An Incubator for Disruption?

Last week, I had the rare (what might be called ‘ethnographic’) opportunity to visit 500 Start-Ups; an incubator dedicated to cultivating newborn start-ups through 1. education and 2. sponsorship, this company creates the perfect environment for young ‘disruptive’ seedlings to sprout and blossom.

I rode the elevator up what seemed like a dozen stories, and the doors opened to an enormous office space, serving as the temporary digs for hundreds and hundreds of tiny teams with big ideas. It was a land of young entrepreneurial types, armed with multiple macbooks, cheeky graphic T-shirts, and an excess of creativity and confidence. Power chords hung from the ceiling like vines, while small groups animated conference rooms, pointing at their powerpoints and waving their hands wildly.  A stimulating workspace, it was also a place of contradiction between a financial district high-rise (the space touts a breathtaking 360 degree view of the entire valley, something akin to a watchtower)… and a typical start-up office (from the cracked linoleum floors to the dorm-like ‘community space’). Through this dichotomy though, it somehow seemed perfectly appropriate for the transitory period many of these start-ups are working towards (or in).

As a research team, part of our reason for going to this curious place was to actually engage with a handful of these start-ups to gain some understanding of what they’re doing, and perhaps by extension, where the trends in disruptive tech lie dormant (for now), but will soon emerge. What better place to go sniffing than a start-up incubator in the heart of Silicon Valley? We were able to interview about a dozen start-ups, grilling them with basic questions along the lines of business model, pain points solved, for whom, competition, long-term plans, etc. For these seedlings, it was an exercise in presentation, in social graces, and in defending the product intelligently– and an exercise I found fascinating to observe.

As a team, we managed to unearth certain predictive trends that pervaded our small sample size. First, we saw a number of companies diving deeper into vertical niche markets, as opposed to wide-scope horizontal approaches. Based on the success of legacy vendors, this specialization makes sense. In fact, a simple glance at human history tells us that specialization is the natural progression after establishing new processes or technologies. A good example of this type of niche-ification goes to PaybyGroup, a start-up dedicated to simple and streamlined ‘group-pay’ for the end user, and higher campaign conversion for the business. While this company is solving a real pain point from which any event planner will attest, this seems to be a simple add-on to pre-existing services like Pay-Pal. Here is where a question emerges: who is really in the game for acqui$ition? And who is really in the game for long-term autonomous growth, dare I say domination!?

Ah, what a nice segue into the next pattern we identified: SMB enablement. A number of companies we interviewed trumpeted viable solutions that would help small businesses to finally gain access to the tools of enterprises– without the complexity or cost. Part of this enablement is driven by web-based (SaaS/ cloud-based) services. These types of services tend to remove major cost, time, implementation, and learning-curve barriers for SMBs. Start-ups like Spinnakr (one we spoke with) fall into this camp; dedicated to providing small businesses a tool to deliver targeted content to their site visitors (by audience segmentation) in a “dead simple” way. Seemingly a godsend for small businesses competing in a complex digital world, these start-ups face their own host of challenges, namely in generating ‘buy-in’ amongst such a large audience, and in monetization. Anecdotally, roughly a third of the start-ups we spoke with claimed their plans for monetization would come later. These companies also face the impending acquisition from legacy (software) vendors who are looking to move into the SMB space, or simply lack innovative muscle.

Finally, perhaps the most pervasive theme amongst our panel of start-ups was that of basing entire business models on social data. With back-end analytics serving as the plumbing of the business model, many of these start-ups are leveraging user activity (impressions, actions, interactions, transactions, etc.) to instruct the product lifecycle and itself. One company, Redeemr, a loyalty program application to help brands, agencies, retailers, etc. build their social following, uses Facebook news feeds as a metric of engagement, rather than a Facebook brand page. With roughly a third of the world’s population online today, what better way to monetize (and market) than through its users? Businesses are already using social data to inform their decisions today, but in the whirls and swirls of business plans we heard, I get a whiff that social data could become the very currency of the internet in the not-so-distant future.

By the end of the day, after many extraordinary efforts in convincing, and some real sapiens ideation at play, we, the research team, were fried. Glazed over and red-eyed, we said goodbye to the strange but wonderful incubate-a-tank. I drove home intoxicated by a strange elixer of excitement and exhaustion. Despite the absolutely nightmarish traffic all the way from Mountain View back to Berkeley, I couldn’t help but feel a sense of inspiration. 500 Start-Ups, 500 ideas, 500 cases of heart, effort, faith, and change! Who might actually have something truly disruptive here? A slew of predictions, critiques, questions, and musings ran through my head (far faster than the speed my speedometer read sitting in bumper-to-bumper). Ultimately these seedlings are not only subject to the operational and economic pressures facing all small business; to the ticking clock of funding; to the fast and furious market that is the internet… Ultimately, sinking or swimming relies on people, lots of people. Will they care lots or will they care less?

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