4 Big Lessons From Disruptive Start-Ups
BY Em Maier
Ignoring tradition can be a path to success--but only if you dare.
When an entrepreneur challenges the status quo, he or she is either squashed and forgotten about or they hit a nerve and a paradigm shift occurs. The latter happens when the entrepreneur is a true disruptor.
Inc. has been following disruptors for years, and here are four companies that pushed the boundaries--and what you can learn from them.
Story: This barely 2-year-old company allows users to access live broadcast TV through any Internet connected device. Founded by Chet Kanojia, the New York-based company has already raised $63 million in three rounds of funding and key investors include Barry Diller's IAC.
Last year, a collective of big cable companies (including Comcast, Disney, and CBS) sued Aereo for copyright infringement. The battle got so heated that a few of the big company heads threatened to turn their networks into cable channels if the courts didn't shut Aereo down. But after months in court, the lawsuit was thrown out and the big guys haven't figured out a way to shutter Aereo. In fact, the company just announced their expansion into Boston and Atlanta.
Lesson: Forget a back-up plan. "There is no plan," Kanojia recently said. "I really do approach this in a very simplistic way, which is there's absolutely nothing that should not allow a consumer to have an antennae. I have a firm belief that will be the case all the way through." He added: "Start-ups live with that risk on a daily basis. That's why we succeed, because we apply all of our resources on a very narrow area of innovation or focus. I have a great degree of faith that the amount of consumer reaction we're getting, will bear fruit."
Story: The start-up, named after the Roman goddess of wisdom, aims to push the Ivy League off its pedestal. Set to open in the fall of 2015, the online school has already raised $25 million from Benchmark Capital and has gotten much press for its gusto in taking on the very established collegiate education space. But founder Ben Nelson, former CEO of Snapfish, has his critics too.
Academics from schools are skeptical of Nelson's vision -- prospective students may be dissuaded by the lack of lab spaces, sports, and even brand name. Minerva will reportedly hire new PhDs and scientists, without the promise of tenure -- a thing rarely seen in academia. And, to top it all off, Nelson has said he will create a prize to rival the Nobel, $500,000 for innovative teaching, open to any professor worldwide.
Lesson:Challenge the archetype. "Our only criterion will be whether you have the intellectual werewithal to do the work," Nelson said, jabbing at universities' oft-referenced needs for intellectual diversity. "But you'll get no brownie points for how good an athlete you are, for how much money your parents can donate, or for what state you were born in." He's dreaming big: "We want to create the world’s greatest educational experience."
Story: The online radio company wasn't always the blockbuster it is now. Founder Tim Westergren struggled for over a decade to get Pandora out of start-up mode. The company has raised just over $30 million in total funding, most recently from Hearst Interactive Media.
Over the years, Westergren dealt with bankruptcy, lawsuits, and anxious creditors. The company has seen its far share of pivots: from a recommendation machine to an in-store kiosk, and finally, the streaming radio station based on user profiles. When royalty rates skyrocketed, he considered shutting it down. Instead of conceding defeat, he rallied his colleagues and customers and lobbied Congress. Recently, the company bought a terrestrial radio station in an attempt to lower its licensing fees.
Lesson:Be persistent, but adaptive. "I've never, ever given up, even when we were in the most depressive bleak times," said Westergren. "I always thought Pandora was a good idea and would have a day."
Story: Jack Dorsey, founder of Twitter, created Square when his friend lost out on a $2,500 sale because he couldn't accept a credit card. The payment company transforms devices into a credit card processor. Raising over $341 million in total financing, Square forced credit card companies to reevaluate their restrictions. It was a miracle for small business owners, who were used to paying egregious fees for any transaction: now they only paid 2.75 percent per swipe, or a flat fee of $275 per month.
In Square's early days, most credit cards wouldn't allow for mobile aggregators. So Dorsey took a prototype to the banks and changed their minds. Now, many of the same companies who once blocked Square are trying to imitate it. Square Wallet, Dorsey's newest product, permits merchants to charge clients simply by typing in their name and charging their account.
Lesson: Don't be intimidated. "I didn't have a finance background, my co-founders didn't, and we didn't hire anyone who worked in finance until we reached 25 employees," Dorsey said recently. "You fail and you get back up. That's part of doing anything that people find to be revolutionary or important. You'll have tons of people saying, 'No, you can't do this,' but you do it again, anyway, and you don't let them stop you."