If there is a human interaction not yet monetized and packaged into an app, it would be welcome news to the many would-be entrepreneurs searching for their big break. The seemingly infinite variety of apps being churned out through an expanding network of incubators is showing signs of exhaustion. Investor enthusiasm in the startup sector benefited from the rise of the smartphone, intersecting closely with the global economic downturn of 2008. As markets gained momentum, investors were reticent to place all of their holdings within the financial sector, and hedging across a portfolio of early stage startups proved a lucrative strategy. The risk certainly paid off with upstarts Uber and Airbnb becoming household names, and a wholesale reevaluation of entire industries following in their wake. Routine would dictate each pitch reference the success of other sharing economy startups and become embedded in the ecosystem. You had to talk the talk, more than walk the walk. Over time this proved more difficult. There were apps for dog walking, communal meals, parcel delivery, car rental. The emergence of wearables prolonged the excitement, but inevitably cooler tempers prevailed. There was a limited interest in sharing apps, and as experience proved, limited patience in alternative configurations.
I don’t know how many times someone will try to lure me into a get rich quick scheme. And sometimes I am gullible as we all are guilty of and fall for the deceit of either the promoter or the company representative. Another entertainment or media app. A new version of craigslist for students. A dating app based on musical interests. Many of these half-baked ideas are from people who could not care to do a google search to find out the idea has already been tried and failed miserably, or has been done successfully many times by someone else. The problem with the hype around startups is early entrants escaped this kind of scrutiny and as investors took on a steep learning curve they were willing to parcel out cash to projects that lacked substance and due diligence.
As with most industries, consolidation takes place sooner or later. Some industries through either regulation or a unique history manage to avoid this stage. Yet most will at some point be organized to a point where the barriers to entry are too high and relations between firms and consumers normalize. The emergence of a disruptive core of startups to threaten many of these industries was only temporary. Y-Combinator, a leading start up factory, is set to exponentially expand its reach. Its end vision is to reorient the entire economy to operate along lines of the startup model. In effect, there will be one startup generator, and a few ventures will perform the winner-take-all function. Just as each app has undergone a similar transformation in the market.
I still encounter excitement for the start up space and delusions of grandeur though, even they are waning in their drive to innovation. The real value in any startup will be in its potential to capture the lion’s share of the market, and run with it. Intelligent investors are placing their capital few and far between as they have effectively learned the pattern of successful startups. As precision figures into strategy, decisive winners are those who focus on user experience not a flash in the pan headliner as before. Promoters and creators of the sharing economy are held by an almost religious esteem to the same formula they have always used, despite all indications to the contrary. But perhaps they have forgotten the unwritten rule of commerce, don’t get too high on your own supply.
Dr. Kal KoTECHa
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