Startups and Timing

On the "Why Now" for startups

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Hi friends,

Today I'm going to be discussing startups and market timing. Marc Andreessen once quipped, “there are no bad ideas in tech, just bad timing”. While most people intuitively understand the importance of the “Why Now” for a startup, at times it isn’t paid as much attention to as it should.

The Dot Com’s Flameouts and Future Successes

One of the best illustrations of this idea is to look at some of the largest failures and flameouts from the dot come era. Some of these were widely regarded as the silliest ideas emblematic of the dot com mania, but yet when we fast forward to today, there exist successful companies that have thrived in their vision.

• Webvan was a grocery delivery business that raised over $400M over the course of 3 years before going bankrupt in 2001. Fast forward to today, businesses such as Instacart (~$10B market cap) and others have fulfilled the same vision.

• Pets.com tried to transform how we buy pet supplies but ended up liquidating in 2001 in what was one of the biggest dot com failures. Fast forward to today, Chewy.com has turned the vision into a functioning business model with a ~$7B market cap.

• Kozmo promised one hour delivery of food and other items when it started in 1998. It raised $250M, but shut down 3 years later. Today, a number of companies such as Doordash, Uber Eats and GoPuff offer this service in a profitable manner in many markets, and to the tune of tens of billions of dollars in GMV.

• Broadcast.com offered internet radio for sports and was one of the first few “streaming” companies, and was acquired by Yahoo within a few years of being founded for $5.7B, and shut down just years later. Today, companies like Spotify and Netflix have built large businesses on largely the same idea in both music and film/TV.

Three Lenses to “Why Now”

Given that the timing is important, the “why now” question can typically be thought about from three lenses:

• Technological Readiness & Enabling Technologies: Typically, some ideas “make sense” on paper but aren’t even doable properly without some enabling technology. For example, with Webvan and Kozmo, while people could in theory place orders online on desktops, you needed smartphones to effectively also support the people picking up and delivering the orders for the idea to truly work. Over the past few decades, some of the key enabling technologies have been the Internet, Cloud, Mobile and now AI, though specific aspects of them come into play as well (Data processing, GPS, Camera, etc).

• Consumer Behavior: Acceptance of certain things by consumers or a shift in consumer habits or behavior, which sometimes but not always may be driven by technological change is another factor which can be the driver of the why now. For example, the applications mentioned above, benefited from both the adoption of the technologies as discussed above, but also the general trust in online transactions by the time they appeared.

• Economic Rationale: The third factor is around whether there is a need for the service in the economic environment and whether the economic price point makes sense. As one example, with advancements in the internet and bandwidth, the all-in cost to the end user for streaming is drastically different 10 years ago than from 30 years ago making Netflix and Spotify others more viable. Similarly, in some cases, the economic need for an idea only happens at a certain point or in a given environment — for example, products to help you manage cloud spend only became important as cloud spend grew large enough. Finally, certain macro conditions support bundling vs unbundling leading to tailwinds for platform solutions vs best of breed point solutions.

AI’s Promise

With the advances in AI, the “Why Now” for many startups today is quite clear. AI represents a new enabling technology that could lead to a number of ideas that were tried in the past but not quite ready at the time viable from the perspective of its now actually possible to build.

We at Wing sometimes refer to these as “previously imagined, now possible” products. The market was there/the idea made sense, and indeed someone may have even tried to build it, but the tech/product didn’t quite work. While there are numerous examples of these such as natural language BI to automated outbound, another category which I think this could apply to are the wave of tech-enabled services businesses which popped up 5-7 years ago such as Atrium.

While the idea in those cases was to be a full-stack service provider, the operational gains weren’t quite enough to be a true venture-scale business. However, in some of those cases, with AI we may truly be able to fulfill that vision, leading to this idea of services-as-software being in vogue today.

But technology aside, AI also represents a large improvement in economic price point of many services if you consider the AI cost vs a human cost. So attempts at companies in the past around democratizing access to therapists / coaches / assistants / concierges and others, which may have been tried in the past but were still capped in opportunity given the inherent human cost may look pretty different if AI can take a lot of the cost out.

If you’re building in these spaces, I’d of course like to hear from you. Feel free to reach out at tanay at wing.vc or DM me on Twitter.

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