The Worst Startup Idea
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medium.com
FedEx, up until the point that they succeeded, was a phenomenally bad idea...one that received heaps of ridicule from academics to VCs. Now their hairbrained competitors are the ones that receive the ridicule.
Logistics is hard (I work in it), but it has a track record of crazy innovations that sweep the entire world in a matter of years. Think about it: Canals, Railroads, Containerization, The Automobile, Air Parcel Delivery. While I don't think an AirBnB for Packages would go anywhere, the idea has at least a semblance of merit: It is a new approach to sortation (probably the biggest problem facing logistics today). A completely distributed sortation system. If this company came packed with a few OpsResearch professionals and a few good lawyers, I would hold off on my ridicule.
The liability and insurance issues would be pretty annoying to deal with, though.
If Smith was delivering the solution, it would not be what was presented. And it would not be that idea.
When I first started writing about startups, I believed this. I suggested that would-be founders work for a couple years for existing companies before trying to start their own. But the empirical evidence changed my opinion. You can learn things from working at an existing company, certainly, but you learn more from trying to start a startup.
People who can get into YC at 20 are probably better off starting a company than getting a job. However what about the other 99.999% of 20-year olds?
It'd sold about $600 when I said this. Unfortunately I said to my flat mate at the time I'd run round the block naked if it made a million bucks.
It was cold that night.
So, yeah, I won't be making any grand announcements like that again, I'll leave it to the shiny people with impossibly white teeth and raging coke habits.
1: For me Startup Weekend is not about creating businesses, rather it is about helping groups of people understand and experience a compressed version of what it is like to start a company. The ideas are often very similar across events (it's rare to get anything truly new), but learning about connecting with customers, changing in response to feedback, building something (anything), working as a team and so on and on are valuable lessons. The group is invariably exhausted at the end, but in a good way, and many go on to build or help build something else.
2: As a judge I've made it a point for us to give positive feedback to every participant, not just the winners. It's an exhausting process being a judge, with back to back pitches and no time between to mull, but we owe it to the participants to understand as much as we can, ask hard questions and also to keep it fun and positive. In the sessions I've been a part of the panel has retired for 20-30 minutes or so, come back and given overall group feedback, positive feedback and key questions to answer for each team and then the winners in reverse order. Plenty for each judge to do in there.
3: I agree the idea is flawed as it stands. But then a lot of people thought the FedEx idea was flawed, and we all know countless other stories about crazy ideas that worked. In every crazy idea is often an element of a business, and as a judge or coach or advisor or founder our job is to help identify the bit of the idea that is doable and can be built into a valuable business.
I think I could have made it clearer in the article, but my point was not that The People's Parcel was "the worst startup idea", but that "the worst startup idea" is that doing Startup Weekends and Y Combinator are the best ways for you to create a company that will help you climb the entrepreneur ladder.
(Disclosure: I used to work for Startup Weekend)
However, I disagree with the second point, that one NEEDS to work in an industry to understand product/market fit. There are plenty of industries that can be studied from a distance. Perfect example being the AirBNB founders. (as far as I know) They did not work in the hotel industry - they merely participated as a customer, hated it, and spent enough time studying to understand it. In addition, staying at a hotel as a customer gives me much more exposure to the system than receiving a package. I check in, I see the maids, I see the food prepared, the room keys, the furniture, etc. Yes, working in an industry will give you an edge, and it may be nearly necessary in some industries (such as shipping, semi-conductors, most physical products), but plenty of founders have built/exited successful businesses without working in their market first.
The only problem is having the business agree to store data on your servers, something that's getting harder and harder these days thanks to the greed of some agencies
I would agree with the author that the idea is unlikely to hit on something that will actually work, given the way it goes against economies of scale for what essentially be a commodity service.
At the same time though, I think it is good that people are exploring these ideas. Sure after a month or 2 (or even just the weekend) they might realise that the idea isn't going to fly. In doing that though they may have learned something and stumbled on an even better related opportunity.
My complaint is more that our "startup society" pushes us far more toward the Startup Weekends of the world, and away from "boring" jobs at large organizations--and that's really silly, since (as I argue) a great case can be made that the most viable, most fund-able startup ideas will come from working at large organizations (mo' money, mo' problems, mo' moving-the-needle-a-little-means-big-returns).
I would never tell a graduate to just go "get a job." The cultural mindset to build something independently (interdependently might be better wording) is extremely important. The payment and reward of starting a start up transcends that of funding and exit - the god damned fucking journey, experience, relationships, and lessons are rewarding.
But I would be happy to be proven wrong, and I'd bet some cold hard cash on failure...
Your first point is spot on. It is going to be hard and fuck to figure out the logistics issues with this idea. But not impossible. Does it look like the The People’s Parcel will be the people to do it? Probably not.
This idea already exists to a certain extent. Check out keychainlogistics.com.
As I said, though--definitely happy to be proven wrong. It would be pretty amazing.
http://www.forbes.com/sites/erikamorphy/2013/03/28/about-wal...
So some form of it may not be as bad as it sounds. As with every solution it's usually about figuring out where it fits in.
Taking it further, what if the flying box could rendezvous with a moving vehicle? Preregistered vehicles could then pick up / drop off parcels without deviating in any way from their already planned journey.
That sort of tech could even be useful for existing courier companies, as it would make pick up and drop off of small items very efficient. The truck would just drive a predetermined route, that passes within 1 km of each point of a city, without stopping.
It could make an interesting partnership with the local bus company. Each bus would have a roof mounted drone docking station. The drone would fly from its start point to rendezvous with the nearest bus, then hop from bus to bus until it is near its destination, and fly the last mile.
No dealer wants a bunch of transactions that can tracked by the Feds.
If you want to come up with awesome, fundable ideas, go work for large companies with deep pockets that have old and archaic processes and few highly-technical and dynamic problem solvers. Identify the inefficiencies, make friends with decision makers, and then leave, build your solution, and sell it back to them.
That doesn't work. The theory is that these deep-pocketed dinosaurs are just waiting to get some top-1% talent to tackle their hardest problems. It's like they're sitting on their hands just waiting for smart, energetic people to solve their problems.
There are a few issues there. First, the captains of those behemoths think they already have top talent, because they can't recognize it, and therefore end up giving their ears to salesmen. Saying, "you should listen to me instead of that idiot, even though I'm 23, because I am an actual 3-sigma talent" doesn't just work that way. Trust me. I've tried it. In an ideal world it would work, but that's not where we live.
You know how people hate "politicians" in the abstract (recognizing the incompetence of the class) but tend to be favorable toward their local representatives, on account of interpersonal charm? That's why investors and owners get robbed blind by idiots and scumbags. We think they just can't find people like us; in fact, those owners and investors think they already have people like us (even if they share our skepticism of management/executives in the abstract).
"Make friends with decision makers"? As if it were that easy. Smart people love to think that the people in power are just waiting for top talent to come and help them; in reality, the people in power think (usually incorrectly, but good luck convincing them of that) that they have more enough access to top talent as it is.
Genuine smart people have a hard enough time getting along in the Googles of world, which are still more tolerant of true top talent's idiosyncrasies than a typical MegaCorp. Just being smarter than the competition doesn't mean you automatically get put on some magical protege track and "make friends with the decision makers" and will be able to "better yet, get the company to invest in your new startup". Ha! If only it were that easy.
What built Silicon Valley back when it was great was a tolerance of people (true top talent, with the career-disrupting idiosyncrasy that implies) whom the current crop of VCs wouldn't give the time of day. Silicon Valley was built by people too talented and creative to survive a single year in the corporate culture that now dominates.
Okay... so that's the critical miss of the OP.
Now, onto why shitty ideas get funding, it comes down to this...
The clear good ideas (such as nutrition planning for bodybuilders) have two issues. First, they aren't that good. They're things that obviously add value; that doesn't mean they're worthwhile businesses. They might not add value in a way that can make sufficient money to cover the costs. Many great ideas don't; that's why philanthropy and non-profits exist. Second and more importantly, they require some domain expertise (the "golden child" protege of some chicken-hawking VC can't run it; you actually need to know something to run the business-- one of the appeals of social media is that, because any idiot can run it, VC funding as a personal favor works in that space, whereas it wouldn't in biotech). This also means that those businesses have a well-defined domain, which VCs would denigrate as a "sandbox". In other words, lifestyle businesses. It will never be a billion-dollar concern, so why fund it? VCs aren't really trying to maximize their portfolio returns but their career returns which are tied to visible tokens of social access. Those career-making extreme black swans come once in a decade. It's not making a return for investors. It's about getting "in on" those once-in-ten-years deals. That's why the disgusting culture of co-funding and (almost certainly illegal, and clearly unethical) collusive note-sharing exists.
Consequently, VC-istan ends up funding the "who knows?" projects-- not the obvious good ideas (whose maximum yields are usually below beeelll-i-ons) and not the obvious bad ones-- but those that are so vague as to have no obvious maximum. This means they end up funding based on personality cults and "track record" (read: how well someone as peddled influence and credibility in the past) because no one under the sun is capable of assessing these red-ocean gambits.
It's not that VCs are drawn to terrible startup ideas. It's that they're drawn for variance for variance's sake because the only thing that actually matters to a VC's career (i.e. making Partner, then lateral hops all the way to Sequoia) is getting in on those extreme black swans (as I call them, black albatrosses). Funding a good idea that will reliably 5x is useless from a VC's career perspective.
Two arguments that this post didn't make:
(a) That the correct path for starting any company is to convince venture capitalists to fund it. In fact, this post seems downright derisive of that idea.
(b) That the way to take advantage of on-the-job experience at BigCo's is to convince them to do things differently while you're on staff there. No, that's not why you make friends with decision makers; you make friends with decision makers to learn what it is they need. Then you leave, and go build a product.
Sure. My notes on the problems with VC (specifically, the career incentives on VC-istan that make it suck) were to explain why bad ideas get funded. I didn't think he was arguing that, since he was clearly going out against the VC-istan mentality.
(b) That the way to take advantage of on-the-job experience at BigCo's is to convince them to do things differently while you're on staff there. No, that's not why you make friends with decision makers; you make friends with decision makers to learn what it is they need. Then you leave, and go build a product.
He's still carrying the assumption that the dynamic, highly intelligent people who often end up in VC-istan (by default, because traditional corporate environments can't accommodate them) will be so far above the competition in these stodgy dinosaur companies that they get magically put on a protege track and get to "make friends with decision makers" and acquire the trust (in that company, or later on, as you alluded) to solve their problems. I argue that it's not that simple.
You also don't need to acquire the trust of BigCo decision makers to sell them products. You can learn about problems BigCo's have just by having routine conversations with the right people, and you can sell anybody a product if the product solves a problem for them at the right price.
Scott Wensing solves the White House Situation Room's "tracking devastating storms" problem. How much do you think Barack Obama trusts Scott Wensing? He has an account in StormPulse.
† I'm a little pissy today
Barack Obama cited Matt Wensing by name as an American innovator solving American problems in a public speech, but to your point, several years ago the decision to use StormPulse in the White House was made by a GS-whatever with a nondescript .gov email address, and it was certainly not made due to StormPulse's superior access to the Valley in-crowd. (Disclaimer: I invested in them.)
Let me give an example. Typically, when people need a software solution and they are not executives, they go to whoever is in charge of such things and ask for a budget to acquire that service. The Human Resources and Accounts Payable departments deal with it, but an employee initiates the prompt. This is the underpinnings of SaaS models, and how they market to a lot of companies.
Let's say I was a waiter in a very inefficient restaurant, or better yet, I had experience for a few years in different restaurants. Let's say our waiter also happens to be a talented software engineer doing market research. He's well within a degree of separation from his boss, presumably, even if the restaurant he works at is part of a huge chain.
If he can justify solving a very important problem that's hemorrhaging money to his immediate superior, his immediate superior can go one step above himself and make a case for the software.
Not only is this possible, I have literally done this, which is why I have such a detailed example. You can go up the chain link by link without having to wait until you've physically climbed to the top.
Now, that said, I also don't agree with the premise of even needing to get in touch with decision makers. As long as you can verify there is an existing problem, and you can verify that it exists for a legitimate group of people who'd throw cash at you to solve it for their own business, you have a business model. Granted, that is not easy, but it's certainly an alternative to needing connections.
I think the author understands this and realizes that he's not suggesting startup ideas require people with extreme levels of experience. He didn't mean that you need to get in with the C level executives of a corporate culture just to be relevant to them - the entire argument about how easy it is, how blind they are to talent, etc. is irrelevant. He's not recommending that. He just wants people to have practical field experience so they understand their problems from the perspective of the domain - whether they are in the top, middle or bottom of that domain is not necessarily important.
So it's definitely not true that those opportunities don't exist.
Parent: "That doesn't work. The theory is that these deep-pocketed dinosaurs are just waiting to get some top-1% talent to tackle their hardest problems. It's like they're sitting on their hands just waiting for smart, energetic people to solve their problems."
From what I've heard, this happens in (e.g.) pharma all the time. But, as you clarify in the rest of your comment, probably not at the "billion-dollar concern" level and not (from what I've heard) with massive VC funding/interest.
I think that part of the OP's point might be that every would-be founder shouldn't set his or her goals as "the next AirBnB" or "the next Facebook," because the path to "the next GNC" might look a lot different.
3-sigma in what direction, though? ;)