In today’s interview, Jordan talked about how there are two kinds of startups. Those that are solving a real problem and those that are addressing something that customers are totally unaware of and, in the process, changing their behavior. I wanted to attempt to connect these two concepts and illustrate a pattern that I’ve observed with many founders. And this pattern has revealed itself to me, in the form of two different startup types. Without question, every pitch I come across can be categorized in one of these two groups.
Type 1: We’re solving a narrow problem for a specific customer.
Type 2: We’re building a platform that will change the way consumers behave.
There are problems with each of these types. In the case of startup type 1, solving a narrow problem, often the problem is too narrow and the market is too small. So even if their solution is incredible, the opportunity size doesn’t justify investment. In the case of startup type 2, the market sizes are typically massive, but they can’t get adoption. In the pursuit of boiling the ocean and creating a whole ecosystem, they’ve confused and overwhelmed users. In the absence of addressing a real problem, there is no business.
To provide a quick example of each… let’s consider smart watches. On one hand, you have GPS-enabled smart watches. They perform a targeted function and solve a real problem. I’d imagine the majority of the customer base is runners that are using the device to track splits and distance. This would fall into Type 1. Real business, real value, niche market. On the other side of the spectrum, you have the Apple Watch. This product attempted to recreate all features of the mobile device in watch-form. Apple took a new use case and went from zero to 100 on day one. The jury is out on success or failure of the Apple watch but clearly it has vastly underwhelmed vs. their expectations. So, while it has massive capability, consumers don’t quite understand the value. And the behavioral changes required are too significant to be comfortable. Recall that the apple phone did not launch with thousands of apps and immense capability. It was, quite literally, a mobile phone with beautiful industrial design. The user experience was unrivaled, resulting in fast adoption. Apple iOS and the “platform” we know today was a gradual development. Consumers learned how to use the enhanced capability, app by app, version by version.
The best pitches that I see, have a Type 1 mandate and a Type 2 vision. They are solving a real problem with a narrow customer-base, like type one startups. But they are doing this as a Gateway Drug, so to speak. The initial solution is a means to a much bigger opportunity. The gateway drug gets customers in the door, using the product. This allows the business to grow with the customer and become a type 2 startup. If I were to have made a suggestion to Apple, it would have been to roll out the watch as they did the phone. Find the single, most visceral problem to address w/ the watch… and create a product that is far better than anything else for that use-case. Then, over time, they can become a platform, with many additional features, just as the iphone did.
So, today I facetiously recommend to find that Gateway Drug. Use it to build something much bigger. Founders that do will have real business and may have the opportunity to build a household name.