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Why High Internet Valuation misguides the Entrepreneur Focus

Posted on Posted in Startups

Entrepreneurship is booming around the world. This decade will witness most start-up firms ever in the history of mankind. The balance of economy among large gigantic firms and small / growing millions of start-ups challenging them will shift dramatically and there would be winners and losers at the end. Time will tell what’s the right equilibrium of balance across the types of firms (large / small) in corporate sector as a sustainable model. The start-ups really help solve variety of problems, bring innovation and efficiencies in our lives for better; these things are generally hard to come by from large firms as they tend to be poor at innovation, very slow to move, and rarely pro-actively improve the market dynamics.

Unfortunately majority of start-ups tend to be focused on specific industries / segments like internet, software, telecom (mobile apps / value added services), and similar domains where the barriers to entry tend to be lower, the time required to build a business might not be significant (2-3 years on average), and solutions are relatively easier to come by. For example, building the addictive angry birds game, WhatsApp messaging application etc. I am not taking away the credit from those firms who really spotted an opportunity, built amazing apps for millions of users, and succeeded to multi-billion dollars valuation as a result. Nor am I discounting the fact that for every such one success story, there are millions of failure stories too. But the point I am trying to make is the following- should most start-ups try to create some value for  lots people who pay a little if anything (example WhatsAapp) or for a small set of people who can pay well (example institutional softwares like Tableau etc.)?

Let me expand this argument. If WhatsApp was never founded, I think most people would have been still able to communicate with each other through text message. Surely it might had been little inefficient (without wifi), expensive but would have worked for sure. Has our life changed much due to WhatsApp? Arguably, not by much. And the sale of WhatsApp for extra-ordinary amounts like $19bn only leads other entrepreneurs to create similar start-ups. That I feel is a sad outcome. In next few years, we will probably have several firms funded with millions of dollars, trying to make slightly faster, better, efficient messaging apps and maybe few of them will get millions of users and probably multi-billion dollar valuations too. The point in time where we are living, do we need the smartest entrepreneurs of the world as well as investments to be focused on such projects? I feel not. I do believe in free efficient markets, but I want to only highlight that the start-up ecosystem maybe focused on more important issues we face as a society than another internet app.

The image below tries to depict the pyramid of start-ups focus and the importance of their solutions in our lives:

 

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I think we should try and resolve bigger and more urgent issues we face as mankind including poverty, climate change, illiteracy, power, water, food etc.  We should be inspired by Elon Musk who left relatively “easier” technology businesses in the silicon valley to focus on a more fundamental fuel issue by making electric cars a reality and sustainable future mode of transport. The competition is lesser in such domains and the satisfaction reward is much higher.  

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