Are we solving the wrong problems?
99.9% of companies in the world contribute to 1% of revenues. So who earns the lion share?
In the modern world, Startups are build around solving problems in IT, Analytics or Mobile. But are these the problems that we should tackle?
The producer-consumer ecosystem
A producer is someone who either produces the goods or is in second degree in the value chain. For example, a producer can be a farmer or a restaurant chain who procures their supplies from a farmer, creates a product out of it and sells it to a third party.
A consumer is someone who consumes the finished goods and pays for the same. Someone who drinks a bottle of coke is a consumer.
The ecosystem is the one which connects these two entities to earn a fraction of the profit.
Lets put things in perspective.
Companies like Unilever, Coke etc produces goods. They create a Marketplace where everyone tries to sell on their behalf. Right from the roadside shop-owner to the popular filmstar who promotes it through an ad. If the company sells the product for 1$, they probably spend 0.1$ on manufacturing and another 0.1$ on promoting it. Somewhere between 50-80% ends up as profit (This data is based on my research on few FMCG products in India).
To go one level deeper, IT service companies like IBM, Cognizant (and startups like mine) etc build apps that enhance productivity of producers. Analytics and consulting companies like Mckinsey help them devise strategies to increase income (or reduce expenditure). Companies like Facebook, Twitter (and offline modes like Banners, TV ads etc) help producers deliver ads to the target audiance and ya finally consumers consume it ☺
We talk about Amazon creating a Marketplace, but in reality they are part of one layer in the marketplace (Agreed?).The actual profits are earned by the Unilever’s, P&Gs and Samsung’s of the world.
Some important Stats
- 7 out of top ten fortune companies are Oil and Gas based companies
- Subway earns three times the revenue when compared to Facebook (The biggest Tech Startup of the modern era)
- Only 41 of the Fortune 500 companies are Tech companies (This includes Apple, Google etc which are not pureplay IT based Tech companies)
etc.
Are we building the wrong startups?
The biggest companies in the world solve problems in energy, transportation, food, clothing, shelter, medicine etc. We startups are just facilitators in marketing their products (Startups also do Hiring for these producers).
Why don’t we see another MCD or KFC being build today? In the name of identifying the ‘right customer’, Are modern day venture funds designed to kill startups that solve core problems faced by Humankind?
PS : I have a Tech startup of my own — my company’s product sales is market driven, just like butterfly effect, my sales is going to be affected if people start using less of shampoos somewhere else in the world.
