Imagine you build an AirBnb like solution limited to Switzerland market. AirBnb will eventually come and eat your lunch.
In today's globalized world - if you are not one of the bigger players and do not have moat (govt contract, some other kind of exclusivity) - other bigger players will come after you.
You say that, but there are cases even in small countries where this didn't happen. Like trademe in New Zealand which was just like ebay. Ebay still hasn't become the major place to do auctions in new zealand.
I think you just defined a moat. A tiny low population country that is one of the most hard to reach major countries in the world kind of proves that point, does it not?
Basically no one is competing in NZ because no one cares about the NZ market. It's simply not large enough. Until it is.
I do think there is a lot to be said about not trying to build these giant world-eating companies that require you selling your soul to the devil. Companies like Craigslist I have a ton of respect for. A lifestyle company should be the dream of most, not the crazy disconnected-from-reality VC world we're seeing today.
I simply think anyone betting on their market being small enough to fly under the radar is making a very tenuous bargain.
In Poland eBay didn't make a single dent because Allegro is such a huge beast(and in my opinion is actually better than Ebay is many many ways), and that's in a country of 40+ million people. Even facebook struggled at the beginning because everyone had a profile on nk.pl so why bother with a new service. Even Amazon still doesn't have a presence, because again, Allegro is the best destination for online shopping.
eBay in the USA has largely abandoned its original private party auction market. The vast majority of items are now fixed-price general commercial crap from overseas manufacturers. Note that their advertising campaigns of the last few years have featured only fixed-price items and target whim buyers ("If you're ready, come and get it") complete with bogus representations of the capabilities of their mobile interface.
Living in Poland, I see so many good ideas and good teams, that go absolutely nowhere because they begin with the local market, and struggle to achieve ramen profitability, while their global counterparts achieve scale and funding to ultimately take over the market.
There is a small niche of successful copycats that grabbed the local niche, and maintained the lead over the years due to strong network effects - like a local reddit clone (wykop.pl), or a local ebay clone (allegro.pl), but that's almost it.
All the other projects either failed to get off the ground, or got killed when globally oriented startups entered our country.
Bigger a part of your business software is, faster the growth happens.
Ebay like marketplaces still have a big physical world component present. Even if it isn't ebay, it might be some other company in Australia. Or maybe trademe becomes the company which tries to take over in Austrlia. It's inevitable and just a matter of time!
> On the other hand, Trademe has never managed to penetrate markets outside New Zealand with any of its products, which limits its value.
I don't understand why that is necessarily a bad thing. If someone is looking to make a shit ton of money, have a chance to monopolize or dominate the international market, then yes, that makes sense. But if you're happy and content serving nationally, and so are your customers, I really don't see why someone would want to expand internationally.
If a product earns money, then hopefully it is providing value to users. If the number of users increase, more value is provided. If the number of users is arbitrarily limited, then people miss value they should get.
1) Why "should" them? Just because some people built a service doesn't mean they owe it to everyone.
2) The internet may scale worldwide, by that doesn't mean any service can do so while maintaining that value per user. Hell, it may not scale beyond a neighborhood, let alone a country.
> Imagine you build an AirBnb like solution limited to Switzerland market. AirBnb will eventually come and eat your lunch.
I don't think this is born out by the evidence. There are many social reasons that smaller markets prefer a local solution--both because of network effects and just because of branding.
In the Swiss case, Swiss people (often) don't use Google; they use Search.ch. They don't use Amazon (which is mostly unavailable in Switzerland); they use Galaxus. They don't use OkCupid; they use Parship. They don't use Zappos; they use Zalando (which is European, not Swiss, admittedly). They don't use eBay; they use Ricardo.
Many larger examples do involve the kinds of moats you describe--the Chinese Internet is a key example of that (where censorship and government backing contribute to the superiority of local alternatives)--but I think the phenomenon of Swiss startups having what an American might consider to be reduced ambitions has to be viewed in the context of Swiss _consumers_ also often preferring local options.
I would also add a subtler point here: to an American observer, the often-American-centric perspective of American startups--which are often slow to expand to foreign markets, but for whom "America" and "the world" are often near-synonyms--is less glaring than the Swiss-centric perspective of a Swiss startup. Americans--both entrepreneurs and their observers--are just less likely to realize the extent to which American companies equate national and international markets; it's far more obvious when observing a foreign company, especially one with as small a national market to dominate as Switzerland's.
[Amazon] has signed a cooperation agreement with Swiss Post, which means the postal agency will carry out customs clearance for Amazon in the near future.
Customs clearance is said to take a maximum of three hours, which makes 24-hour delivery from abroad possible. Amazon offers this delivery method as part of its Prime offer in Germany
This seems a bit simplistic. I mean, it's not the case that all markets are dominated by huge mega corps. There are thriving businesses that are not on the scale of Google, AirBnB, Microsoft, etc. If a startup in Switzerland gets traction and it's a space that can scale globally then it seems like it naturally will scale. I doubt anyone would not want to grow if it can.
Tech and software tend to be more dominated by large players though because of economies of scale - launching new companies in every country would be wildly expensive and inefficient compared to AirBnB's trivial costs for adding a new country.
I agree. But my point was that there was a natural resistance to scaling to global levels. Which is detrimental if you are in a market which has a potential to be dominated by a global mega corp.
Yeah plus the Y-combinators of this world won't want to throw cash at a 10-1 chance of making a few million, when they can do the same on a 100-1 chance of making a few billion.
This is a great observation: we need better accelerators to incubate startups that are more realistic and not willing to salt the earth to win at all costs [1].
[1] I'm not referring to YC specifically, but investors and incubators who are comfortable with Uber-esq behavior.
> "This is a great observation: we need better accelerators to incubate startups that are more realistic and not willing to salt the earth to win at all costs [1]."
Depends on your growth strategy. If you're prepared to start lean and can demonstrate early signs of revenue then I'd imagine you'd find banks willing to cut a business loan.
You can't build a product company like this. Products require lots of development before any revenue arrives. Underdeveloped capital markets (VCs, stock exchanges etc.) is why Europe's software industry is mostly services. The difference between SV and anywhere else is access to risk-tolerant money. SV is not primarily an IT cluster, it's a VC cluster.
Sure you can, you just bootstrap through monetising the ground work. For example, if you want a product company you can start out as a freelance design agency. The bulk of the initial design work will be for clients, but you can be involved with low volume manufacturing on the side. As the company grows, not only do you have the funds to take on progressively more ambitious product manufacturing projects, you've also built up a team of designers that can help push these projects forward. You're going to need designers right? Why not get them making you money from day one.
To give an alternative example, let's say you want to manufacture mobile phones. A good way to start small would be to manufacture accessories for existing phones. This is within the grasp of anyone within the Western world, given enough drive to do it. The revenue and knowledge you can gain doing so allows for increasingly sophisticated accessories to be built until the point where you have your own manufacturing premises (or have access to one at low rates, due to the volume of products you're pushing). The step from this point to manufacturing mobile phones is not that great.
Does this require more patience than burning through VC money? Sure, but it's also lower risk. Building a company gradually from the ground up means you get a better sense of what it takes to run a successful business (or in other words, experience is the best teacher).
No, because you're making a service company. Culture eats strategy for breakfast. The org chart you need for product and the one you need for services are different. The necessary mindset of the employees are different.
Not only that, but the buyers of product and services are often different as well.
Sure, building up a huge services company lets you squirrel off some funds for product development, but how often do you see this in practice? The only example I can think of is IBM, and they're moving in the other direction.
To counter your hypothetical "can't be done", here's a real example of a product company that's grown a single person selling electronics kits from their college dorm room to a product company making $33 million in revenue less than 10 years later:
A similar example being this product company, which started out in 2012 with two people and a laser cutter, growing to a product company that employs 30+ people within the space of 5 years:
thanks @ZenoArrow ... additionally, it's over $42m and we have a free and paid for service, http://www.adafruit.io and a subscription service, ADABOX, with thousands of customers, http://www.adabox.com ... no loans, no VC, 114+ people, USA manufacturer of open-source hardware in NYC, USA.
So they started out as hardware product companies.. and remained hardware product companies. I don't see any examples of software services companies transitioning to product.
Who said anything about software service companies? I said design agency, which is not the same thing as a software service company. Sure, they use software to do their job, but that's not the most important part of what they do.
As for examples of design consultancies morphing into manufacturing companies, Cambridge Audio is one such example:
I'm not referring to operating expenses. I'm referring to investment in growth. The idea is to prove you have a business that can turn a profit by bootstrapping it yourself, then get a small business loan from a bank to take it to the next level.
There are also other sources of business loans. Here's one example:
The idea that VC money is needed to grow a certain type of business simply isn't true. If you're prepared to be patient, you can avoid any VC involvement.
> "But most highly educated people aren't interested in starting a restaurant or mini-mart."
What a bizarre statement. So highly educated people can't be passionate about food?
Also, what I suggested is not limited to expansion through a franchise model. Let's go back to product manufacturing to explore why. Imagine you have just received an initial order of 100,000 units of Product X. You can meet this order with your current supply chain, but in order to cut costs in future orders you'd like to manufacture a greater proportion of the finished product in-house. Let's say for the sake of argument that you've identified potential savings if you can create injection molded cases for Product X. If you go to the bank with a low-risk plan to grow the business, including an analysis of the current health of the company and forecasts of future profits, you can reasonably expect that you can find a bank (or other business loan lender) willing to lend you the money to invest in your company to help it grow.
> "So highly educated people can't be passionate about food?"
What a bizarre deduction. I'm passionate about food, I have no interest in starting my own restaurant.
It was a generalization based on my own observations, most banks lend to safe well-established models, university graduates tend to gravitate towards newer things.
> "I have no interest in starting my own restaurant."
That's your choice of course, but why do you think that is?
> "university graduates tend to gravitate towards newer things."
I don't think that's an accurate generalisation. For people who have STEM degrees, I'd agree, but there are a large proportion of people who followed other degrees (English majors, History majors, Philosophy majors, etc...) where I'd suggest that bias towards the new is not as prominent.
Not all global mega corps need to salt the earth. To some extent disruption will have side effects. Some like Uber are deliberately evil and others like Apple, Salesforce etc might not.
My original point was that people were attempting ideas which were in the realm of potential global mega corps. If you don't grow to be one, you get eaten up!
> Imagine you build an AirBnb like solution limited to Switzerland market. AirBnb will eventually come and eat your lunch.
Not true. Domestic alternatives are often preferred over foreign competition. Two examples that leap to mind are eBay and Uber. Both failed in Japan because people preferred Yahoo! Japan auctions, and the Japanese taxi system. eBay and Uber can't compete there.
To take it down to the niche level, the big national real estate blogs all failed in Houston because they can't compete against HAIF or Swamplot.
This means you will never build anything with zero marginal cost. That cuts out a lot of opportunities - and with software eating the world, more and more opportunities over time.
Only few companies can "win the world" by definition -- and besides work, it takes tons of luck, relinquishing control to VCs and stock markets, and boards, and all the right stars aligned. Plus the personal toll.
One is better off building something smaller, where work and talent is enough to maintain it.
There are more opportunities in those companies (e.g. a $1 to $50 million dollar business) of which there are tens of thousands, than to build the 1 in 100 behemoth.
You'll have more chances of success, and you'll live and sleep better. Because money, above a certain amount, also has a marginal utility curve and diminishing returns.
I agree the costs are high, but if you don't pay them, someone else will.
$1..50 million dollar businesses: I agree, great stuff. I'm just not sure that such businesses have realistic long-term moats against the Amazons of the world.
Software will never truly eat the world until there is a way to move matter and collect energy and resources through software alone, without having to create new infrastructure. Until that is solved there is plenty of opportunity everywhere.
In today's globalized world - if you are not one of the bigger players and do not have moat (govt contract, some other kind of exclusivity) - other bigger players will come after you.