Being First Doesn’t Matter— But You Do Need To Be Better, Faster, Or Cheaper.
Should you work on a startup idea that already exists? Well, Snapchat wasn’t the first messaging app, Facebook wasn’t the first social network and Discord wasn’t the first chat app.
You don’t have to be first, but you do need to be different.
Being better, faster and cheaper matters. In fact, it matters a lot. It matters so much that if you don’t have that, you can’t succeed, your startup will die and neither you or I want that to happen.
When we started my startup Posterous back in 2008, it was definitely not the first blog or social network. However, it was better in one specific way: We supported post by email, and in a way, that was really easy to remember. If you knew how to send an email, well, you could post something online. And that was enough.
That’s the thing, you don’t have to be the first. WordPress today runs some crazy percentage of the world’s websites, but it was first released in 2003.
Posterous was late by five years, but we still grew fast and had as good a shot as anyone to build something great. It’s often a disadvantage to be first.
Before Instacart, there was the flaming disaster that was Webvan. Before Facebook, there was Friendster and Six Degrees. If being first is sometimes a disadvantage, why do people still look for things that are so new?
Here’s the thing, investors do love novel approaches. If you are trying to start something, it’s an important bias to be aware of, and it’s going to be hard to fight against it, so don’t even try. You just have to take it into account that people who get a lot of startup pitches will use this as a filter right out of the gate. Is it fair? Not always.
There’s a reason brand new business models are usually driven by just a few things: New technologies, new online behaviors, new needs, changes in society’s demographics, new capabilities and new regulation. But not everyone will be lucky enough to find one of these brand new blue ocean spaces.
Sometimes you have to wade into a red ocean–a space with lots of competitors. And if that is you, then there’s one thing I need you to have clear in your head. Is it better, faster or cheaper than alternatives?
Here’s some great examples of top startups that dominated just by being that–better.
Google was just clearly better than AltaVista and all the other search engines. PageRank was an incredible advantage as it gave you better results. It was clear they had better engineering talent and thus that talent could build a better product that could give a better experience. They got there through technical excellence.
Dropbox, when it first came out, was just clearly better than a USB drive. Again, technical excellence. It was a breakthrough experience that just worked.
Discord, when it first launched, focused on gamers. They had low CPU requirements, which meant their initial users wouldn’t get bogged down, and they could still play their high-frame rate games. That was enough to get Discord their first users and put them on the map.
Airbnb started with an audience that had no alternatives. They were focused on conference goers when there were no hotels available. What else could you do? Actually, nothing. You basically wouldn’t go to the conference. Having a place to stay was just clearly better. That was a great first set of customers.
I was one of the first investors in Coinbase, and for me, it was because it was clearly better than Mt. Gox, one of the first places you could buy Bitcoin. You had to wire money using Western Union to an overseas bank, and it somehow appeared on this kind of sketchy looking website that sold Bitcoin, which was originally built to trade Magic The Gathering trading cards. That’s the entire reason it was even called Mt. Gox. Today, Coinbase is worth over $8 billion because they focused on the fringe, new crowd of early cryptocurrency believers. Remember, this was 2013. So being better is pretty obviously great.
To sum up, you can get to better through pure technical excellence, like Google or Dropbox. Or you could pick a particular customer or situation that’s underserved like gaming for Discord, conference goers for Airbnb, or fringe groups like crypto in 2013 for Coinbase.
Speed matters a lot, especially for consumer scenarios. There’s a whole internet of other things to occupy someone’s time, and if a particular website is slow, it matters.
At Initialized, I funded Flexport, which speeds freight up by as much as two to three days, compared to other methods of shipping cargo. Because they replaced traditional methods with software, their freight insurance can actually be 6x faster to resolve a claim. Those are both things that shippers care a lot about. It’s just clearly faster for them.
Uber, when it came out, was just significantly faster to find a car. They focused on matching supply and demand, and built teams to increase supply very quickly, city by city.
And finally, Facebook was just significantly faster than Friendster. Friendster early on was sort of notorious for using Java Server Pages and unoptimized MySQL. It was often impossible to even log in, and Facebook in contrast, remained fast throughout.
How do you make your product faster for customers?
- If you’re using software, you’re beating paper and pencil, and that, by default, makes things a lot faster. That is Flexport story to be sure. It’s easy to be faster than your competitors, when your competitors are literally using paper and pencil.
- Delivering more supply liquidity like Uber. They managed to use software to scale one of the world’s largest mobile workforces. More drivers meant faster response times. There you go, faster.
- Finally, technical excellence yet again comes out when you’re looking at what Facebook managed to do, to scale their website, especially as the hockey stick graph went up into the right.
Faster is a great way to go.
If you can get the same or better product or service, for much less money, would you not? Customers are smart, they’re rational, and they will vote with their feet.
Shopify is a great example of this early on. They were significantly cheaper than running your own Magento Server, and all you had to do was pay a flat fee of $29 a month. Shopify enabled a new generation of brand and store that just couldn’t have existed without them previously.
Lyft is another great example of being much cheaper. They were the first citizen-based ride sharing. Uber was new, but at the time only black cars. Lyft was originally called Zimride and they were already doing car sharing over much longer distances. When they saw Uber, they said, “Why don’t we, we try to do that, but instead of using taxis or black cars, why don’t we use the community we already built for Zimride?” And that resulted in a service that was far cheaper. Uber, in fact, fast-followed pretty quickly because they realized UberX needed to exist to compete with Lyft.
Instacart was grocery delivery, but asset light. People had tried to do traditional grocery delivery before, but they had to buy warehouses and huge fleets of cars. Being able to do this almost entirely in software, with a workforce that was deployed by mobile phone, meant that the cost to deploy the service came down a lot. And as a result, Instacart is now available to more than 85% of people in the United States. That’s crazy.
Amazon of course is famous for saying “their margin is our opportunity”, Retailers have 10–100% margin, but that margin is needed to cover physical stores. Amazon said we don’t have that, so why don’t we pass it on to our consumers? And that’s a powerful way to get customers.
Robinhood did something very similar when they brought trading fees to zero. And they decided to make money in a different way by selling data about retail investors to hedge funds.
Making your product or service cheaper matters a lot. You could take advantage of major shifts in technology cost curves like what was enabled by cloud computing and SaaS businesses like Shopify, or you could look for emergent new behavior, like applying the business model of Uber’s early black car service, powered by a mobile workforce, deployed by software to your own space, whether it is grocery delivery with Instacart or the first citizen ride sharing with Lyft.
Finally, you can just lower prices in a way that cuts the margin for the whole business, but gives you massive market share, the way Amazon and Robinhood did it.
At the end of the day, great startups clearly solve a need. It might be a brand new need that people didn’t know they had, like Google or a replacement for an old and antiquated industry that should have run in technology years ago, like Uber or Flexport. You have to be better, faster or cheaper than the alternatives–no matter how old or new those alternatives are. And if you aren’t, then you should find a way to become that. Or find a new idea. I want to see you succeed as a startup. Better, faster, cheaper. You can do this.
Thanks for reading! To watch my full episodes that go into detail about these ideas — and more — head over to my YouTube channel.