From Jan Andriessen – henQ (@JanAndrssn)
I recently watched a guest lecture of a famous US-based venture capitalist at Stanford. During this lecture, he says he does not understand the obsession of start-ups with an advertising business model. He marks his point by showing that the total global market size of online advertising is approximately twelve times smaller than the US domestic healthcare market size. Why are there so many more advertising business model-based start-ups than digital healthcare ventures, if the healthcare market of the US alone is this much bigger than the global advertising market altogether?
There are plenty of reasons to base your start-up’s business model and value proposition on an existing one like advertising: there have been many successful companies before you with essentially the same business model and customers, there are many people who have skills relevant to what your company needs and it is easy to spot the niche opportunities that the bigger players leave open. On the other hand, you often have a huge number of competitors in one single competitive space that is dominated by a few newly established large players that only leave opportunities to those who complement their value proposition by better targeting a specific niche or vertical (smaller markets).
There are not just venture capitalists based in Silicon Valley that see this issue. In my work I also see a lot of start-ups that have an advertising model, or that try to replicate the success of another, recently matured start-up by applying its business model to a smaller market that is signified by the presence of a significant number of both direct and indirect competitors. This is perfectly fine and start-ups can be very successful doing so, but for some reason opportunities like this constitute a larger part of all applications than I would find justifiable given the opportunities in other, larger and relatively unchartered areas.
Based on the above, my call to today’s entrepreneurs that are looking to start a company and are trying to find the right space in which to do so would be: don’t focus on what exists and has already worked, but instead try to look at what isn’t there yet. When evaluating a certain space, ask yourself the following question: is it possible to deliver a solution to a huge number of companies or users that is 11x better than any existing alternative currently delivered to this market? It is more difficult, challenging and scary to address a big problem that nobody has found the perfect solution to yet, but that is how the great tech companies of the past have been built! I look forward to receiving your application!