Uber: $17 billion valuation, how did I not see this?
How to not dismiss early startups as niche.
In April of 2012, I was watching Morgan Spurlock’s “Day In The Life” episode featuring Tim Ferriss. The camera crew followed Tim around on his daily adventure, and at one point, he hailed a black SUV using Uber. As an advisor, he used this opportunity to appropriately plug the product. I thought to myself, “Interesting. This should be a nice little lifestyle business that can earn a couple million bucks a year. I mean, how big could this market possibly be? How many people really need an easier way to hail a towncar or black SUV?”
As I caught up on some articles on TechCrunch this morning, I was shocked to see the latest news on Uber. I checked the publish date just to make sure I wasn't reading an April Fool’s post. Uber is now valued at $17 billion. How was I so freaking wrong about the perceived size of this market?
This is an important event to pick out, not so much for this particular case, but for establishing an understanding of ubiquitous markets, and how to value opportunity. I do a bit of mentoring for startups, and one day soon hope to be investing, so how do I train my brain to overlook limitations and recognize massive potential? It is almost a defense mechanism, given that valuations among startups are lofty, and nearly every idea is touted as the the next big thing. So how does one consistently pick a winner?
Perhaps we should try some conditioning and identify a pattern. The following questions were seemingly asked thousands of times by sinics:
Facebook: “Ok, you’ll reach some Ivy League schools, but then what?” (Current Valuation: $165B)
Google: “This is a nice little research project that will appeal to some professors and students, but come on, how is it going to break out of that?” ($367B)
Apple: “Computer fanatics number in the hundreds. How many people are really going to want to buy their own computer?” ($555B)
Airbnb: “Ok, you’ve rented out your air mattresses to some folks who needed a place to crash. How many people in the world will really do this?” ($10B+)
GoPro: “So a few thousand surfers and skydivers are going to buy your camera, big deal.” ($3B)
If you can boil the business model down to 1 or 2 words, and that (those) word(s) is something so large, so pervasive, so fundamental to life that is agnostic of culture, language, religion, or geography, then you’ve hit something big:
Facebook: Social Interaction
Google: Information
Airbnb: Sleeping
GoPro: Experiencing
Uber: Logistics
Notice that for Uber, I did not use the word ‘Transportation”. Even transportation is not as broad and all-encompassing as logistics. Uber doesn’t just pick you up in car so you can rush off to your meeting. They move people and things on a global scale, and they are just getting started. They are experimenting with goods via Uber Rush, and have dabbled in everything from family-focused services to Delorean rides. I haven't been in the fundraising meetings, but I’m willing to bet that Travis Kalanick is selling a future where the idea of individual vehicle ownership is dead, and Uber shuttles around the masses at a scale and efficiency which can only be achieved by a complete domination of the market.
Whether or not you think that $17 billion is appropriate, and independent if you actually like Uber or not, the fact of the matter stands: they own this space, this domain of “Logistics”, and have the cash to experiment what works, and what is the most lucrative. It’s like having a great domain name x 10,000.
So what is coming down the pipeline next? What startup is in its innocent infancy, but yet will rise to become a juggernaut? It may be incredibly easy to dismiss an early stage company as too niche to have hopes of one day making it big, but I hope to use this case as a learning tool for the next big fish that comes along. Here are my top picks, what are yours?:
Khan Academy: Education; These guys are just scratching the surface right now. They have the potential to be the global leader for learning, especially in developing countries without widely available formal/organized education.
Soylent: Food; Imagine if 20% of global meals were replaced with the formula these guys have developed. That would be mega super duper jaw droppingly astonishly huge. Right now they are just a few guys working out of a house in Los Angeles.
IFTTT: Doing Things; They have already received $8 million in funding, so they aren't exactly undiscovered, but boy oh boy is their potential here. They are becoming the universal way to connect the many services of your digital world.
Agree with me? Think I’m full of crap? I’d love to hear your thoughts.
