Wednesday, December 23, 2009

Smart Phones Crying in the Rain

Today I met with Kevin Short of UNH to discuss a lecture series I am preparing on Smart Phones, Virtual Machines, and Cloud Computing. Kevin was the founder of Chaoticom, one of the first companies to successfully build a business downloading music to cell phones. Chaoticom was started in 2000 as a spin off from UNH, and provided me with my introduction to programmable mobile phones. After VC investment, the company was renamed Groove Mobile; it operates today as LiveWire Mobile, which was recently ranked by Deloitte as the 49th fastest growing company in North America.

For the first few years, Chaoticom was a great technological success, but partnerships with the cell phone carriers were hard to come by, particularly in the US where Sprint finally subscribed to the service. Consumer demand grew slowly.

This week I read a post from the Startup Swami that explains this phenomenon. The Swami says: "Our job is to sell umbrellas on every street corner when it is raining. We can't make it rain."

“Allow me to explain. A few months ago, I was in New York City when it began to drizzle. Although I was wearing a nice suit, the drizzle didn't bother me much. However, by the time I had walked a few more blocks, it was pouring. As I waited on the street corner for the walk sign, I spotted a man selling umbrellas on the opposite side of the street. I made a beeline across the street to purchase an umbrella. I didn't care how much the umbrella cost -- he had my solution, and I needed it bad.

“As I continued my walk now with an umbrella in hand, I noticed that there were umbrella salespeople on almost every corner. And almost every single seller was surrounded by people who were waving their cash around to try to get one of those precious umbrellas. A few blocks later, most of the umbrella sellers were sold out.

“Every time I come across a new startup, I ask myself a fundamental question: are there lots of people in the world that are looking for this solution or is the startup trying to create demand? It is very hard for marketing folks to create demand (that's the job of salespeople) -- and it's almost impossible in consumer markets.”

I intend to incorporate this anecdote into my guest lectures on Entrepreneurship and Raising Angel Capital at UNH.

The Startup Swami is Matt Douglas, Founder & CEO of Punchbowl Software. You can find his full blog post here.

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