At New Atlantic Ventures, we see over 1000 quality new business ideas each year (I don’t say business plans because I can’t remember the last time someone sent me a classic “plan.) We meet with a few hundred and we fund half a dozen. Really, not much different than most venture capital firms.
We see lots of good ideas, fewer good and “big” ideas, and even fewer good and big ideas with teams that we think have the audacity and ability to create a $1 Billion business.
But the one thing I see missing in the thought process from most teams of entrepreneurs is an understanding of why their business will succeed in a cluttered world where we are all overscheduled and overcommitted. And in a world where time and attention is finite.
My focus in this blog post is on consumer-facing businesses, although much of the analysis also applies to more hard-core technology businesses and products.
Lets face it. Most venture-backed businesses never make it to the $1 Billion level. Maybe one in twenty-five or one in fifty if I had to hazard a guess. Of course many venture-backed businesses are otherwise successful, and make for great tuck-in acquisitions for large companies. My focus is on the $1 Billion companies.
Simply put, to create a $1 Billion consumer-facing company, your business model has to do one of two very different things:
1. Create an emerging mass market and ride a wave of industry growth; or
2. Identify a huge existing market and launch an unorthodox attack
Lets examine each of these business models to better understand what a CEO has to do to win in each scenario. Then lets look at a sample company pursuing each strategy.
The most well known recent example of a company that created its own emerging mass market, and is riding it well past the $1 Billion level is Facebook. But you can come up with dozens of other examples.
Facebook was not the first social network. But it was the first to create an open platform for developers to make money off of the Facebook user base. Zynga is arguably the biggest of the Facebook satellites to create its own emerging mass market in online social gaming.
To create an emerging mass market, I believe you need a CEO with missionary skills, able to bend the future to his or her will. Steve Jobs is the prototype missionary CEO – the iPod, iphone and ipad speak to his missionary zeal in create entirely new product categories. You need a product or service that is addictive – think Farmville or Mafia Wars. You need a product or service that will steal time (and money) from an existing product because we aren’t making more hours in the day. The time we spend on Facebook today comes at the expense of the time we spent on desktop applications like our email clients, time on the phone, time watching television, and, face-to-face time with our friends. I am constantly amazed to see a family out for dinner at a restaurant, and all of them engaged with their smart phones instead of each other.
To create an emerging mass market you have to understand who loses if you win. And often the loser is not a competitor per se, but a competing activity or product. The smart phone is rendering the digital camera and the iPod obsolete. The ipad is further rendering the portable DVD player, the portable handheld game player, books, newspapers and digital picture frames obsolete.
We have a young company in our portfolio called FashionPlaytes. It just raised a “B” round from Fairhaven Capital. FashionPlaytes is trying to create an emerging mass market. Their product sits at the intersection of the virtual world of the web and the physical world of a retail store. Aimed at girls 6-12, FashionPlaytes lets them design their own clothing, and then makes the custom garment for the girl in her size. In under a year, kids have designed over 200,000 garments at FashionPlaytes. It is fun, and very viral, as kids love to share their designs with their friends.
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