This post is by Jeff Carter from Points and Figures
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It is pitch season. There are a lot of meetups and there are a lot of pitch competitions going on at colleges around the country. The problem I am seeing is that there are a lot of “me too” kinds of companies. They are relatively close to an existing dominant player, with one or two twists.
Sort of reminds me of the old movie Knocked Up when they find out the company they are building already has been done.
There are a lot of businesses being started that don’t really have pricing power. They are land grabs and commodity type businesses. They are bolt-ons to bigger businesses or tools. When you go into business, you never want to run into a situation where the market entirely controls where you can price your product. I call it the Farmer Brown problem with a hat tip to PhD Economist Thomas Chevrier from Booth. No matter what you do, it’s a race to the bottom on price.
Suppose you think the big banks suck and want to start a bank. Chime just raised $200MM at a $1.5B valuation. Are you going to be successful if you go out to raise money to set up a challenger bank? How many can there be? There are already other challenger banks such as N26, Revolut, Simple, Varo and Moven as well as fin tech companies that are adjacent entering the competition such as Social Finance, Wealthfront, PayPal and Amazon.
At the same time, when you do a startup there are pretty good odds that there will be other people with the same idea trying to execute on it. That’s not a reason to quit. Winning comes down to execution at the end of the day. Lyft and Uber is a good modern day example.
When you get the idea, poke your finger up into the wind and look around. See if it’s been done before or being done by someone else. See how far along the journey they are. There are plenty of sights to do research on funding rounds and who is writing checks. If you see that the path has already been broken by a few others, it’s probably not one you want to run down.