“What is your startup’s unfair advantage?”, a partner from a VC firm asked us.
Ugh. I had no answer for that.
It’s not that I was surprised by the question; I had thought about it a bunch. But, how in the world is a startup supposed to have an unfair advantage? You’re starting from scratch.
I sort of nervously mumbled something about our domain expertise and the partner nodded. He clearly didn’t love our answer but the rest of the meeting had gone very well, we had traction, and they wanted to do the deal.
That was June 2010, right before we raised our first $1.3 million of funding for Yipit.
Four years later, I realize what I should have said, what our unfair advantage was: “We know a secret.”
In January of 2010, right before we released Yipit as a daily deal aggregator, we had been working on a local deal aggregator in New York. It wasn’t going very well but, as a result, we were paying special attention to what Groupon was doing and meeting with people in the deals space. In early 2010, we learned the following:
- We had lunch with a friend in VC and they told us that Groupon was actually doing about 10x better than people thought they were doing
- A startup friend of ours told us they were launching a daily deal company
- Another startup friend told us that they were expanding their current business to include a daily deal product
- A big publisher was trying to persuade us to build them a daily deal product
- There was a stealth company backed by big names that was working on a white-label service for any publisher to launch a daily deal product
After these meetings, we thought it was likely that the number of daily deal companies was about to go from 3 to 50. We didn’t know if those companies were going to succeed, but we knew there would be a lot of noise. If we built an aggregator, we might be able to finally get some traction and get out of the cubicle we working in.
What happened? Well, lots happened. Groupon ended up doing 100x better than that VC thought they were doing. Over 700 daily deal companies ended up launching in the US (10x more than we thought). That stealth company was GroupCommerce, they raised $30 million and helped a bunch of publishers launch daily deal products including the NY Times.
Yipit was featured in hundreds of media outlets including Good Morning America. Google, Facebook, Yahoo, Microsoft and many others launched daily deal aggregators.
And, while the market wasn’t able to support 700 daily deal companies, the dust settled from the daily deal mania and Yipit emerged into a profitable company aggregating and recommending the best deals to now over 1 million active monthly users.
Our “unfair advantage” had been that we knew a secret but, as it turns out, many successful startups start with a secret.
Many Successful Startups Start with a Secret
Here are the backstories of a few of the most successful startups around today and the secret they knew:
Back in early 2010, two Stanford graduates were working on an app called Burbn, an HTML-5 Foursquare competitor. Unfortunately for them, the startup wasn’t really taking off the way they hoped. But, fortunately for them, they stumbled upon a secret. Burbn allowed people to take photos of the locations they were in (Foursquare didn’t have that feature) and it seemed that users really liked taking those photos and sharing them on Facebook and Twitter. So, they pivoted away from Burbn and launched the now ubiquitous Instagram.
Back in mid 2011, a team had been accepted to TechStars working on a platform to allow anyone to be the “craig” of “craigslist”. Unfortunately for them, the platform was struggling to take off. During the program, they took a weekend off and went to a Foursquare hackathon where they hacked together “Foursquare and Seven Years Ago” which would email you once a day telling you where you had checked in one year ago. The secret they learned is that it turns out that people really liked seeing what they were up to years ago and the service kept growing via word of mouth even though they weren’t working on it. When TechStars ended, they decided to focus full time on the service and expanded the product to include Facebook and Instagram calling it TimeHop. Today, TimeHop is downloaded 50K times a day and is a top 30 app in the App Store.
As a last example, back in mid-2012, the startup PetriDish launched as a crowdfunding site for science projects. While the site was working well, the founders felt like it wasn’t really taking off the way they had hoped and started thinking about other types of ideas to work on. They started thinking about the food space and an interesting product idea that would deliver to people three great recipes and all the ingredients needed to cook the meals. Upon doing research, the secret they learned is that there was a company in Sweden that had been doing something similar since 2007 and had been extremely successful. That certainly gave them and investors confidence to pursuit the idea here in the US which they called BlueApron. Less than two years later, they raised $50 million at a $450 million valuation.
How Do You Find a Secret?
Great secrets are, as you can expect, very hard to come by. It’s actually pretty easily to convince yourself that you do know a secret. I’ve done it way too many times. I’ve learned that there are okay secrets and some really strong secrets.
Here are some ways to find strong secrets:
- Domain expertise. Entrepreneurs with deep domain expertise will often stumble upon a secret and start a company based on it. They are usually secrets because very few people are deep enough in the domain, actively looking for secrets and willing to do something about it.
- Experimentation. Many startup secrets emerge from teams working on a different problem and stumbling into a secret (like TimeHop and Instagram). This is one of the big benefits of the lean startup movement which encourages you to build minimum viable products and learn about how your users engage with the product. Sometimes that engagement isn’t what you expected and turns out to be a valuable secret need. There are so many successful startups that started doing something completely different until they stumbled into a secret.
- New technologies, behaviors. When new technologies or behaviors are massively adopted, they can create many secrets though these secrets usually won’t last very long which is why you see so many startups launch around the same concept at the same time (used to be mobile apps and now you’ll see virtual reality and blockchain startups).