3 Reasons Your Start-up Should Tackle Really Big Problems
Social networking is the flavor of the moment, and the market has brought forth an uncountable number of companies that create or enhance social networks. Not that there's anything wrong with that: Instagram (for one) proves there's lots of money to be made this way.
But Ajay Agarwal, managing director at Bain Capital Ventures thinks the time is ripe for a different kind of start-up, the kind that tackles serious business problems with what he terms "massive innovation." His poster child for this other kind of company is Kiva Systems, which terms itself "Fulfillment 2.0″ for e-commerce. Kiva offers an integrated system of floor sensors, shelving, and square orange robots that automatically select items in an order and then transport them across the warehouse to a human worker for packing. This eliminates the need for people to walk around fetching the items making the "pick, pack, and ship" process much more efficient and cost-effective. No wonder Amazon acquired Kiva in May for $775 million.
It took more than seven years for Bain's investment in Kiva to pay off, and a huge amount of technical work to get the integrated system designed and built. But while this type of start-up takes patience and a solid amount of funding, there are good reasons to choose it over the quicker, easier, and less expensive route of building a new mobile app or social network aggregator. Consider:
1. If you build it, they won't come.
Competitors, that is. "Once you do get there and you have a proven product and market, you won't have a lot of competition," Agarwal says. "With Kiva, there was more capital needed up front, but as the company scaled we didn't need to spend as much because we were the only solution. We weren't in a race with other venture-backed companies."
2. You're not subject to market whims.
"It's easier to build a sustainable company," Agarwal says. "With some of the lighter-weight consumer technology, you have to make sure to sell at the right time because these trends change so quickly. With Kiva, we happened to sell this year, but it would have been more valuable next year, and even more the year after that. The product works and it delivers tremendous B2B value, so you don't have to worry about changing trends."
3. There's never been a better time.
Mick Mountz, Kiva's CEO, founded the company in 2003, and had a hard time finding funding so soon after the dot-com crash. "Today there are many ways to access capital--robust angels, small VCs, micro VCs, small funds," Agarwal says. "You have lots of different options available to you."
And the right investor may be able to help with connections as well as money. "We leveraged our network at Bain Capital to get Kiva in front of a handful of large e-commerce players," Agarwal says. "The folks who ran their distribution centers were in effect the experts who reviewed Kiva's early prototypes. They provided some perspective on the concept and the technology and we quickly came to the conclusion that this was revolutionary." Getting that early market feedback was invaluable. Later, when it came time to sell the first Kiva systems, "we were able to leverage those relationships again," Agarwal says.