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Sometimes Its Better To Be Third

June 5, 2010

Everyone seems to think that it is best to be first to market, but I’m not sure I believe this. First means you really have to convince everyone there is a better/different way of doing things. Even when you are right it takes time. You have to fight the fact that no one wants to go first, usually in a company that is completely unknown and unproven.

How many times have you seen a new start up come up with the right idea, bang there heads against the wall, and eventually go under trying to prove they’re right. Then the next guy comes in with the same idea and benefits from all the hard work. In many ways I think this is what is happening in a couple of markets I’ve been close to recently.

In video surveillance analytics there are companies like Object Video and BRS Labs that are investing massive dollars to be able to identify threats within live video. These are heavily VC funded firms that have massive R&D budgets, but little market traction. In the ECM world everything is moving to SaaS but will the players like SpringCM and others who have taken ECM stacks to the Cloud survive long enough to reap the benefit?

These are two very interesting markets as one is trying to take recognition algorithms and tune them for a specific security purpose, while the other is taking mature technology and simply offering it in a different way. My belief is that the surveillance companies will go bust before they refine the technology and establish a market presence. The ECM side is much tougher to call, but I believe once the SaaS business model is proven the big ECM players (EMC, Oracle, IBM, Microsoft) will all want to compete. Will that startup live long enough to get eaten, or will they simply get run over when the elephants start to stomp around?

I did a startup in 2003 with the idea that I would mine massive consumer databases amassed by the credit card companies to understand consumer behavior, and then use mobile 3G technology to determine where a person was so I could customize marketing pitches that fit the moment. I still believe the idea was right, but I was way before my time. Right now there are a whole bunch of companies that just got large amounts of VC funding to chase the same idea. They are in a better position than I was on the mobile front as 3G is established now, and most people have GPS. 3G was just rolling out when I did it. On the down side consumer privacy is heightened after breaches at Facebook and Google and they’ll have to fight this wave. My bet is you’ll see this technology take off shortly and soon you’ll be getting a lot of unwanted ads on your mobile device.

I also think it helps to have more than one person in the market. It adds credibility to what you are doing. I’ve heard many VCs don’t like to back someone if they don’t have a competitor. The logic is simple: “if its such a good idea why isn’t anyone else doing it?”. I think this makes a lot of sense. There is an old saying “be a quick second”. I believe ultimately first and second pave the way for third, and the third guy has it much easier. It’s also much easier to understand what will work when a couple of companies have gone before you.

Next time you have a great idea consider timing when looking at your strategic plan. You can save yourself a great deal of pain and be the guy who reaps the reward if you time it right.

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