In search of things new and useful.
There Are No Shortcuts, It’s All Hard Work
I find it really interesting to see how investors and entrepreneurs shift their money and efforts from one sector to the other. For example, when I started in venture, very few investors thought e-commerce was interesting. But the last few years, ecommerce has been all the rage. Likewise, over the last 5 years, consumer applications and social media has been all the rage. But that has shifted – investors are increasingly looking towards the enterprise, or the “consumerization of IT”. The pendulum continues to swing.
The same can be said for investing strategies. Seed is in! No wait, you want to pay up for the best deals! No wait…
I think some of this behavior is just driven by human nature. We like looking for shortcuts and we like following the crowd. But the more crowded a space gets, the less attractive it becomes. When a few successes become apparent in other areas, the crowd shifts in that direction (even if those successful companies got started and/or funded many years prior).
The reality is that there is no silver bullet nor is there a shortcut. Every sector has things that are attractive about it. Every sector has many things that are hard. Often, folks who are tuned in to one sector get used to dealing with the headaches of that sector. Other areas don’t have those same headaches, but they have others. For example:
| Sector | What’s to love? | What’s to hate? |
| Ecommerce: | Monetizeable, overall momentum of online shopping | Capital intensive, very low margins, few acquirers |
| Social: | Early-stage capital efficiency, can grow very very fast, strong network effect | Very hard to pick early, need to be massive to have any chance of success |
| Adtech: | Less speculative, good teams are easier to identify, monetizeable, many acquisitions | very low margin, longer sales cycle, few very big exits, hard to differentiate |
| SMB SaaS: | Shorter sales cycle than enterprise, less speculative than consumer | Hard/expensive to acquire customers at scale |
| Enterprise: | Less speculative than consumer, more defensible, big contracts | Capital intensive, long sales cycle |
Sometimes, it seems like “things have changed” in certain sectors. And in sometimes, this is legitimately true. A lot of investors lost their shorts investing in mobile applications 10 years ago because of the dominance of the carriers as well as the limited proliferation of internet connected phones. Today, the latter has changed. But on the former, you still have a major distribution and monetization gatekeeper in Apple. Some things are different, others are very much the same.
We’ve seen similar trends with some of the innovation in e-commerce. Flash Sales, subscriptions, and celebrity endorsements seemed to promise some different rules of engagement for this sector. But ultimately, these companies are still expensive to scale and very low margin. I think the winners here will look more like Wayfair and Warby Parker than companies with models that hinge on newfangled marketing tactics.
Ultimately, it’s all hard work. Opportunities exist in all sectors but so do the pitfalls. All the great companies have had to deal with the inherent difficulties of their respective markets. And so will we.