The Venture Capitalist’s Walk of Shame

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I recently read a scathing review of several new services offering free or nearly free phone calls over the internet. Assuming you get past the fact that this mystery has already been solved, the mere existence of these services raises a few confounding questions:

  1. Why would anyone design such bufoonish, overly technical services?
  2. What kind of uber-geeky cheapskates are they targeting? Who in their right mind would take that many steps to make a phone call? We live in a world of free off-peak mobile minutes, Skype, and $24 per month unlimited VOIP service.
  3. Finally, after sitting through the ponderous description of how these services work, what venture capitalist would have funded these unintuitive, consumer repellent services?

Sizing the Market

While I still think there’s plenty of room for innovation in the phone industry, these services should have flunked the market sizing alone. Let’s do the sizing together:

  1. The big, must-have criteria is users must be extremely tech savvy. I’ll give them a generous 15% of the US population. That’s 45 million people. Not bad if I stopped here. I won’t.
  2. These geeks (I use the term lovingly) would have to be stupendously cheap or destitute AND they have lots of friends to call. Ahem. Last I recall, World of Warcraft already had a chat function built in. So let’s say 10% of the remaining 45 million fall into this category. (Even if it’s 20%, we’re down to a total target market of under 9 million.)
  3. Of the 9 million who CAN figure out the service…how many would put up with inconvenient, work-around dialing (through websites, third parties, and guys named Al)? I’d say we’re left with the people who were in the conference room pitching the VC’s.

Even if you add the international market, your facing similar barriers. Not much here.

Lessons Learned

  1. If your new product requires customers to take 2-6 additional steps to do something simple, you’d better be saving them a lot of money. Better yet, if you’re innovating in commodity space, you should be seeking to reduce complexity, not introduce it.
  2. It appears very little market research was done here. I’ve noticed this a lot with entrepreneurs. They have a vision and don’t slow down to gather insights from prospective customers. It’s a recipe for missing the mark.
  3. Ask am I solving a real problem? I’ve seen a lot of “solutions” in search of a problem. My favorite example of this are the Oakley MP3 player sunglasses and tech-clothing. (I’ll save my tirade on the HP lingerie collection for another time.
  4. There appears to be a stunning number of VC’s with money burning a hole in their pocket. And it looks like they’re not a hard sell. You might be a few rudimentary slides away from being a paper millionaire. Ahhh 1999, I miss you so.
  5. Dare to dream. If you have an entrepreneurial idea, the time to pursue it is now.

If you’re a VC reading this, I’m already up to slide 7.

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Provocative predictions & prescriptions on where innovation, economics & culture will take us. Fearless. Funny.