Written in collaboration with Stephen Baldwin.
I’m often approached by entrepreneurs who want to start a venture in an area of interest. Some have great ideas, and I’m energized by their passion, but I can’t help but see them for what they are at that stage: Naked in the arena.
This may sound harsh, but I’ve seen how gruelling it can be to compete in a space where you don’t have any unique advantage, be it technical or industry knowledge. I’ve seen entrepreneurs make sacrifices that they continue to lament long after their interest fades.
There are no guarantees in entrepreneurship, but if you identify and develop your advantages, you can drastically increase your chances of survival.
In this article, we’ll focus on how startup founders can set themselves up to start the right venture. In laying out venture advantages, we’ve developed our own approach as well as drawn insights from my friend Edmund Dengler and Alice Bentinck.
We’ll lay out the three different advantages needed in order to start a venture. Having at least one is crucial, and having all three is ideal in maximizing scalable impact.
What’s your advantage?
Think of the software market as the Coliseum in ancient Rome.
This might seem dramatic, but it captures both the risk and relentless competition one faces in entering this arena. Starting a company requires significant sacrifice, and customers are notoriously dissatisfied — more than willing to switch to a new product or service.
This means you can’t survive with only your ideas, enthusiasm, and interests.
I don’t want to completely devalue the importance of interest and enthusiasm. While you don’t want to end up with a hobby business that’s only driven by interest, you also don’t want to get stuck in a joyless grind. Aside from your family, you will spend more time thinking of and working on your venture than you will anything else. You need to have some interest in it.
Ideas are incredibly important, too, and we agree with Derek Sivers’ characterization of them as “multipliers of execution.” The best ideas that have been rigorously validated become outstanding opportunities.
Just remember that regardless of your ideas or level of interest, it’s crucial that your venture has at least two of the following advantages if not all three:
1. Industry advantage
When FutureSight speaks to entrepreneurs about venture ideas, one of the first things we evaluate is their industry advantage, whether it’s in fintech, education, law, or any other industry. (This typically applies to verticals, but one can also have a horizontal advantage like accounting, project management, or customer service.) Do they have the lay of the land? Do they know the competitors, the customers, and the key thought leaders?
After I built a company in the EdTech space, I was convinced the grass was greener in other industries, and I was eager to try something new in my next venture. However, the knowledge I had gained in that industry was a huge advantage. It’s important to feel inspired by what you’re working on, but I can’t express enough how crucial it is to have an industry advantage when starting a business. It will save you time, money, and effort, and will increase your chances of success exponentially.
Here’s FutureSight’s criteria for Industry advantage:
- You’ve worked in the space for five-plus years
- You have an extensive network in the space
- You understand the industry map of all of the players
- You have the ability and relationships to close the first 10 customers
- You’re familiar with all of the major vendors in the space
- You’re familiar with the industry’s market forces and trends
- You understand how those trends will affect competitive dynamics over the next three to five years
2. Technical advantage
If you don’t have experience in a specific industry, your secret weapon in the arena might be a technical advantage.
Perhaps you’re an academic in artificial intelligence. While your fellow researchers are looking to get published in a prestigious journal or make the next big academic advancement in their niche, you instead want to unleash this technology in the market and build a business around it.
Here are some criteria we’ve identified for this advantage:
- You have a deep knowledge of bleeding-edge technology
- You are on the cutting edge of research behind this technology
- You know all of the pioneering thought leaders in the space
- You have a network of experts in this area
- You have built things that others haven’t been able to due to your expertise
3. Catalyst advantage
Venture creation is a thousand-hurdle race at dusk, and just a few stumbles can lead to defeat. Someone who has a high level of ability, expertise, and/or experience launching ventures can illuminate the challenges you don’t see and save you from fatal mistakes.
A catalyst is also a spark plug, driving the company forward and willing its potential into reality.
Here are some examples that could characterize a Catalyst:
- You’re a product manager who knows how to build and deliver to customer needs
- You’re skilled in early-stage venture creation and customer development
- You’re adept in finance and fundraising
- You’re experienced in operational scaling
The sooner you get real about your advantages and strengths, the sooner you can focus on building the right venture.
How do I increase my advantage?
If you want to increase the amount of advantage your venture has you can either work with a venture studio, find a co-founder, or build expertise.
a) Find a venture studio
Venture studios act as co-founders and can often provide complementary advantages that an entrepreneur is missing. They can also support the journey of building expertise and finding a co-founder.
In FutureSight’s case, we maximize upside potential by bringing our venture development expertise, experience, network, and capital to co-create ventures with fellow entrepreneurs.
b) Find an individual co-founder
If you don’t have the desire or patience to build expertise, you can find a co-founder who brings an advantage to the table.
It typically takes between six months and a year to find the right co-founder. Here are some qualities to look out for:
- Complementary skill set and disposition
- Similar risk tolerance and risk capacity to yours
- Similar values in work and life
- Leadership capabilities
- Persistence (ventures can often take up to 10 years to mature)
c) Build expertise
We estimate it would take 5–10 years to build a sufficient level of industry or technical advantage and a high-quality network. Here are some tactics for building expertise:
- Work for the technology or industry’s leading players
- Start a consulting practice to build your knowledge, network, and authority on a subject.
We’re always looking for driven entrepreneurial leaders who want to build world-class software companies. Learn more about how a venture studio can co-create with you at futuresight.ventures.