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.
