If you take a spin through venture capital websites, you’ll notice some common language - phrases like “bold ideas”, “huge, growing markets”, and “breakthrough technologies”. It quickly becomes obvious that VCs are only looking for companies that have the potential to become behemoths, ones that could go from non-existence to an IPO in under a decade. That’s because most of the companies they invest in fail, which means that they have to make a LOT of money on the ones that succeed. A common benchmark is 10x - if they invest $4m on a $20m valuation, they expect that company to eventually be worth at least $200m.
So what about entrepreneurs with ideas that are just not big enough? Imagine that you’re a rare plant enthusiast - you enjoy looking at and collecting them. You have an idea for a startup - a rental marketplace similar to Airbnb but that will allow people to stay in houses that have rare plants in them. It will function similarly to Airbnb but have a few distinguishing features, including the ability to showcase and filter by plants in the listings.
First, the bad news. If you present an idea like this to a venture capitalist you’ll probably get a polite response and then never hear from them again. They’ll quickly size up the market and decide that it’s not going to become one of the unicorns they spend their days chasing.
There is, however, more good news than bad news. Firstly, assuming you can build the product, you’ll have a much easier time selling it than a more generic platform. That’s because you already have ties in this community, know exactly what its members want, and can deliver a very tailored experience. And once the first few people experience it, the word can spread much quicker than in a broader community.
But how will you build it in the first place? Isn’t that why those gobs of money from VCs are needed - to pay for expensive servers and to hire brilliant engineers and designers? That’s no longer the case. With services like AWS, servers have become virtually free, at least in the early days of a startup. And while engineers/designers remain as expensive as ever, there is now a new way to build tech products that doesn’t involve code and is thus much easier and cheaper.
Even today you can use no-code tools to build a full Airbnb for your niche audience in just a few weeks and without code. And not just a very simple, minimal version - a full version with payments, messaging, reviews, and, of course, the tailored plant-related features that are needed in order to make this particular Airbnb a success.
This means that in the coming years we’re going to see thousands of “long-tail” software startups - companies that will use tailored tech to serve a narrow niche. These startups probably won’t reach unicorn status but their low cost structure (some will consist of just one person) will guarantee that they’re able to stay profitable and serve their audience in a way that no generic product ever could.