of startups has gone way up over the past few years. Part of this is driven by the increasing globalization of entrepreneurialism (see the excellent article by Anne Habiby and Deidre Coyle Jr. in September’s Harvard Business Review for an example of this). Part of this is driven by what I call the “flattening innovation scale curve.” The widespread availability of free or very low cost development tools makes creating a business almost scarily simple.
You can use SurveyMonkey to run reasonable market research for $100. Google SketchUp can let you mock a product up for free. Creating a website is easy. Google AdWords allows you to do targeted marketing affordably. Markets for specialist providers like eLance or OnForce allow entrepreneurs to find specialists quickly and cheaply.
Of course, it’s easier to start a new business in some industries than others. Not many people are going to create a new automobile company, for example. But, entrepreneurialism has certainly never been more accessible.
Wait a second, you might be thinking, what if that supply is more than matched by an increase in demand? One could imagine two types of demand. The first is funding. Venture capitalists and angel investors (and companies) are sitting on huge reservoirs of capital that they have to put to use. Perhaps the increase in demand will balance out the increase of supply, leading to a panacea — the entrepreneurial market growing rapidly enough that venture capitalists and entrepreneurs still have the potential to earn great returns.
There’s of course a third piece of the entrepreneurial puzzle — the stock of inherent interesting ideas. Perhaps the opening up of global markets and the explosion of new technologies means there needs to be more entrepreneurs than ever before.
Let’s assume for a second that (potential) supply now outstrips demand, and that the cost of starting a venture has decreased exponentially. What would that mean? Certainly it supports the rise of incubators like Y-Combinator and “super angels,” or individual investors who can provide sufficient capital to propel a startup venture to breakeven and beyond.
Further, these shifts could lead to a big change in how we evaluate startup companies. When I was getting ready to come out to Singapore to lead up our venture investing activities (among other things!), I talked to every smart venture investor I could find. To a person, they said something along the lines of: “It is all about the people. I know the first idea isn’t going to be right. If I can find the right team however, they can successfully iterate toward success.”
Could that be changing? Is it possible that instead of looking at the people, the target market, or the idea, that investors ought to be looking at the process people are following in their innovation journey?
We’ve argued that innovation is not as random as people think; that following the right steps and approaches can allow anyone to increase the odds of creating new ventures. Other thought leaders like VG Govindarajan and Rita McGrath provide helpful frameworks and tools to guide that journey. While we’ve been focusing on helping established companies innovate, Steve Blank from U.C. Berkeley and some of his disciples like Eric Reis have argued that startup companies can follow a step-by-step process that allows them to quickly and cheaply find success (if you don’t regularly read Blank and Reis you really should — the writing is practical and useful).
If you study all of this work, you will see substantial overlap. No one disagrees with the notion that innovators should:
• Recognize their first approach is wrong
• Try to get something that lets you learn how you are wrong as quickly as possible (Blank calls this the “minimum viable product”)
• Let the customer decide
Intuit founder Scott Cook had a great quote on this at a TechCrunch event this week. He said, “If there’s something I’ve learned in the last four years, it’s the power of iteration. Rapidly create, test, change… Run experiments with customers, let the customer vote, don’t rely on the boss to vote.”
I’m not trying to say that people don’t matter. Innovation is an intensely human endeavor.
Scott D. Anthony is managing director of Innosight Asia-Pacific.