Chris Dixon, Co-founder of Hunch and the Founder Collective, a seed-stage venture capital fund run by entrepreneurs
I never had the opportunity to invest in YouTube but I have to admit that if I did I probably would have passed (which of course would have been a huge mistake). I’d been around the web long enough to remember the dozens of companies before YouTube that tried to create crowd-sourced video sites and failed. Based on “pattern recognition” (a dangerous thing to rely on), I was deeply skeptical of the space.
What I failed to appreciate was that the prior crowd-sourced video sites were ahead of their time. YouTube built a great product, but, more importantly, got the market timing just right. By 2005, all the pieces were in place to enable crowd-sourced video – the proliferation of home broadband, digital camcorders, a version of Flash where videos “just worked,” copyrighted web content that could be exported to YouTube, and blogs that wanted to embed videos.
Almost anything you build on the web has already been tried in one form or another. This should not deter you. Antecedents existed for Google, Facebook, Groupon, and almost every other tech startup that has succeeded since the dot-com bubble.
Entrepreneurs should always ask themselves “why will I succeed where others failed?” If the answer is simply “I’m doing it right” or “I’m smarter,” you are probably underestimating your antecedents, which were probably run by competent or even great entrepreneurs who did everything possible to succeed. Instead your answer should include an explanation about why the timing is right – about some fundamental changes in the world that enable the idea you are pursuing to finally succeed. If the necessary conditions were in place, say, a year ago, that might still be ok – YouTube happened to nail their product out of the gate, but if they hadn’t a company started later might have succeeded in their place.
Often the necessary conditions are only beginning to emerge and knowing when they will do so sufficiently is very hard to predict. We all know the internet will become fully social, personalized, mobile, location-based, interactive, etc. and lots of new, successful startups will be built as a result. What is very hard to know is when these things will happen at scale.
One way to mitigate timing risk is to manage your cash accordingly. If you are trying to ride existing trends you should ramp up aggressively. If you are betting on emerging trends it is better to keep your burn low and runway long. This takes discipline and patience but is also the way you hit it really big.
The Entrepreneur Perspective Series invites selected startup entrepreneurs to offer their opinion and advice on common fundraising and operational issues facing entrepreneurs.
About the author: Chris Dixon is the co-founder of Hunch and the Founder Collective, a seed-stage venture capital fund run by entrepreneurs. He is also a prominent angel investor with investments including Skype, Foursquare, TrialPay, DocVerse, and BillShrink. You can read and subscribe to his blog at cidxon.org or follow him on Twitter @cdixon.