With So Many Startups, Where Does One Get Customers?

With DEMOfall 09 now behind us, pitch season has given us a lot of "Wow": solid businesses with promising applications. The majority of new ventures we're seeing today are variations on familiar themes, new combinations of old technology, and niche plays. Not all of them have convincing business models, but the bigger challenge seems to be acquiring a customer base at all.

At the earlier TechCrunch 50, Paul Graham of Y-Combinator asked a number of the startups that presented, "Who do you think your best target is?" Acquiring and retaining a large enough customer base to make a venture worthwhile has always been a challenge for young companies, but it seems particularly an issue these days. Here are a few reasons why.


Increased Competition

New companies are facing talented, quick-responding competition at a pace never before seen. New teams can be formed in days, and new products launched in weeks. The marketplace is global, and the next competitor could come from any one of a dozen innovation hubs. The window of opportunity is shrinking, and differentiation is harder to claim. For some, this means less attention to protecting intellectual property and more attention to getting to market quickly and then iterating.

Stronger Incumbents

Creating completely new value is rare. New companies typically get their customers from existing companies, and those companies aren't letting go easily. Many incumbents were themselves new companies less than a decade ago, and they are nimbler than the big guys they toppled. They constantly work on innovating, staying ahead, and keeping customers happy. Disrupting their market is possible, but being just a little better is certainly not enough.

New Product Fatigue

The Web is not new anymore, and anyone who is not an early adopter is not interested in the latest thing. Consumers will occasionally fall for gimmicks, but startups cannot build a business around a $0.99 iPhone app that people use only once. The vast majority of consumers usually prefer to leave things as they are rather than add yet another complication to their busy lives.

History Proves It Is Hard

The simple fact is that the list of companies that have tried and failed is growing. Those companies know it's hard because they've actually done it. Despite what so many founders of startups think, there is no pent-up demand for their products from customers ready to pounce. Most products fail to gain attention, create value, impress, or sustain interest.

Despite these challenges, the tone of presenters at these events are notable for their optimism. We were on the precipice of a global financial crisis one year ago. Now, we're all talking about opportunities and how to thrive (rather than merely survive). Hopefully, many of the businesses that have emerged this pitch season will find a way to overcome these risks, attract paying customers, and build their brands.


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