I was in Tuscaloosa, Alabama visiting my mother-in-law a few weekends ago. One of the things I always do while I’m there is visit the University of Alabama. That got me thinking about the entrepreneurship space.
It's crowded.
Just look at Northeast Ohio. There are so many college programs, entrepreneurial institutes, and local, city and county programs that help potential entrepreneurs. The same holds true for every area on our country and most of the developed world.
But while the number of entrepreneurs rapidly expands, the funding for startups has not kept pace. There is more talent chasing constrained funding, making it more difficult to be a successful early-stage entrepreneur.
During my visit I also updated my mother-in-law’s apps. I downloaded a couple of new games, found some news apps I thought she’d like, and updated her Facebook account.
This got me thinking about how crowded the app space is. Everyone is developing a new app hoping to be the next Candy Crush.
The combination of these two factors—the growing number of entrepreneurs and the saturation of apps—creates a real issue for startups trying to break into the app space.
The result is that as an investor, I have become skeptical of new ideas in this space. The requirements for me to take a serious look at funding someone creating an app have become greater. I need proof that the entrepreneur has done their homework.
First they need to show that they’ve researched their space and be able to describe not only the current competitors but where they anticipate new competition to come from. Then they’ll have to show a sustainable competitive advantage over the existing field of competitors, along with a plan to protect themselves from those new competitors. Once they show all that, they still need to compete with the startups outside the app space looking for funding.
The point is that an app developer’s burden of proof is probably greater than someone asking for funding in the medical or technology space, where patent searches and patent protection can help demonstrate a sustainable competitive advantage.
Software applications probably fall into this category too. Two or three years ago, the number of software applications was near the level of today, but the change now is how competitive the funding process has become. Many funding sources have learned the hard way by funding software applications that did not clearly have a sustainable competitive advantage.
Let me stop to ask you this: did you decided to start a business or to did you decide to become an entrepreneur?
I offer this important question to help you reflect on your options. If your business idea was born because you saw a problem that you could solve and the solution led you to the app or software solution space, then it doesn’t really matter that the space is crowded or difficult to find funding.
However, if you decided that you wanted to be an entrepreneur and then selected the app or software solution space, you should challenge why you want to compete in this space.
This is an important question for those of you who’ve decided to become entrepreneurs. The number of individuals who have decided to major in entrepreneurship has sky rocked in the last five years. Many of those, likely a majority, select the app or software development space.
I think that’s a mistake. And I would encourage them to look at the strategic implications of their choice.
Yes, as in any business venture, evaluating the risks is an important element to measuring your chances for success. For example, if you decided to go into the craft brewing industry five years ago, your chances for success were relatively good. Today that same decision is problematic—the craft brewing industry is saturated.
But if you have a distinct competitive advantage and you know how to enter the market, then it might be a good idea. Maybe you’re the head brewer of a successful craft brewery and you open your own brewery, giving you an existing customer base. Maybe you can partner with a local business or developer who has resources and capital, increasing your odds of raising money. Or maybe you know a successful chef who wants to join your team, giving you a competitive advantage.
On the contrary, if you like to drink craft brew and started home brewing a few years ago, your chances of getting funding to start a craft brewery are slim.
Now apply this set of points to the app and software development space. If you’re a successful software developer and team up with someone who has experience in startups with some capital, you’ve improved you chances of success. If you add someone who knows the industry segment where you’ll market your app or software solution, you’ve improved your chances for success.
Compare this to someone who has an idea and outlines a software solution, but needs to outsource the software development and only has financial support from friends and family.
This brings me to my best advice for entrepreneurs, or anyone who wants to be one: choose your project wisely and if you can’t find one where you can create a sustainable competitive advantage, you may need to rethink your decision.
I’ve had this thought had for some time. It’s easy to decide that you want to be an entrepreneur so you can control your destiny and be your own boss. But it’s hard to become a successful entrepreneur.
For all those entrepreneurship majors, I suggest having a double major or a minor in another area where you could build a more traditional career. If you take this approach you can work on both concurrently, improving your chances of success. After all, isn’t the end objective to be independent?
And if you fail as an entrepreneur but succeed as a software developer, accountant, economist or chemical engineer, are you not successful? My conclusion is yes, you are successful. You’ve created options for yourself and if you have options you have the ability to control your destiny. And to me that’s the definition of success.