Understanding Optimism
There's a bit too much optimism going around these days. As David mentioned in his post from the Wall Street Journal conference, the Barry Dillers and Meg Whitmans of the world are feeling upbeat. And certainly the stock market has been rallying of late. It's important for entrepreneurs to dissect what's really going on.
Recessions are unbalanced in how they hit business: strong companies may weaken but weak companies shut down. Similarly, recoveries are unbalanced and favor the established and strong. As consumers regain confidence, they spend their dollars first with the trusted brands they've known for awhile. And as is well known around the Valley, CIOs are going to continue to be leery about buying a box or piece of enterprise software from a start-up any time soon.
So optimism abounds right now, which is much better than the alternative of the last few years. But start-up entrepreneurs should be sure not to misinterpret what the next few years will be about: the consolidation of power by many of the leading companies we see around us today. This does not mean that I think it's a bad time to start a company... I'm actually very bullish on early stage companies right now and we at August Capital are seeing many interesting new start-ups (and funding them).
But the first rule of competing in a market is to understand the dynamics of that market and it's important to realize that it is still a much better time to be a big company than a small one. Picking the right markets to go after and the right entry strategies for those markets is more critical now than at any time in the cycle.
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VentureBlog: Understanding OptimismIt's always good to see a VC take on optimism in the market. It's a sobering market, and... Read More
Going into a market without fully understanding the market dynamics is a perfect recipe for wasting money. Next to understanding the market dynamics it is also necessary to know the competitors down to the bone. If you are familiar with the market dynamics and the competition you have a great advantage as a newcomer, as you cannot only learn from the mistakes made by the others, but you also know their weak spots. Established companies have vested interests, which limit their options. They also tend to have much higher cost structures than a newcomer. Of course they can use FUD to go against the newcomer, but if the newcomer has the better product at a better price or even redefines the market space, there is not much that can keep the newcomer back, except for insufficient funding or lousy execution.
Full trust in the newcomer is not really a requirement as long as the product is good and he has good and trusted channel partners. The channel partner can make up for most of the missing track record of the newcomer.