There was a great piece on Foursquare in yesterday’s VentureBeat that I thought might be worth a quick word. Not because I am particularly interested in FourSquare, (tried it a year or so ago and didn’t find it all that appealing/useful/enjoyable). It’s interesting to me because the article is a great example of the use of uber-superlatives that are the bread and butter of venture-backed technology companies. Let’s start with the title of the article. Foursquare’s CEO (by all accounts a smart dude) was speaking at the Structured Data conference and he commented that Google and Yelp are “…incredibly broken…”. Now I’m no expert, but I’ve used both Google and Yelp in the context of mobile search and they didn’t seem all that horrible to me. The good news is that Foursquare offers a competing solution that is MAGICAL. That’s right, MAGICAL. It’s all black and white in the venture business. Competitors are INCREDIBLY BROKEN and you are MAGICAL.
Since venture-backed companies are always swinging for the fences, it’s vitally important that they make themselves the solution for a HUGE problem that isn’t solved by the entrenched vendors (whether this is actually true or not). You either need to capture a massive number of customers and become profitable, (Google, FaceBook, etc.) or you need to get big enough to scare the bejesus out of one of the big boys so that they buy you (WhatsApp, Instagram, etc.). That’s basically it. You can’t be a great solution for a small set of the market or a really good point solution for a niche market. You have be solving a HUGE problem for a HUGE market that the BIGBOYS are failing to solve in a truly HORRIBLE WAY. Thus, Foursquare is not just a better solution for mobile search, Google and Yelp are INCREDIBLY BROKEN.
On the middle-market private equity side, we have investments in very profitable companies that serve smaller markets (i.e. thousands of customers) with really good products. You can make great money without ever having to hope that you get swallowed up by a larger company — because you aren’t worried about running out of money. A large percentage of venture-backed companies fail (40% by some counts). I find that so hard to believe when their competitors are so HORRIBLY BROKEN and all of these fledgling startups are so MAGICAL.