This post was originally published at http://blog.thefailcon.com/post/61025824228/trend-is-your-friend-picking-trends-to-avoid-failure
Trend is your Friend
Stock traders have been saying it for years, and while I don’t really see eye to eye with their application of this rule, the inherent lesson remains.
Learning how to understand, pick and benefit from trends is potentially the biggest single factor you can and should incorporate into your startups’ ambitions to help underwrite its success.
Put conversely, failure to understand trends will without fail increase your likelihood of failure itself.
Where I’m coming from
When I was 19 I had spiky hair, ½ a college degree and a fledgling startup helping real estate agents put their property listings on the interwebs, it was 1999, and yes we partied like it was.
The world was abuzz for anything technology related, it had been for a while. It had been a year since ebay had floated with a valuation around 150+ times it’s profit (it currently sits at around 26)
A set of serendipitous circumstance led to me pitching a new startup idea, an SMS gateway, to a group of angels in Perth, Australia. We raised the money easily and in 12 months went on to build out a product, secure a lead client (a major Aus bank) and start generating some nice revenue. In 2001 we easily closed a small venture round, the money hit the bank about 1 month after the entire tech market came crashing down. I’d successfully managed to start and grow a tech company 2 years before the entire market melted, but we had customers, revenue & money so set out looking for another sand pit.
As it turns out our banking customers had other problems so within 12 months we had found an opportunity to help them in lending, mortgage lending. By 2004 we had commercialized a platform to help their mortgage brokers streamline the mortgage application process, things were going well until 2007, when that market too started to unravel.
In 2009 I woke up realizing that I had managed to pick the 2 biggest industry collapses in a single decade and start ventures around 2 years before their respective collapses. I’d been swimming upstream for years.
In my next venture I swore I would understand the macro dynamics within the market before setting out. In fact, I would aim to build a business around an observable, established trend, with my bet effectively being on the impact of that trend. Equally I would try to understand the cycle of the market I was planning to go into.
This is what I learned about seeing, interpreting and backing trends & cycles as a result.
What is a Trend?
Firstly we need to define a trend, which I define as being a single long term shift in capability, behaviour or need within a market.
Capability trends relates to the evolution of hardware or infrastructure, e.g. the shift from fixed to mobile
Behaviour trends relate to how people behave e.g. the shift from office bound jobs to work that can/is done remotely
Need trends relate to what people want to do e.g. be able to check email on the go
And yes, they are related – Capability enables Behaviour which drives Need.
Finding a Trend
Picking a trend is relatively easy, you will read about it a lot and over a sustained period of time.
Mobile is a trend, there has been and continues to be a sustained move towards things being mobile.
Improvements in computing power and hardware capability generally, is a trend. A well documented, unbroken for years trend.
High speed internet is a trend, miniaturization is a trend, increased access to information is a trend.
These are a handful of the Capability trends that are established and will continue for years.
Connecting a Trend
This is where the trend shifts from capability to behaviour. If computers become smaller, faster and can connect to the internet faster what kind of behaviour will this enable in people.
The key thing to think about here is a core human trait that relates to the fundamental desire by all animals to do 3 things
– seek pleasure
– avoid pain
Ignoring the first one for the moment the change in capability over time will result in new ways for people to find pleasurable things and/or avoid pain (more easily referred to as inconvenience). This shift in behaviour then drives the need on which you can build your product.
Let’s take an example.
Over time more people will have smart phones (simply phones with good internet, better screens, faster processors and other sensors like GPS). What behaviour will this mobility and mobile access to information enable? Perhaps being able to connect with friends who are also out and together find food that is good value, suits your tastes and not too far to walk to.
People will need (desire) an application that uses where they are to show them places to eat, of food they like, within walking distance that they can easily share with their friends.
What the trend does is multiply the number of people for whom this behaviour is enabled and thus need is driven.
Starting Yelp in 1998 before smartphones and high speed mobile internet access would have sucked.
A good way to try to predict the behaviour that will be enabled from the capability trend is to work in absolutes. If my phone was with me 100% of the time, always charged, had unlimited internet speed and could project video quality data on any surface. What would I want to do that would give me pleasure or help me avoid pain or inconvenience.
The what if can be extended to any of the hardware or infrastructure parts of the puzzle from sensors like location (what if my location could be measured to within 1cm?) to data (what if I could transfer money to anyone, instantly at zero cost).
I might pay to overtake people on the freeway so I can get to where I’m going faster and be inconvenienced less.
Thinking in absolutes breaks you free from the constraints of a break in one part of the equation.
Picking the tipping point
Once you’ve picked your trend and predicted your behaviour in absolutes the most critical part of the process is required which is to pick when the underlying capability trend has reached a point where the behaviour you predicted is now also becoming a trend.
This may happen very quickly, think app stores and social media. In other cases it may happen over many years, think Salesforce/SaaS applications or online purchases.
The successful companies in just about all the major behavioural trends of the last 15 years in tech were backing the trend before it emerged and were ready with a viable, scalable proposition that closely met the final need. Trying to bringing a product to market and become dominant or successful after the tipping point is reached is rarely the case, gmail being a notable exception.
For you and your startup this means while you dont need to pick the capability trend, you in essence will have to bet the company on the behavioural trend you predict and the needs it drives. You will want to time your run so your product is viable & scalable at the tipping point.
Trends vs Cycles
Outside of Trends we also have Cycles, these being the more traditional ebb and flow and usually relate to things like business, political or social environment. There is an argument that you can start a company anywhere in the cycle and, if its good, it will survive at any stage in the cycle.
While this is true you startup success can be accelerated or retarded based on your timing in the cycle. The relationship between the cycle and the overall level of demand (a relative measure) for your product is both specific to your market unlikely to upset the long term trend.
For example the ill fated software I was making for mortgage lenders went through a small downturn in 2007 but then, despite a terrible mortgage market that saw some 40% of mortgage brokers (our users) leave the market, we saw an increase in both usage, volume & revenue after this. The trend eventually outweighed the cycle.
Making this work in your startup
People talk about luck or being in the right place at the right time. Others innately seem to read the market dynamics and tend to better see how a capability will drive a behaviour. There is even an argument for find the right place (in the market) and simply wait it out, although most startups dont have this luxury.
To make this work in your startup I would firstly be aware.
Consider the shifts in the hardware & infrastructure that affect your market, users & customers and at what stage these are at. Be super mindful of data/information, this is the most underlooked trend. Access to data, quality of data, timing of data, has driven more behavioural change than hardware alone ever has, and it tends to move it faster as it itself happens faster. (Granted in some cases the hardware trend has helped with the access to data).
Then consider if my users, customers or market had these capabilities to the nth degree, or in absolute terms, what would they do? … what would they need? am I building to solve that need? .. and will it be ready & scalable when it matters to enough people to make my venture viable?