Building the next big thing, how can startups capitalize on periods of high innovation to find the next billion-dollar idea?
In his book Zero to One: Notes on Startups, or How to Build the Future, Peter Thiel says: “Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin will not make a search engine. And the next Mark Zuckerberg won’t create a social network.”
This is true today more than ever.
“Every moment in business happens only once.”
If today, you start trying to build the next Google, you will have an uphill battle in front of you, and you will most likely not be able to win. Because your competition is not only well established but also fulfils exactly what the customers need. They also put in place a lot of systems to be able to figure out what kind of improvement you might come out with, that makes their offering obsolete, and how they can incorporate it in their product before you. And in case you succeed where they failed and you did manage to come out with some new feature that makes your search engine way better, they can always copy it or even buy your entire company so they can integrate this new functionality into Google.
This was not always the case. Trying to take on Google might seem like a ludicrous idea now, but a few years back, it was just another Thursday. And not only because Google was a smaller company then.
This was possible in the past because, in that period, the search engine market was in a rapid innovation phase. A time where new features were added constantly, so it was not a far fetch idea to think that someone will come out with some new way of indexing web pages that will make Google algorithms obsolete.
Google itself was not the first search engine. It came more than four years after the world’s first search engine, WebCrawler, and used its superior approach of page ranking, to dominate the market. But big innovations in the search engine capability seem to be far apart nowadays. We do not hear about some new revolutionary way of finding information over the web; instead, we see smaller incremental improvements, the sort that comes more from an established company than a startup. And it can be used to make an existing product better, more than as a backbone to build something new.
This pattern of having a period with a greater concentration of innovation in one field is not limited to the search engine market. You can see it in a lot of innovation-driven businesses: from the cars and the light bulb in the late 1800s to the social media frenzy of the 2000s and to the electric cars and cryptocurrency revolution today. You can also see it in science, like Sir Isaac Newton and Gottfried Wilhelm Leibniz who independently developed the theory of calculus in the late 17th century. Two scientists had no contact with each other but worked on the same thing at the same time.
This kind of either serendipitous or planned convergence of great minds on the same idea, resulting in having periods with rapid successive breakthroughs, does not seem to be going away, even if the high connectivity we have in the world today seems to accelerate the process.
It took more than 40 years from the time Étienne Lenoir invented the combustion engine until Henry Ford built the company that mass-produced the first car, but less than 4 years between the introduction of Bitcoin by Satoshi Nakamoto we saw a huge number of Altcoins.
The singularity of “once”
Therefore, the principle of each moment coming once is true, but the word “once” seems to obscure the concept of time. “Once” in this context is not a single moment. It is a period. As we mentioned, it took more than 40 years of innovation to get from the invention of the internal combustion engine to building the Model T.
And if you are there and then, and willing to put in the needed work, you can take advantage of these forces to build the next big thing.
The New thing Vs the Next Big thing
When we try to put a face to the social media frenzy that is taking over the world today, do we imagine Facebook or Myspace?
Love it or hate it, Facebook is the poster child of social media for now at least. Yes, a lot of the features that we take for granted in Facebook today originated from Myspace and other social media sites like Friendster and Six Degrees. Even the concept of social media as an activity was introduced to the mainstream by those pioneering platforms. They reached millions of users before Facebook even existed, but now they seem to have faded to obscurity.
This is worth mentioning here because I often see startups falling into the trap of thinking that the only thing worth building is the new stuff. They search for some innovative ideas that are radically different from anything that already exists, something that is earth-shattering in its originality, and they spend years pursuing this endeavor, trying at the same time to build something completely new and create a market to be able to sell it.
While going this road might provide you with some undeniable advantages, especially in handling your competition, since you would not have any, it is not easy to develop something and create the market for it at the same time. It would be better to build on what others that came before you had done.
People all through history understood this. Even the medieval practice of alchemy did not try to turn Lead into some new valuable metal that no one had ever heard of: it tried to turn it into Gold, something that has clearly defined universal value.
“If I have seen further, it is by standing upon the shoulders of giants”
Sir Isaac Newton
Where is the party?
Finding out the domain in which innovation is raging right now, so you can capitalize on it and build great products, is at the same time easy and hard. Advances in communication technologies have made a lot of the world’s information accessible to everyone all the time. You can get your hands on a myriad of research papers from the world’s top scientists with a simple google search. But this also comes with huge disadvantages: you will have to sort through mountains of data to get to the useful information.
You will have to build a curation system that allows you to see past the noise and detect the right signal so you can use it to guide you in your next venture.
Start with the problem.
Innovation at its core is just a way of solving a problem, so your focus should be on any advances related to a problem you are facing right now and to which you are trying to find a solution.
This will not only make your life easier since you will not have this problem anymore, but it can be a great business idea: since if you have this problem, it is highly likely that others do too.
Is it too late or is it too early?
Once you narrow your focus on something that you can improve, you should ask yourself this question: Am I at the right moment of the timeline to make considerable advancement to this product and build a business around it?
In other words, am I so too late for the party that there is no more fun, or am I so too early that no one is there yet?
There is this principle in stock trading: when your cab driver is telling you about a stock, it is too late to buy.
The principle is the same in innovation: if some product or service has reached mass adoption, it will not be easy to introduce enough improvement, so that you can build an entire business around the newer version you are creating.
This does not mean that you cannot carve a small part of the market for yourself, for example by selling your updated version with a small improvement. But once you do that, you will stay stuck at the same level of market penetration for a while. This is often caused by a mix of internal and external factors, like your competitors being aware of you now and taking you seriously, the need to do some sales so you can make some money and keep the lights on, and your fear of failure leading you to continue in the same path, so you do not lose the success that you already achieved…
At the same time, going all-in on a product before its prime time might be a suicide mission. History is full of great ideas that did not fly just because they were ahead of their time. Here you can ask yourself some simple questions to evaluate if you are in the right moment in the zeitgeist:
- Did someone manage to sell something that solves the same problem?
- Can I use some innovation to build a product or service that solves the same problem but 10 times better?
The rule is simple: you must get in early enough in the innovation process so that you can achieve at least a 10X improvement on what is currently in the hand of consumers, but not too early that your consumers have no idea about what the product is and do not feel that they need you are fulfilling is real.
This plan might sound simple if you are interested in one of the fields that have highly publicized breakthroughs coming out every day, like information technology, medical research, renewable energy… But what if it is not the case for the area that you are most passionate about?
Give a special interest to academia.
Does innovation come from private companies or universities and other public research centers?
This is an age-old question. Well, as old as the corporate world existed anyway. And by looking at a lot of the great breakthroughs that led to all the technology we use in our day-to-day, we find the answer is simple: while most of the real-world application of innovation does come from companies, the core of the innovation itself often comes from researchers who have the time and patience for the pursuit of building something new that might bear fruit or not. Those kinds of great minds are more likely to thrive in a climate of pure research like the one we find in universities. Think Tank groups and some public establishments heavily evolved in R&D like the military.
You can see this clearly in the device that most of us use every day (and you are most likely reading this post on it right now): your phone. The modern smartphone is a magical amalgamation of the brainpower of a vast number of inventors throughout the years. But you can see a clear distinction between the core component that makes the phone work and are often invisible from the outside, like CPU (Central Processing Unit), Lithium-ion battery, GPS (Global Positioning System), etc., all created with massive contribution from universities or other public sector’s institutions, and the component that makes the phone usable, like the touch screen, OS (Operating Systems), UI (User Interface), phone design, etc., invented by companies, so they can package the phone and put it in the hands of consumers.
Paying special attention to work published by universities and other research centers will allow you to be able to detect if a breakthrough has been reached or is imminent, and with “some” ingenuity and arduous work you can turn the result of your query into a profitable business that solves real problems for your clients. The word “some” is in between quotes here, to convey the lack of consistency for brainpower and the challenging work you will need. Some of this research may be in its early stage, its result may not be visible for years down the road, and when it does, it might require some extrapolation to be able to build a business out of it. But if you put your head to it and use this approach, you could end up finding something great before anyone else.
Single or engaged innovation.
Most, if not all, of the innovations that companies achieve internally, are already spoken for. If these companies spend millions doing the research, it is so they can use it to build the next big thing themselves.
By the time a company announces their new findings, they are already building or have built the implementation, and by then, the only chance for you to build your own business around this innovation is to work inside the zone that they left for outside vendors. This is not always bad, as we saw in the case of the companies who used the invention of the iPhone to build billion-dollar businesses by publishing great apps and games.
But it might be limited in its scope, and you may become completely dependent on the platform you are using, if you allow your product to be just another component of that platform ecosystem, like the companies that only build accessories for the iPhone. If Apple decides to revoke their license, they practically have no business anymore. It is like a shark and its Remora. Yes, there is a symbiotic relationship, but it is not a balanced one, since the small fish depends on the shark more than the shark needs the Remora.
So, if the innovation you are building your entire business on does come from another company, you should try to find a way to not just be another gear in their machine. How to do that is beyond the scope of this post, and it is unique to each business and platform, but I am sure with some clever thinking you can find a solution.
The innovation life cycle is sometimes like Bamboo.
For the first few years of the life of Bamboo, you cannot see anything of the plant above ground. Faced with this situation, one might even think that he is watering and fertilizing an empty ground every day, but this is not true. While you are not able to see it, a lot is going on beneath the surface. The plant is spreading its strong roots to obtain the necessary water and nutrients. And years down the road, after it has built its root network, the bamboo tree will then skyrocket into the air in a matter of months.
Sometimes, it is the same thing for innovation: some smart scientists in some prestigious universities are working on new technological breakthroughs but they are not published yet.
So, start by finding who is currently working on what interests you and dig deeper into their publication history to figure out if they have made any progress in their work. They might have already published the result in some lesser-known outlet, or their work was not considered interesting enough to be recognized by the media outside their field. You can even contact them directly. I am sure if what they are working on is not overly sensitive, they will share it, after all, in most cases, the goal of their research is to be used to build new great inventions.
Remember, for the first few years, you do not see anything above ground, and the only way to know what the Bamboo is doing is to look under the surface.
A new twist on an old invention.
Nowadays we look at the steam engine as a relic of a bygone era. We find it in museums and history books, with no trace of actual usage in our day-to-day life. But for people who lived in the 18th century, steam power was the energy source for many machines and vehicles. It started during the industrial revolution, making it cheaper and easier to produce commodities in abundant amounts, practically putting humans on the path that led to all the technological advancements we have now.
Knowing the impact this engine had on the evolution of humanity, it is a bit hard to believe that while these kinds of machines did not become a mainstay of the industrial world until after the work of Thomas Savery in 1698, we had the underlying technology centuries before. It was first described by The Greco-Egyptian mathematician and engineer Hero of Alexandria in the 1st century under the name aeolipile or Hero’s engine.
History is full of this kind of innovation, which is either lost to the world for a while or needed some new mind to find a usage that their original inventors did not think of. And by doing some research and applying some outside-of-the-box thinking you can find some usage for an old or a current technology that no one has ever thought about. Look for a way to take an invention that everyone seems to be focusing on pigeonholing in a specific domain and see if you could use it to solve a problem in another domain.
A lot of startups already do this in a specific aspect of their companies. The phrase ‘We’re the Uber/Airbnb of X!’ seems to be how a vast number of startups have been describing their business for a while now. This comes as a result of the paradigm shift these two businesses have introduced to the way we consume their products.
While we seem to have accepted this translation of a company’s feature to some new product or consumer group, this seems to be limited to the company’s business plan, the marketing strategy, or other commercialization functionality. The number of startups that use this principle in other areas like product development and R&D is limited. And there might be an opportunity for you.
We started this post with a quote from Peter Thiel’s book Zero to One. So, it is only proper to end it with a principal from the same book. In this book, innovation is presented as two kinds.
- Zero-to-one, creating something new.
- One-to-many, improving something existing.
This is the simplest and most comprehensive representation of innovation, but it does not account for the element of time. So, adding that last concept, we can see that it’s not a 0 then 1, then 2, then 3, 4 …., it is a 0 to 1, then 1, then 1, then 1, … [ until someone finds a way to unblock the innovation process or manage to turn the invention to a useful product] … then 1, then 2, 3, 4 …
This period where a lot of innovation is happening, but no single one of it has enough momentum to break the blockage, (no one has figured out a way to manufacture some consumer product based on it, ensuring their domination of the market) may take years, decades, or centuries as we saw.
It is the Goldilocks Zone for people looking to build the next big thing and it is happening right now. By paying close attention to some entities known for producing this kind of breakthrough, you can build on something they invented, to have your next billion-dollar idea, shortcutting the process of innovation and giving your venture a huge step forward.