Thursday, July 1, 2010

Five Drivers of Real Opportunity for Startups

One of my favorite sayings is the “Real change doesn’t happen until the pain level gets high enough.” There aren’t many of us who love change, just for the opportunity to learn something new, and even we won’t pay much for it. Entrepreneurs who search for real pain points, and build solutions around them, have the best chance of changing the world.

In my opinion, real pain points for most people do not require a new user interface for Facebook, a new programming platform for app development, or even the Apple iPad. So why do I see some many funding requests for products along these lines?

As an alternative, if you are an entrepreneur looking for the next big thing, where should you look? Here are some key drivers that should lead you to a fundable idea:

  1. A business crisis. The recent meltdown of major financial institutions and process is causing us all pain, and finally forcing change. Maybe we haven’t seen the results yet, but there are thousands of startup opportunities to offer new products and services, to replace those in crisis.

  2. Some kind of natural or man-made disaster. The BP oil spill in the Gulf, the volcanic eruption in Iceland, and recent earthquakes in Haiti and Chile, all suggest that real opportunities for change are needed in pollution control, just-in-time manufacturing, and building materials. Usually, people pay to relieve pain before buying luxury items.

  3. When the world gets smaller. When globalization or technology shrinks distances (Internet), painful missing needs become evident, and opportunities abound. Other countries can provide e-commerce with different business models, outsource manufacturing at low cost, and a huge market for new products.

  4. The impact of global instability. Unpredictable forces, such as unrest in the Middle East, can quickly change energy cost equations, or availability of critical products. Many of the current opportunities in alternative energy are the result of these forces, as well as the lack of effective government coalitions to conserve other resources.

  5. Truly “disruptive” technologies. I hear this term every day, wrongly applied to new user interfaces, or a new search engine. I’m looking for things like the next Internet, cold fusion, or a technology to cure cancer. Recent “paradigm shift” technologies, like the cell phone, still spawn major opportunities.

Of course, there are caveats to every opportunity. Many of the biggest and most obvious ones have non-business and non-technical hurdles, including the following:

  • Government regulations. New medical initiatives and new energy alternative technologies can be delayed or bogged down for years by existing bureaucracies and irrelevant political agendas.
  • Existing infrastructure. Companies with huge existing install bases and infrastructures, such as oil companies or phone companies, often present major roadblocks to the implementation of alternative solutions outside their control.
  • People are slow to accept change. Change is hard for most people. Therefore, it takes time, sometimes whole generations, of education, communication, and incremental proof to get momentum going and overcome old fears.

Professional investors know all of these too well, and are sometimes hesitant to fund any innovation that is deemed to be too disruptive. Of course, you can choose to play it safe with more incremental, modest innovations, There’s nothing wrong with modesty. That’s the great thing about being an entrepreneur. You get to choose your pain.

Marty Zwilling



1 comment:

  1. You can read thousands of papers about cold fusion here:

    These papers are from peer-reviewed journals, proceedings, and national laboratories.

    I doubt that cold fusion represents a business opportunity at this stage, unless you have a great deal of money and patience. Research is still at a fundamental physics level, and intellectual property cannot usually be granted for fundamental discoveries. Most research is paid for by governments, mainly in Italy and China. In the U.S. research is paid for mainly by the DoD, especially DARPA. Experts at the DoD have told me they think it would cost $300 million to $500 million to make cold fusion into a practical source of energy.

    There are other problems securing intellectual property. There is tremendous opposition to the research because of academic politics. The U.S. Patent Office policy is to summarily reject all applications, citing 1989 newspaper articles from the New York Times as evidence that cold fusion does not exist.

    Still, if cold fusion can be controlled it will lower the cost of energy by a factor of 100 at first, and much more later on. At present energy consumption rates the fuel for cold fusion will last longer than the sun. It has achieved temperatures and power density equivalent to the core of a fission power reactor, so there is no question that it can become a practical source of energy.

    Regarding infrastructure, cold fusion will not require any. No wires and no delivery system such as gas stations. A supply of fuel sufficient for the life of the motor will be built in, the way battery acid is sealed into a battery. An automobile will consume roughly 1 g of fuel per year, at a cost of roughly 1 dollar today, and a few pennies after new heavy water extraction techniques are developed.