Monday, February 23, 2015
Who's Building Tomorrow's Monopolies?
This standalone piece is part of a special series on Startup Tunnel, a new incubator based in New Delhi. Links to earlier articles appear at the end of the article.
This past week I led a workshop on building pitchdecks, not only for our own startups but for a wider crew of entrepreneurs. I’d asked the assembled group to help me whiteboard out the essential information they thought should be included in a pitchdeck. One bullet point, nearly overlooked towards the end of the list, said: Competition and Competitive Advantage. At this point I asked the group whether they didn’t also want to talk about creating a new monopoly?
Folks seemed to shift uncomfortably in their seats... apparently not. Why not? I asked. Do you mean like a public sector company, someone said. Ah, ah, ah, no, I said, realizing that the term monopoly wasn’t an abstract concept in the Indian context, but a real and oppressive part of our not-so-distant past. Yes, perhaps I’m being a bit loose with the term monopoly -- I don’t mean state-sanctioned and absolute monopoly -- I mean the kind of market leadership, let’s say more than 50% market-share, that can resemble monopolistic dominance. Don’t you want that? Well, VCs want to know that the space is real, said one founder. We want to work in an area where there is a good chance of success, said another, and that means there will already be competitors.
But isn’t that a problem? I asked. If the area you’re working in can already be defined as a competitive landscape it isn’t really all that new. In which case, how innovative is your startup concept? Think of any major startup that you’re inspired by these days and you’ll see they’re all near monopolies: SpaceX, Tesla, Airbnb, Dropbox, Snapchat. Before they came along, no one was doing what they’re doing. Now that they exist, people will come along and try to emulate them, but they’ve actually created a new market, in which they’ll continue to enjoy dominance. In some sense, that’s the only way these kinds of valuations can even be justified, either economically or socially or even in terms of the public good. These startups have created fundamentally new value and new social-technological possibilities that never existed before.I really want to see a slide that describes how you’re going to aspire to that kind of presence in a fundamentally new market.
Many folks still didn’t agree. Perhaps in some cases they couldn’t agree, because their business proposition wasn’t in fact all that radical as to create a fundamentally new market. Or maybe the term monopoly was just too distracting. At any rate, we broke for lunch with the question still open and animating conversation.
After lunch we were joined by several investors and mentors, and a series of teams were pitching for support as well as feedback. Included in the mix was a startup from our own stable called MeraGarden.Com. The two cofounders, Shubham and Rashmi, began by talking about how busy people’s lives had gotten and how tending plants can be a great stress buster. They talked about Delhi’s polluted air and how indoor plants can serve as a kind of air scrubbing technology. They talked about the high cost of land all around Delhi and how it was increasingly becoming difficult to find nurseries that would sell you the plants you wanted and had the botanical and lifestyle expertise to suggest plants for your home. They wanted to ship plants to you anywhere in India, based out of a network of micro-warehouses. Their website looked slick, and they were enthusiastic and knowledgeable about plants and gardening. They could think of many future areas to extend their business. They’d also looked at things like plant survival, breathable packaging design, soil alternatives, specialized pots and had figured out how to ship plants successfully in any orientation the whole way, even upside down. This was a niche ecommerce play, but it seemed like it could work and these guys seemed like the guys to do it. I was quite proud of their presentation and the way they fielded questions -- they made Startup Tunnel look good.
Someone called out from the back: But will this be a new monopoly? It was Bala from Nasscom10k, the industry group that had helped organize the day’s session. Shubham answered the question in pragmatic terms, saying that there was no one working this space in India, that they had already tested demand, solved for scale and that they were quite confident about establishing a niche position. But Bala pressed the point from our earlier conversation, now redirecting it to me. Earlier in the day I’d asked every startup to present themselves as a new monopoly, he said, but here I was, supporting an ecommerce play that wasn’t really doing anything all that new, and might in fact struggle to defend its market share were it to even taste initial success. I smiled and conceded the point -- perhaps selling plants online wasn’t in fact the creation of something entirely new. Maybe it was just a new niche. But this venture could be successful, operationally and financially, and that’s ultimately why one would back it. Touché, Bala.
After several intervening presentations, we eventually got to a founder I’ll call DroneFarmer, who had no presentation deck, but wanted to talk about agricultural drones. The first thing she said was that what she wanted to do was pretty much illegal right now. She thought she could see a way to fly a series of hobby drones all over agriculturally cropped areas to collect biomass and shade canopy information to create a new dataset that could then be mined to provide agricultural consulting services. She used the example of the coffee plant, which needed very precise conditions to be successful, including a particular kind and character of shade from the canopies of taller trees, information that couldn’t be modeled from satellite imagery. Flying a drone around would allow her to model an entire plantation area and advise on where taller trees, for example, needed to be grown. She’d bought and test-flown drones, hacked complex imaging solutions on to drones, and had consulted with agricultural developmental agencies. It was obvious she knew what she was talking about, in both agricultural and micro-aviation terms.
What DroneFarmer was proposing was also fraught with risk, not only because it represented a new model of creating and monetizing datasets, but also because of the looming presence of the public sector in all matters related both to aviation and to agriculture. That was why the investors in the room had suddenly gone quiet. Bala, from Nasscom10K, cut in again: Aditya, this dataset is going to be unique, the services offered new and unprecedented. This is going to be a brand new monopoly! You gotta get in now! I laughed and squirmed at his ribbing. That’s what it feels like to be confronted with risk and a dare you don’t want to take on.
Just about every element of enterprise she was showing, promising, embodying, was bound to run up against constraining regulations or the prospect of veto by state agencies. It was this other sense of the term monopoly, linked to the state, that so significantly increased the risk-perception around her proposals. It could be epic. It could be a total sink of money and time and legal fees. Maybe there would be a biopic. We’ll talk, I nodded to DroneFarmer, we’ll talk...
The truth is that any investor’s portfolio represents a balance of risk and return, which is conditioned not only by other investors’ views, but also by the larger horizon of the marketplace and it’s regulatory conditions. The more open and adaptive the regulatory horizon, the more risk one can take on in one’s bets for the future. There have to be channels to government and to regulators to help create and define a new and exciting market, as for example in the case of agricultural applications of drones. In the best of worlds we would actually see government agencies offering grants and running challenge competitions to spur these technologies and businesses along.
We can’t offer DroneFarmer funding or incubation at Startup Tunnel just yet, but perhaps we can offer her fellowship, of both a formal and collegial character. As an Entrepreneur-in-Residence she might gain access to an enabling environment and an intellectual milieu wherein she might continue to develop her business proposition, while also lobbying for partnerships with government agencies and scouting other opportunities. Other foundations and networks in India should also be joining hands in finding ways to support people like her, who can envision future monopolies that sound fantastic to most people’s ears. That’s the only way we’re going to see those worldchanging companies coming out of India's startup ecosystem.
This is a dispatch from Startup Tunnel, a new incubator based in New Delhi, simultaneously published by the portal iamwire.com. Some details in the above account have been changed or condensed for narrative flow, rhetorical effect and to respect the privacy of individuals. Read prior dispatches: 1, 2, 3, 4, 5, 6.
Posted by Aditya Dev Sood at 12:05 AM | Permalink