If we’re starting a company that we hope will one day reach a billion dollar valuation or more, we’ll need a different kind of strategy from the beginning.
An app is not likely to ever get to billion dollar potential, not anymore. Even a standard software play is going to have to have some kind of first-mover edge or new science to transcend the glut of options that exist today.
No, in order to start a billion dollar company, we’re going to have to be playing with something that’s both crazy and dangerous. And by crazy and dangerous, I mean it has to have at least one element that scares the hell out of investors.
It’s a chicken-and-egg situation. A billion-dollar valuation is virtually impossible to achieve without a major cash infusion to prove out a crazy or dangerous concept. And since investors usually shy away from those kinds of concepts, how do we raise money for a billion-dollar kind of company?
Crazy and Dangerous? Hardware
So what do we mean by crazy and dangerous? It’s something that comes with major risk and doesn’t yet have any kind of track record for return. It’s also something that’s expensive, either the talent is rare or strategy shifts are inherently costly. Or both. Usually both.
Artificial intelligence, until recently, was considered crazy and dangerous. And even today, investors usually just stick to machine learning. Bitcoin and blockchain make a great recent example, which is why an entire fake digital market rose up around those things and fooled a lot of people with phony ICOs.
However, one of the oldest and easiest-to-understand examples of a crazy and dangerous element that drives investors away is hardware. Yes, plain old hardware. Any kind of product you can hold in your hands.
Hardware startups run the trifecta of crazy and dangerous. One: It usually takes a large upfront investment to bring a physical product to market. Two: A physical product requires an expensive physical distribution chain. And Three: Mistakes and changes are so expensive that concepts like feedback loops, continuous improvement, and continuous delivery are all but moot.