Hard-Earned Lessons In Market Timing And Approach

I was catching up on The Economist yesterday and was reading an article on IPv6. If you haven't heard about IPv6, here's what you need to know. Today, we access the Internet using an IP address scheme known as v4. There is a limit of 4B unique addresses on this scheme and it's near capacity. V6 provides nearly limitless addressing in addition to a bunch of other benefits.

In 2004, I was CFO of a company that was marketing technology to help networks and carriers move to this next generation Internet. I left because I could see that the transition to v6 would be gradual and that a small startup could not move an entire market to a new standard.

When I was in this market, we were always looking for signs that the turning point was near and that migration to v6 was around the corner. When the US government mandated v6 readiness by June 2008 we thought that was the sign we were looking for. It wasn't enough. As I read this article yesterday, I felt like I was in a time warp. All the rosy predictions about network adoption of v6 sounded just like what I was reading back in 2004. It's true that every time I read about v6 there has been one more small step towards it. But it's an achingly slow transition.

From this experience I learned some hard lessons on markets & startup evaluation:

Timing is (almost) everything

Timing is a huge factor. All great startups have an element of good timing and luck. You can't really predict this, but you should put some serious thought into when the market will adopt and why.

For your VCs, time is the enemy. The longer it takes for your company to get to an exit, the lower their Internal Rate of Return.

It's all about the end user

Until you have something that addresses the specific needs of a specific profile of early adopters – you don't have a winner. Your product definition, value proposition and sales targeting won't be crisp enough.

Go vertical

A horizontal market will never take off. Instead, applications built for specific vertical market segments drive markets. Even if you sell infrastructure, it must be built for specific applications.

In the case of IPv6, there is no IPv6 market. As an end user, you don't care how you connect to the Internet. However, you do care about features that make your experience on the net better.

Assess the power dynamics

How is power distributed in your industry? Are their big customers or partners who will make or break you? In the v6 market (or communications infrastructure generally) you have two main power sectors at play – the carriers and the big network gear manufacturers (Cisco, Juniper, etc.). Neither of these parties had a vested interest in accelerating the transition to the next gen Internet. That's why we needed specific end users and a targeted application to force their hand and give them an incentive to play nice.

Government customers don't make startups

There are exceptions to this rule and some government agencies are great early customers, but you can't base your go to market strategy around government. Commercial customers must want what you've got.

Thanks to StartUpCFO / Mark MacLeod is a Partner at Real Ventures, Canada's largest seed investor.