The fundamental requirement of any breakthrough venture is simple to grasp, but far from easy to execute. Namely, a founder must recognize a large, important unmet need and build a compelling, scalable solution to satisfy this need.
Examples of large unmet needs are myriad. They include:
- Atmospheric carbon sequestration,
- New sources of energy, food, water
- Housing for the homeless
- Cures for cancer
- And much, much more.
It is indisputable that a scalable solution to a large, unmet need is the foundation of any great startup.
However, would-be entrepreneurs must also ask the following question: Is my startup building a solution to an unmet need or is it building a feature of another company’s solution to that need?
To understand what we mean by a feature, think about a company like Zoom, where their core solution solved a major unmet need at the start of covid: to help suddenly distributed teams to communicate as if they were in the same room. Zoom has their own marketplaces for add-ons, with over 1500 apps, in categories such as conversational ai that captures meetings, or calendar integration, or client management software, and much more.
These add-ons are features to Zoom, and it will be very unlikely that the companies creating them can build a business big enough to be a breakthrough venture.
If you are providing a feature to another company’s product, It is highly unlikely to become a major business. There are 4 basic reasons:
- The company for which your product is a feature is either your customer or it is your market channel to the end customer. As such, it has enormous leverage in determining how your product is advertised, distributed, and ranked among other features. Whenever you are building a great venture, you need to achieve product/market/channel fit and have a plan to exponentially grow your business.
- Your feature is usually not the essential element of what makes the company successful.
- The company can effectively mandate your price and margin.
- The company can, in its contract with you, limit your opportunity to work with or market to other companies.
When researchers build new technologies, the ventures they attempt to create often have this problem. I remember once proposing to a top venture capitalist a venture that would build virtual personal assistants (like Siri) for banks. The customer would simply ask the virtual personal assistant for account information, or transfer funds, and the like. The venture capitalist responded: “If you had proposed to create a bank with this new capability, I would have considered it. But this is just a feature for other banks to use. Thanks anyway.”
Another example was when we built a breakthrough technology capability to allow users to ask, via a natural language query, to seamlessly extract specific sequences within a given video. I felt this was truly valuable and important. All of us, in our experience with video, wish we had this capability.
Here’s how it worked: a video might depict a woman who was given a gift of a new bike by her family. A MYVID camera was on the bike, taking the video. She took the bike and rode along a path, walked the bike over a bridge, and then finished her ride and came home to her children waiting for her at the house. When she got home they all clapped and celebrated with her. Our video product would allow the woman to say: “I’d like to share online the part of the video where I come home to the children waiting at the house and clapping and celebrating.” Our product would then find the correct part of the video, and seamlessly extract the video (including audio) segment, and share it online.
This was a superb, unmatched technology solving a major unmet need; that is, people, companies, and organizations all over the world take many hours of video and often only want to post certain video segments versus their entirety.
As such, we decided that this technology could form the basis of many different ventures. We needed to choose how we would start. Would we become a consumer video hosting site like YouTube is? Consumers would love this ability to extract video sequences. We chose not to, because
- We would have to compete with the existing and deeply entrenched players like Apple and YouTube.
- As a video hosting site we would have to solve many more “mundane” but difficult problems like storage, speed, multiple video formats, and much more.
- The capital expense for creating such a company could be high.
- The time for development and go to market could be long.
Our next concept for a new venture was to team with one or more video hosting companies, and we would provide our technology product capability for that company.
We visited the MYVID company, and proposed what we considered an outstanding value proposition. MYVID wanted to sell MYVID cameras as its basic business, but MYVID also hosted customer videos. These customer videos were great “advertisements” for MYVID, and of course people watching these videos might want a MYVID camera of their own. But the videos were generally too long and too few people were watching. Our product would enable the customers to automatically create and post the short form video they liked. More great videos would lead to more MYVID camera sales.
MYVID loved our idea, and we spent months working with them on test cases. Once we achieved all their requirements, we negotiated.
The negotiations did not go well.
MYVID considered us to be one unproven feature among many potential upgrades of their software and hardware. We had no proof that the value I described above would result in more revenue for them. It was only a hypothesis.
During the trials, we also learned that our technology would require deep integration into a customer’s data and metadata. It would have to be trained on large numbers of videos, and the time and funds necessary for integration would be relatively high. In business terms, the cost to acquire a customer would be high, the time and energy for both us and the customer to integrate our product into the customer data would be great, and the time to revenue would be long.
There were many discussions, but in the end, we never reached agreement. They had the library of videos and the customers. We were a feature of their solution and only a feature. One among many. Unproven in its value.
Later we found a few specific customers that wanted the technology, and we earned labor based revenue and license income. The value to us was significant, but it was not the breakthrough venture we had envisioned.
What would you have done in our situation? I still believe there was a great venture we could have created.
Is your venture building a solution to an unmet need or is it building a feature of another company’s solution?
Have you had similar experiences?
We’d love to have your feedback.
Stealth Builder of Stuff
To play devil’s advocate and highlight the complexity of the space we’re in, in the early days of Instagram and Airbnb they did not solve for a “large, important unmet need”. It was the opposite, making these topics 🔮 such great conversations.
President @ Winarsky Ventures
Not sure if I agree. Instagram started as a way for the world to share their photos. Airbnb a way to enable homeowners to earn income as well as solve for high hotel prices as Tim said.
Stealth Builder of Stuff
I guess I define the early days a little different. If we're talking about the truly early days which is where I feel venture studios live and breathe in the startup lifecycle, it was really an app like Foursquare. I remember those days bc Kentucky bourbon was the hottest thing in SF and it was all about getting together and discovering the best bourbons served around the city. Oh, and yuh better snap a picture to prove it. :)
And with the I-just-need-an-air-mattress-or-couch-to-crash-for-a-night concept, they weren't thinking about hotels as competitors in the early early days (they still deny they are although we all know that TODAY they're taking a big chunk of their biz). They just started with a really unique and small problem for a few people who were willing to sleep on a stranger's couch.
My hypothesis for these two examples, is that it's those super key and fast pivots that set them on the path to what they are today.
President @ Winarsky Ventures
I think you need a North Star, not just pivoting into success. Here's the link to the first airbnb pitch deck. https://www.slideshare.net/PitchDeckCoach/airbnb-first-pitch-deck-editable. But if you're thinking about how they discovered their venture concept, I totally agree - it was crashing for a night at a friend's house. I agree that pivoting a lot in conceiving a venture is essential. But pivoting after funding is risky. It has been done (e.g. Slack) but not something to depend on. Your VCs and your team will not necessarily be patient with their funds and their belief in you.
Stealth Builder of Stuff
That's a great point and an important differentiation to surface here. Thank you!! 🙌
President @ Winarsky Ventures
Thank you Lissette! I'd love to talk together and learn more about what you've been doing. For one thing, I consider design fundamental to the success of companies.
Stealth Builder of Stuff
Yes!! Let's do it. I'll ask Carol to set a time for us to chat regularly. I'll absolutely love a time spent together on the topic of design and startups.
Founder, MD @ PivotNorth Capital
insta was the "simplest alternative to boredom" 8-). airbnb was a way to solve for high hotel prices.
Stealth Builder of Stuff
Good questions and points to ponder about. I don’t feel that they’re mutually exclusive; you could be solving for an unmet need that could potentially also be a feature to a major product. The latter part of that question being more of a subjective nature in my opinion.
(when you brought up Zoom, I thought you were about to use them as an example of being a new player coming late to the game bc there were already many long-established virtual meeting service providers in use by office workers when the pandemic hit but that’s a diff topic and a fun breakdown/dissection for another day).
I think it’s fascinating to try and break this down but to do it justice I think you’d need a more academic approach to this research area. I’m game to keep the convo going with simple opinions, so in the here and now, if I had come across the idea of a better video clipping functionality, I’d pass because of the mega trends being what they are and how easy it is to edit/clip video snippets with smartphones and popular apps for the general population. But I would be intrigued to discover a segment of people with a unique pain point, maybe newscasters/reporters, medical personnel, surgeons, anthropologists, first responders, you name it, who might go wild over a concept like this. At that point, I’d be less worried about being considered a feature and more driven/convinced by the user who can’t do without the smart feature. That’s the moment when it becomes less of a feature and more of a product for me.
President @ Winarsky Ventures
Hi Lissette, thanks for these thoughts! Relating to your first comment, I totally agree that Zoom "came out of nowhere" when they were many other video sharing services. I'd love to learn more about how this happened. As to your comment about video clipping using NL and AI, I think it provably reduces effort from minutes to seconds. Clipping a video turns out to be a complex technical problem. Finding exactly the right frames, making sure that the audio is not clipped mid word, etc. But maybe you're right, the general population might be a hard push. This technology was invented in 2013 or so, just after we created Siri. I agree with your thoughts on the right segment, but those that host the videos would be the market channel, and it might end up the same way as it did with (GoPro).
Chief Growth Officer @ Platform Venture Studio
This is such an important concept for founders. Especially given that it does make sense to solve small specific problems as a niche entry point for your company. There's a fine line between building a very specific solution to a pain point as an entry point to a larger market vs. just building a feature of a bigger player. Any advice for founders on telling the difference between the two?
President @ Winarsky Ventures
Thanks Brett. I totally agree that all breakthrough companies should start with a small specific problem to a pain point. In my book I use the example of attempting to climb Mt. Everest, and the first problem is the "base camp". The difference here is that the basecamp solution would still not do well if it were a feature of some other venture. For example, Facebook started with creating a social network at a few universities. That was their basecamp.
Founder, MD @ PivotNorth Capital
the winning metrics are defining here. if you can build a feature fast that solves a real pain point, you have product market fit. can you sell it for more than it costs you to get the customer, and is the market big enough to hit 1/5/30/100M+ revenue....
President @ Winarsky Ventures
You're right of course, but my experience is that if the company you are a feature for is your market channel, you are totally under their control as relates to selling price, etc.
Senior Data Analytics Manager @ Platform Venture Studio
I am curious where to draw the line on some companies, especially apps. A fair number of billion dollar companies could just be considered features of iPhone (IG, Uber, etc. would significantly drop in value if iPhone banned them).
President @ Winarsky Ventures
No doubt Apple has leverage, but they would find themselves being sued for monopoly practices if they applied the leverage in an "unfair" way. By the way, in the "olden days" the cell phone carriers used to do what you described. They chose very clearly to allow only certain apps in their "walled garden". Apple was the first to break through the walled garden.
Chief Growth Officer @ Platform Venture Studio
I think your last sentence is right but disagree on the metrics front. For me, it comes down to the vision and strategy of the company which is tightly related to your market sizing point. There are thousands of companies that hit every single one of our winning metrics and can paint a rosy picture of market sizing but ultimately would fall into the "feature" not "breakthrough venture" category. You can build a business by building a feature, just not a breakthrough venture. I'd be interested in studying both Zoom and Slack. Both of these were not revolutionary pieces of tech and could have been features of the major workplace platforms. Yet, they both broke through to be billion-dollar-plus companies.
President @ Winarsky Ventures
Hi Brett, I'm not sure I understand. I don't think "revolutionary tech" is at all necessary to build a breakthrough company. In fact most aren't. But both Zoom and Slack didn't start out as far as I know as just features on the workplace platforms.
Chief Growth Officer @ Platform Venture Studio
Maybe I misunderstood then. I'm saying that other platforms had chat and video conferencing prior to Zoom and Slack existing. So essentially both of those companies were created by building duplicates to features of other platforms.
President @ Winarsky Ventures
True. There is not a clear line of feature vs. solution - as you are indicating. Zoom distinguished itself by being a far better experience, and also by allowing people not to be constrained to one specific platform.