The world is not a meritocracy. The best don’t get the best. The most skilled and ambitious don’t always achieve the most. It's about time the world wakes up to this harsh reality. Social media has assisted in the spreading of short, and “nice” catchy sayings from self-help gurus and entrepreneurs. If I see one more saying like “do what you have to do, until you can do what you want to do”-Oprah Winfrey or “Stop wishing, start doing” I’m going to break something.
An incredible product, being highly skilled and ambitious are obvious necessities for success and probably the least important factors. I have yet to meet an entrepreneur who isn’t highly skilled and not ambitious.
There are three overriding factors that have to be in perfect alignment to have any chance of success. Often these three factors can even be more important than how good you or how good your product is.
Location, Location, Location!!
This is by far the most important factor for success. Networking effects and those serendipitous moments of bumping into someone that may know the perfect partner for your business or the perfect engineer who was just let go or even better the perfect investor who can help fund your growth happens more frequently in different locations. Throughout history, these places such as Athens, Florence, Edenborough, Vienna, have produced, in a short period of time, a disproportionate amount of geniuses, artists, entrepreneurs, and philosophers. Why? Because of networking effects and access to resources. Plato learned from Socrates, the Medici not only discovered but also funded Michaelangelo in Florence and Steve Jobs happened to be neighbors to one of the best computer engineers in the USA.
Right now, San Francisco is the place to be if you are in Software, Shenzen is the place to be for hardware manufacturing, Fresno the place to be for agriculture, and Los Angeles the place to be for entertainment. If you read enough biographies and stories of how these tech giants were founded and billionaires made, one will learn much of it comes down to serendipitous meetings, Sergey Brin meeting Larry Page, Bill Gates meeting Paul Allen, Marc Andreessen meeting Jim Clark but most importantly, having access to capital. Capital funds growth. Having revenue is crucial but there is a reason why Amazon makes a tiny profit (net profit of its entire existence is less than what Exxon makes in 3 weeks) and why Tesla makes a loss. Growth burns cash.
I find it difficult to imagine Tesla being founded in South Africa, or India or even the United Kingdom. Tesla needed access to vast sums of capital. Elon’s network in Silicon Valley, Los Angeles, and New York opened up options.
This is not to say a company can’t become successful unless it’s in the right location but it becomes a lot easier if you can go to a nightly pitch event in San Francisco and meet potential colleagues and investors with the resources and connections that can drastically change your companies’ trajectory.
Timing
Did you know that Apple under Steve Jobs didn’t invent the Ipad? Or that Apple didn’t invent the Mp3 player? or that Facebook wasn’t the first social network? or that Uber wasn’t the first on demand taxi service?
In 1987, Apple invented the first tabulate computer, the Apple Newton, under John Sculley. Unfortunately, it was too early and the hardware and software were not compelling enough. Internet access was also a main driver for the Ipad 2.0s success.
The first Mp3 player was developed by SaeHan Information Systems in 1997 a full 3 years before Apple. But by the time Apple entered the market, the technology and software available were compelling enough to release the game changing iPod. I wonder what would have happened if Steve Jobs joined Apple again a few years earlier and tried to build the iPod in 1997?
Facebook, of course, wasn’t the first social network. Nor was My Space. It was Friendster in 2002. AOL pioneered peer to peer messaging via the internet that leads to Friendster, My Space and eventually Facebook which came at the perfect time in 2004. Internet adoption was at 64% and targeting College students allowed Facebook to hit critical mass (I need facebook because all my friends have facebook) without competing head on with My Space. There was a Goldilocks zone. Too early and internet adoption would of not lead to critical mass, too late and the market would already have its major player. It also certainly helped that Facebook started 5 years after the internet boom/bust as capital for growth was much easier to come by in 2004 than in 2001.
The first on demand ride service was not Uber but a company called Taxi magic founded two years before Uber, almost the same time as the first iPhone. It struggled to gain traction simply due to the fact that smartphone adoption in 2008 was not there. What made the Uber timing so perfect, was that they started right when the much-improved iPhone 3G was released, in 2009. Smartphone adoption still wasn’t entirely there, so they actually supplied the Iphones to the luxury cab drivers. Uber waited (unintentionally) and when more drivers had smartphones, adoption increased and they could roll out services targeted at a mass audience like Uber X and eventually Uber pool.
Industry
The main reason why I despise business textbooks that advise entrepreneurs from initial idea phase all the way down the execution spectrum is that each and every industry is completely different. A model or “recipe” that each textbook seems to have, has no chance of working in every industry.
Some industries are much, much harder, and have longer journey's to achieve a decent level of success than others. This can be due to factors such as barriers to entry, existing competition, capital requirement and target market. I will take two examples from opposite sides of the spectrum. One example will be a photo sharing app. Another will be an irrigation business in agriculture.
The app almost has no Cost of Sales. The difference between 100 customers, and 1000 000 is a few extra servers and customer support personnel. R and D involves writing the code. Getting the product to market involves launching on the app store. Software scales incredibly fast. What made Instagram so popular was not the social media aspect but the filters. Users downloaded the app because it made the photos look cool. Word of mouth launched the app into the stratosphere. Two years after launch it was acquired by Facebook for $1 000 000 000. Many say it was Facebooks best purchase. Kevin Systrom became a billionaire in 2 years
The opposite side of the spectrum is agriculture. Specifically, irrigation. To get a new product to the market involves the following stages, intensive Research and Development, which requires capital. Testing of the technology needs to be done at a research institution to get stats like water efficiency and distribution uniformity, which requires capital. If the tests are incredible you might be able to convince the conservative farmer who has used a certain system for decades to put up a demonstration block on his farm for free. This requires capital.
If you are super lucky the farmer will use the irrigation system as specified, not over irrigate or under irrigate, apply the perfect amount of fertilizer and so on for one whole year to get results.Let’s say the farmer doubled his yields, and orders 1000 units. Wonderful!!Now you need to go into tooling to manufacture the molds. Which requires a lot of capital and takes at least 3 months.Once tooling is completed you need to train installation staff, hire heavy machinery, pay for local accommodation etc which requires a whole lot of capital. Conservative farmer will only pay once it is completed.So all this needs to be funded from either your pockets or a bold investor who will only see returns in a decade. Scaling involves setting up distribution centers, warehousing, hiring agents in each market, frequently calling past clients to maintain relationships and most importantly customer service. Negative word of mouth spreads incredibly fast, so you have to be ready to repair or fix a past installation ASAP.
A much more difficult process.
So why on earth would one start a business in agriculture?
Well, all these barriers to entry have left a lot of room for innovation and opportunities for entrepreneurs to take advantage of new trends such as water efficiency and digitization.In agriculture, one builds to last and has to plan for years in advance. In the app world, your company can change from week to week. You can get rich quick in software but the fewer barriers to entry, the more competition and more difficult it is to gain a competitive advantage.
Conclusion
Understand these 3 factors and make decisions appropriately. Place you and your business in the location that has the best networking effects and the best access to capital. Make sure your timing is spot on. Starting an on-demand ride hauling company now is too late, starting a nuclear fusion or quantum computing company is too early. Know your industry and market trends, and if you are in a slow-moving industry like agriculture, construction or hardware, plan ahead and be aware of cash burn.
My goal for this post is for entrepreneurs to realize there are many forces beyond your control in business. The variables you can control such as product quality and business acumen need to be at the highest level. Work when others sleep. In your sleep dream about your work and become the best version of yourself but don’t waste your talent sitting in Uganda trying to build an electric car company.