Legendary entrepreneur and VC investor Marc Andreessen once quipped, “There are no bad ideas in tech, just bad timing.” While most people intuitively get the importance of the “why now” calculus for a startup, it doesn’t always get the attention it should.
In this post, I’d like to dig into some ideas around startups and market timing, and talk about some of the reasons that the latter can make or break the former.
Dot-com flameouts and their future successors
To understand the critical importance of timing for a new business venture, we need look no further than the big failures and flameouts of the dot-com era.
In their day, some of these businesses were widely regarded as examples of the harebrained schemes that became so emblematic of dot-com mania. But today, there are many successful companies that are thriving by executing on the vision of those earlier precursors.
Let's take a look at some specific examples:
- Webvan was a grocery delivery business that raised more than $400 million over three years before going bankrupt in 2001. Fast-forward to today, businesses like Instacart (with a market capitalization, or market cap, of $8 billion) and others have brought the same vision to life with great success.
- Pets.com tried to transform the way we buy pet supplies, but by 2001, it found itself in liquidation — one of the biggest dot-com failures of the time. Today, Chewy.com has turned that same idea into a functioning business model, with a market cap of over $9 billion.
- Kozmo promised one-hour delivery of food and other sundry items when it launched in 1998. The company raised $250 million, but shut down three years later. Today, a number of businesses, including Doordash, Uber Eats and GoPuff, offer this service in many markets, and at a healthy profit — to the tune of tens of billions of dollars in Gross Merchandise Value (GMV).
- Broadcast.com offered audiences internet radio for sports and was one of the first few “streaming” companies in the dot-com era. Within a few years of launching, the company was acquired by Yahoo for $5.7 billion, and shut down three years later. Today, companies like Spotify and Netflix have built huge businesses on largely the same premise around music, TV and film.
Three lenses for “why now”
As those dot-com flameout examples demonstrate, a business idea can be brilliant and innovative, but ahead of its time. That’s where the question of timing gets a little more complicated: Certain elements need to be in place in the broader market environment for the business to succeed.
Given that timing can make or break a startup, we can consider the question of “why now” through three lenses to determine whether the time for a new business may, or may not, be right.
Technological readiness
Oftentimes, some ideas make sense on paper but aren’t really feasible without some enabling technology. Take Webvan and Kozmo, for example. While customers were able to place orders online (from their desktops), there was no way to effectively support the people picking up and delivering the orders. Without smartphones, the idea didn't truly work.
In recent decades, the internet, cloud computing, mobile technology, and artificial intelligence (AI) have emerged as crucial enablers for these innovative ideas. Specific elements, like data processing, GPS, camera, etc., have also come into play as key business enablers.
Consumer behavior
A new business needs a market that's ready for it. Shifts in consumer habits or behavior — often (but not necessarily) driven by technological change — can be a big part of why the time is ripe for a new startup. So can changes in attitudes around purchasing practices in general.
For example, the successors to the dot-com flameouts mentioned above — Instacart, Chewy, DoorDash and so on — certainly leveraged the enabling technologies that were available to them, but they also benefited from the widespread trust in online transactions that had developed among consumers by the time they appeared.
Economic rationale
Even with the right technologies and a consumer base that's primed for a new product or service, the business numbers have to line up. This comes down to whether there is a need for the product or service in the current economic environment, and whether the price point makes sense.
For example, with advancements in internet technologies and increased bandwidth, the all-in cost to the end user for streaming was drastically different 10 years ago from what it had been 20 years before that. That change made Netflix, Spotify and other streaming platforms more economically feasible.
Likewise, sometimes the economic case for an idea only becomes viable at a certain point or in a particular environment. As an example, products that help companies manage their cloud spend only became important when these costs grew large enough to be a pain point for businesses. Finally, certain macro conditions support bundling versus unbundling of services, resulting in tailwinds for platform solutions versus best-of-breed point solutions.
The promise of AI
With the advances in AI, the “why now” for many startups today is obvious. AI is a new enabling technology, and thanks to these advancements, a number of ideas that weren't quite ready when they were tried in the past could become feasible, from the perspective of "it's now actually possible to build this."
At Wing, we sometimes refer to these initiatives as “previously imagined, now possible” products. The market was there, and the idea made sense — and indeed someone may have even tried to build it — but the product or service didn’t quite work.
While there are many such examples (like natural language business intelligence to outbound call automation), I think this logic could also apply to the wave of tech-enabled services businesses, such as Atrium, that popped up five to seven years ago. While the goal was to act as a full-stack service provider, the operational gains weren’t strong enough to make it a true venture-scale business. But AI may enable some of them to truly fulfill that vision, giving primacy to this idea of services-as-software that is trending today.
But technology aside, AI also represents a vast improvement in the price point of many services, if you consider the cost of AI versus the cost of human labor.
So, for example, past attempts around democratizing access to therapists, coaches, assistants, concierges and other service providers — where the opportunity was still capped, given the inherent cost of human labor — may look very different if AI can mitigate a lot of that cost.
Timing is everything, but the devil’s in the details
There's a lot that goes into launching a new idea into the market, and the quality of the idea itself isn't the only determinant of its success. Other critical factors come into play, and the startups that can perceive and seize the advantage of those opportunities have a far greater chance of thriving in the long term.
If you're building in these spaces and would like more insights and thoughtful analysis on the market terrain for startups, be sure to sign up for my Substack newsletter.
