In these days of multiplying startups, it’s useful to divide companies into three categories: features, products and businesses.
A feature is less than a product and nothing close to a business. Using LinkedIn as a very rough example, the “advanced search” that you get with an upgraded account is a feature.
A product is more robust than a feature but not enough to be independent business. An example of this would be LinkedIn’s “Talent Finder” product for Recruiters. Good stuff but, on it’s own, not terribly differentiated; it would not make an interesting investment.
A business is LinkedIn. It’s a huge platform of information on top of which the company builds products (with cool features) for which many people pay.
A lot of features can evolve into products and eventually into businesses — the problem is that it takes time and a lot of other people are doing the same thing.
I had an “uh-oh” moment (kind if like an “ah-ha!” moment but bad) a year ago when I looked at the “Share This” button and saw at least fifty “sharing” products (read: features), all with cool names, probably all with hardworking entrepreneurs, tech talent and many with investments from angels. How could there be enough users, I thought, for even half of them? How could there be enough acquirers for more than a few of them?
Two years later, other than the Tweet, Like, LinkedIn and (now) the Google + buttons, most are gone or somewhere out there “pivoting”. The same fate awaits most of the features and products that are currently masquerading as businesses.
Weak features/products die from lack of usage; strong ones get extinguished by stronger competitors. If a competitor has more resources (money, developers, users, etc.) and they can build the feature, they probably will. And they probably will before you scale enough to beat them and before they need to buy you at an interesting price.
Of course, there is an alternative to win it all or die. Look at the offline world for analogies. Below the Fortune 5000, there are tens of thousands of good business that generate cash for their owners but will never “win” their markets, scale or have an exit. The same will exist in the online world: below the Internet 5000, there will be thousands of decent businesses — the online version of restaurants and dry cleaners.
Below those businesses, however, there will be tens of thousands more that die, just like in the offline world. The business pyramid is narrow at the top and wide on the bottom.
Despite some recent posts (like this one) that might seem negative, I’m not. Evolution (of species, economies, businesses, etc.) works in cycles, often with periods of explosive growth followed by periods of large-scale extinction. In the Information Age, these cycles tend to happen quickly, one after the other (think fruit-flies, not mammals). The Internet ecosystem is in a period of explosive growth; at some point there will be an overpopulation problem, a shortage of resources (customers, users, money) and we will have large-scale extinction. The strongest businesses will survive and, hopefully, the entrepreneurs and investors that didn’t make it will start over and try again.
Regardless, despite the ebbs and flows of the startup ecosystem, there is ALWAYS a place for good businesses, offline or online and there are lots of those being built everyday, in Brazil and elsewhere. Many of those online businesses address large markets, are capital efficient, can scale quickly and have quality teams. If you fit that description, I’d appreciate the chance to talk to you.