Why hasn’t this been done before?

aka what unicorns do that most startups don’t

Startups are not a null hypothesis. Yes, chance plays a massive role in the success of a business but luck is no longer the only element at play. Massively successful startups (aka the elusive unicorns) are an extremely clever stitching of several elements. Technology. Business Model. Cunning execution in the face of severe odds. But the two characteristics that form the scaffolding of any successful new company is new thought and the dare to do. Thus, it is no surprise that the one thing every early investor and pilot customer wants to ask is: “Why hasn’t this been done before?”. No, really. If your startup is such a phenomenal solution, how come this has not been done before?¹

This is how one can truly know that a company’s time has arrived: because they jump over previously invincible gaps.

Mathematically speaking no one can truly answer that question: it is impossible to prove a negative. And as a startup, it is absolutely not worth your time gathering past data points in an attempt to find out. But for most startups, someone has very likely attempted to do this before you²! Startup ideas fail multiple times. Startups themselves fail often, usually for conflated reasons: poor execution, team, timing, unimpressive vision, lack of market adoption and more. But once in a while, a true beauty comes along: a truly novel solution. These are companies that see the change in the facets of the world, have something marvellously new and know how to execute. They bridge massive gaps, that were previously uncrossable. The gaps themselves are few (five to be precise) and far in between. And very very few companies truly fall under any of them. Understanding, as an investor, a founder, the gap the company fills means the difference between nursing a unicorn or completely wasting your investment (money, time or, in the case of entrepreneurs, precious life years). Knowing and owning the gap that a startup bridges is crucial because the nature of the gap ought to dictate strategy, methodology and ideology! It tells you where the business should focus and can keep you true on your path to unicorn. And if the solution has been tried before, this is how one can truly know that a company’s time has arrived: because they jump over previously invincible gaps.

1. Knowledge gap. Startups in this category cleverly bridge a big gaping know-how vacuum. Here, businesses simply did not know how to solve a particular problem before. You often see this in established industries caught in old ways of thinking, frequently exacerbated by cost. They could have been limited by technology, logistics, complexity — most likely a combination thereof — but people did not know how to do something here. Send a satellite to space at 1/10th the cost. Make buying and handling medical insurance for your employees a breeze. And now, by clever rendering, a connection of newly opened channels, a new solution is possible. These companies have the disadvantage of being first movers, but on the flip side, they open up new markets. Examples of companies that fall under this knowledge gap are Planet Labs, Zenefits, and SpaceX. They emerge because they view the complex ecosystem in which they reside from a completely novel perspective. And this illuminates how to solve insurmountable problems. Here, technology is an enabling factor, but not the underlying secret sauce. In fact, the needed technology is typically well-established. Common in mainstream, the central technology that companies who bridge the knowledge gap incorporate have existed for over a decade or more. Companies fit in this category if they exist in ecosystems that have become complex or are mature but growing industries.

These companies have the disadvantage of being first movers, but on the flip side, they open up new markets.

2. Market gap: Companies in this category solve a new problem. This happens when the problem has simply not existed before and is very concrete in nature. People want this solution now; they didn’t want it back then. Typically, this occurs because the world has evolved but businesses haven’t caught up. As a result, some pain points are now amplified in the subspace. Often these problems impact a specific generation of people, but likely straddle two or more. Example: dating. Meeting that someone special wasn’t a massive issue (or market) 15 years ago, but appears to be the curse of the connected world. Problems here drastically affect one subgroup of people, a niche, but given their social permeability, the external world feels their repercussions. Essentially, the old ways of doing business simply do not make sense anymore. The norms, the framework and the paths that existed before have changed. People feel a void here constantly, but no one has successfully laid a finger on it, until new companies offer solutions in this space. Examples of companies in this space include Tinder, Slack and XLabs.

3. Business gap. Startups here bring new tricks to old markets. This occurs when the problem the company is solving is old but how they solve it is new. The key hallmark of companies in this space is business model innovation.

The external environment perhaps includes freshly-opened markets, cutting-edge technology, shifts in cultural mindset, developments of regulations that did not exist before. These spaces are ripe for business model innovations. Once again, technology plays a part, but really broaching the business gap is about a completely new way of doing an age-old business. Not because people did not know how, but because they were able to stitch the problem solution, i.e. the product market fit, with a new technique. Examples of companies in this space include Uber, gallery apps, scooter apps, co-working spaces, razor subscription models, Amazon. The formula here is: old industries + existing technology + old problems + new waves. These are companies where business model innovations thrive and drive them to success.

Companies that solve the business gap or attempt to cross the business gap are often conflated with the first category — companies that cross the knowledge gap. The key difference is that the industries and spaces the business gap category fill haven’t evolved to become complex or stagnated. No one sees the problem per se because it’s almost negligibly small. This is also typically more about convenience. Startups here solve frequent, small inconveniences which add up! And their solutions take the form of typically extemely clever connections showing a heigtened awareness of/expertise in the meta system.

No one sees the problem per se because it’s almost negligibly small.

4. Novelty Gap. Startups here are fundamentally new beasts. Something that simply was not possible is now possible. Typically, companies crossing the novelty gap are facilitated by new, next-gen technology. Either a new platform, paradigm or tool has been unleashed. This is true innovation; at least when most people think of “innovation”, this is what they have in mind. Startups here will have a solid mote, a unique defensible advantage, if they build with sufficient strength and speed. When done right, when the timing isn’t misjudged, these companies become unicorns. They contain the winning combination of unique IP, strong motes and the possibilities of new markets. When a company bridges the novelty gap while crossing any of the other gaps, new empires result. Examples of companies in this space include AT&T, Google, Genentech, Intel and XLabs.

When done right, these are companies that end up building, intentionally or unintentionally, a movement.

5. The Cultural Gap. Companies here are unplanned successes. They don’t start out trying to solve a big problem. Instead, they happen to build a cool shiny new thing at the right time. And it takes off like hot cakes. When done right, startups here tap into something visceral about human nature. And generally, it happens because the founders tapped into theirs. They create or redefine entire industries. New words, terms, markets emerge because of them. Example: a social network. These are companies that start or tap into trends and deep underlying social currents. Startups here tend to serve young, growing markets facilitated by technology and have an addictive, cool, edgy angle to them. Users sign up because they can, it’s fun and, wait, everyone else doing it too. They are typically in the consumer space and have jaw-dropping near-vertical user acquisition curves. Examples include Facebook, Apple (which tapped into beauty, design and simplicity), Whole Foods and Starbucks. Once again, adding on elements of other gaps (novelty, technology or the business gap) can amplify them. But when done right, these are companies that end up building, intentionally or unintentionally, a movement.

The differences between the different categories are subtle but important. Few investors or entrepreneurs view companies this way. But doing so can be powerful. It changes the question from “why hasn’t this been done before?” to “what gap are you truly bridging?”.

Footnotes

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1. Often this is asked as a probing question, to see how you think. This post is for startups that have a real answer to this common question.
2. One of the top Silicon Valley venture capitalist warned me early in my entrepreneurial career: no one knows about all the bodies (dead companies) that have been shelved under Silicon Valley’s carpets. Only people who have been here long enough even have a rough idea.