Translating Passion Into Profits
Many bubble-era companies serve a niche of passionate users very well, but scale very slowly
One of the more interesting results of the late 90's euphoria is a series of surviving companies that inspire passion but not widespread adoption. This is a direct outgrowth of the late 90's preference for changing the world all at once.
Prior to the bubble, companies needed more than a brilliant idea; they needed a good incremental way to get people to adopt that idea. The light bulb does not exist in the absence of an electrical grid. No matter how brilliant the invention, the market needs to be ready to adopt it.
During the 90's, however, everything appeared to be a land grab. Entrepreneurs were able to put tremendous resources to work changing our lives. Some of those changes took and are growing. Consumer e-commerce, for example, continues to grow at 30% - 50% a year, enough to create some real long-term success stories out of the pack (including my former company).
The early adopters among us have noticed something else emerging from the bubble. There are a number of surviving companies that are now doing alright, but still haven't hit the "hockey stick" of exponential growth. They have a niche of incredibly passionate users, but so far haven't been able to translate that into mainstream success. Many of these firms were based on excellent ideas whose time has not yet come for the general public. They should have been nurtured slowly until the market was ready. Instead, investors spent millions creating heavyweight products to serve the few of us that use them very well.
I'll be interested to see what companies readers add to the list in our comments. The criteria is that it be an invention that the general public can benefit from, current customers are numerous and passionate, but it isn't growing as fast as people's passion would indicate. I can start the list with a few of my favorites:
- Tivo - (the first widespread digital video recorder). This list wouldn't be complete without the grandfather of all passion-inspiring companies that's still working on getting over the hurdle. Once you are freed from the tyranny of network scheduling and commercials, there's no going back. Normal TV becomes unbearable. Almost everybody I know owns one and can't live without it -- yet they have only a million customers or so (about 1% of households).
- Paytrust - (the "we receive all your electronic and paper bills, pay them for you, and file all your bills forever" company). I count a few Paytrust users (including myself) among my circle, but nobody who has it would ever be caught without it. Not worrying about your bills when you travel or get busy and never having another late fee or lost payment is fantastic. You can always view the bills from anywhere (I checked in once from a the high Andes in Peru to verify my guide had been paid by credit card months before) and have whatever level of control you choose. This one is interesting, because the resistance to adoption is incredibly high. Everybody I evangelize Paytrust to says "oh, that's interesting, but I would never do it.". Anybody I know who has Paytrust never looks back.
These companies both share one characteristic. While their actual benefits are extraordinary, they cannot be summed up in a sentence. Both companies have struggled with that marketing challenge and haven't discovered the formula yet.
A great deal of money was spent to create a company that survives, but doesn't grow dramatically. However, they aren't failures. They serve a niche audience of passionate customers very well, and could get to profitability on those alone if they gave up on thoughts of future growth.
As an investor, I may not miss the financial insanity of those days. As a consumer, I do miss the steady stream of inventions targeted at changing my life. It's time for a return to at least a few promising ones getting a shot. After all, for every Tivo, there's an iPod or Treo 600 that did make the marketing hurdle despite being hard to describe.
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Translating Passion Into Profits The article talks about TiVo. There are computers and TV tuner cards and software that pretend to do something similar, but none as user-friendly and convenient. Last night I wanted to listen to the radio, the... Read More
It's a shame that there aren't more of us out there. I agree, both Tivo and PayMyBills (now PayTrust) can not be lived without. Here's one for the list -- Evite. It is infinitely simpler and more convenient to plan a party or event with Evite than the good old fashion way. Whenever possible I use Evite rather than paper invites. Of course, in the name of full disclosure, I was on the Evite board. But it was surely a great service in search of a business model before we sold it to Ticketmaster.
I know this isn't central to your argument (which is interesting) but the light bulb _did_ exist before the electrical grid. In fact they expanded synergistically, which perhaps is instructive.
I recommend James Utterback's Mastering the Dynamics of Innovation for a good discussion of the light bulb (and the grid's battle with the gas giants) and related issues.
I had been paying my bills via Quicken for years and thought there had to be a better way. Clearly I'm biased (I founded Paytrust back in 1998) but I couldn't imagine going back to paying the bills the old way. Good to see that there are still some other Paytrust zealots out there :]
PayTrust *is* a great idea. But they have mucked with the model too much, it seems. They no longer store your bills indefinately, and they seem to have some quality control issues. I liked and used it for a long time, but it's recently become not worth the cost for me, so I'm leaving.
As a business idea, though, it has great lock in.
On the topic, I think that the 90s distorted people's perceptions of how quickly the hockey stick should come-- to the point that companies now have to live under that unrealistic expectation.
How long was it before the cellphone crossed the chasm and got mainstream growth?
When you're giving a way the browser, you can have hockey-stick growth in your installed base because its free, and everyone on the net wants one. But even if paytrust was free, the growth rate would still be slow because people have to develop a lot of comfort before they'll let someone else handle their bills.
Unless your model is just like netscapes, and your product is as transformative, you are going to struggle with the transition from early adoptors to mainstream.
So, I ask-- is not the hockey stick expectation as unrealistic as the chinese math you see in business plans?
There are 280 million people in the US, if I can just get %1 of them to join up, look at how the sales will explode!
I don't think passion is the issue-- it helpse when your customers evangelize your product. But even with it, you still have to reach those 280 million people, develop awareness, etc, and deal with the fact that most of them don't want or need your product. This takes time.
The average life of a VC fund is 10 years or less, right? Can anyone think of a major technological invention that has gone from inception to mass market acceptance in under 10 years?
The internet is nowhere close, neither is the PC, nor the cellphone, nor the PDA, etc.
I suspect there's a problem with the expectation of a hockey stick in year 3, for any company. Unless, of course, you can make that hockey stick by selling to early adopters.
I also couldn't live without my Tivos, but as much as I evangelize - most people tend to think that their TV watching habits are good enough. Also, to answer the previous post, the DVD is considered to be the most widely accepted technology in the shortest amount of time. I'm certainly not passionate about this, nor do I even use it, but OnStar is one of those ideas that seems right on target, but it turned out to be less accepted than anticipated.
Marc--
The exception that proves the rule! Excellent point. The DVD standard was agreed to in December, 1995. I'd say it crossed the chasm in 2000. So, if you have agreement among the major consumer electronics industry, as well as the personal computer and movie industries-- or presumably, some equivilent level of support-- you can go to mass market in 5 years.
I suspect I'm missing something, because this indicates that the VC mode of operations is designed to fail most of the time: You can't reach mass market in 10 years, but the funds last 10 years or less. So, either acquisition, or you have one of those few plans that are very frictionless, like Netscape. Certainly there are exceptions.
But it seems it would be wiser to fund a company that will spend the money carefully, and last 5 years, while trying to break thru in year two or three... so that they don't find themselves up against a wall, desperate for money to keep the doors open and willing to take any offer.... oh, I see. :-) Nevermind.
An interesting discussion about venture timeframes -- probably a good subject for an article in its own right.
The short answer is you're absolutely right. Many investments in revolutions don't work out so well, as Mike Masnick at TechDirt noted in his response to this article. Venture investments are as much about timing as vision, and it is better to invest to accelerate the technology taking off rather than to carry the full load for the revolution.
It's no coincidence that clusters of VCs tend to form around major research universities where the technologies are being incubated for many years while still young. VCs stand by ready to help (aka profit) when it does finally get close to the stage where it's ready for the mainstream.
Well, this needs to be on PayTrust's home page:
"we receive all your electronic and paper bills, pay them for you, and file all your bills forever"
Instead we find:
"It's more than just "bill-pay." It's Complete Bill Management!"
What the heck does that mean, and why should I care?
Rhapsody from Real Networks has an excellent user experience and the service is addictive but very few paying users compared to apple iTunes...go figure.