November 15, 2023

Timing – The Critical Mass Theory of Startups

The Seedfunders Podcast
The Seedfunders Podcast
Timing - The Critical Mass Theory of Startups

Show Notes

Welcome sir.

Morning Joe.

So, Dave we’ve talked a lot about the factors that go into a successful startup. These include solving a problem, having the right team, commitment, product market fit and a lean startup philosophy, as well as funding and other factors. We have however, not addressed wait for it…


Timing. It’s timing. Is that an important factor to startups?

Well Joe. Startup history is full of stories of potentially great companies who launch either too early or too late. They may be well-funded, have a great experienced team. But the market refuses to accept the product or service because of a number of factors related to the time that the company launches. Yes, timing is very critical when launching a startup.

How can the founder know if they’re launching something new at the right time?

Well, you really can’t. But, what you can do is do some research that can give you a better idea. Then just thinking, you know it will all be successful, because you feel like in your gut it’s just going to be successful. You could do some research to determine how well the market will accept you, not just because you’re solving a problem that you’ve identified, but other outside factors. In fact, I recently read an article by Pete Flint who’s a General Partner at NFX – the seed-stage venture firm based in San Francisco. The article actually is entitled: Why Startup Timing is Everything? It is really relevant to our topic today.

Let’s dig in. What does Mr. Flint have to say?

He starts by saying… He actually starts in nuclear physics and says, “There’s a minimum amount of material needed to create a self-sustaining nuclear chain reaction. That’s known as a critical mass. The idea is that in complex systems, moving beyond a threshold can unleash a powerful self-sustaining change as it does with a critical mass in nuclear physics.

Interesting, and so then he applies that same concept to startups.

You got it. He says he developed a critical mass theory of startups. It’s basically the tipping point when a product or service goes under rapid transformation. This seems to happen overnight, but obviously, it doesn’t. It takes months, years or more sometimes. But it seems to happen overnight when you get this critical mass. And it becomes the tipping point. The product or service goes under this rapid transformation and incredible growth. But he says there are three pre-conditions for this to happen. Typically, however unfortunately the founder can’t control the three pre-conditions. They’re all external circumstances. But, by understanding them, founders can identify opportunities, sequence resources, pivot, slow down or speed up. And at least help and as he says, “Determine your startup’s own fate. “

All right, I’ve got to know. What are the three preconditions?

First one he calls is, enabling technologies. When you think about it. This makes total sense. Without the right technology, a great idea is certainly going to fail. A good example would be ride sharing platforms like Uber and Lyft. They don’t work without really accurate GPS. If you’re a quarter mile away from where your driver expects you to be, you have to resort to phone calls and getting in touch with each other. Just like you used to do when you called a taxi. And they showed up at your door. But, with Uber and Lyft there is accurate GPS that enables them to be. So, enabling technologies is a huge factor. You have similar things like airpods or health wearables. They don’t work without Bluetooth technology. So, enabling technology is one of the critical factors in launching. You have to know you have the technology that you want enabled to succeed.

That makes a lot of sense. So, what’s Mr. Flint’s second precondition?

He calls that one economic impetus. What he says is, “Founders need to keep a close eye on the economic trends, or they could miss out on opportunities or completely fail, by not recognizing the state of the economy and the economic direction of things.” He talks about economies of scale here, like electric cars. They’re much more viable after the price of batteries dropped. The economic impetus is that lower cost of batteries helps the electric cars become more viable, or even look at smart phones. They became more prominent only when processing power costs dropped significantly. Now those phones could be much more powerful than they had been before. But unfortunately, the inverse is also true. When something that was inexpensive becomes costly, there are opportunities created. He points out the rising price of cable subscriptions. When you think about that, cable prices arising, this leads to the success of streaming companies like Netflix and Hulu. So again, the economic impact of those kinds of things needs to be something that the founder ought to consider when launching their product or service.

Hmm, so does that mean when I’m binge watching something, I’m actually critical mass theory in action?

You’re right, it all relates to the topic today. The importance of timing. Mr. Flint’s actually third precondition is cultural acceptance. When you talk about binge watching, not long ago, it may not have been okay to tell someone, “Last night, you watched six episodes of the same show.” I mean, they might have thought, “Wait a minute. You kind of lost it,” or you got into a stranger’s car to go downtown, or you slept in a stranger’s house, or you smoked a joint, or you gambled on the internet. All those things are now culturally acceptable, which maybe even five, 10 years ago they were not. So again, cultural acceptance is very important to the timing of launching a product or service. It goes a long way towards the successful timing for launching your startup.

You’ve given us some good examples of companies that have succeeded because of good timing. Can you give examples of ones that have failed?

Joe, I always have examples. I recently read an article by a guy named Gary Darna called, Timing is Everything. He talked about a company he was launching that was a market place for consumers to buy and sell collectibles online. Buying, selling collectibles online. This was in 2012 to 2016. The company failed, and he says primarily because the investors said he could not compete with eBay. Now, the collectible market is massive. There are companies like GOAT and Stock X. They basically are collectible market places online. He was too early. The people didn’t understand it. They thought eBay would dominate everybody. Now, these many smaller collectible companies online are coming out and raising a significant amount of money. He attributes it all to the timing. Particularly, he says the COVID pandemic kept people home. They got to get back into things that they were doing and collecting. And looking at their collections of things, and started to go online. So that was again, due to COVID a huge increase in the online collectible market. These people now went online and those companies flourished.

Does that mean there’s still hope for my Beanie Babies’ Tinder idea or am I too late to start a collectibles market place?

I can’t answer that. I don’t know much about Beanie Babies. But, maybe the window wears short and close quickly on these online collectables. On the other hand, we talked the other day about non-fungible tokens or NFTs. They are basically digital collectables. Maybe the timing is right for that, but not for other collectables like baseball cards or comic books or beany babies. I guess only time will tell.

I’m enjoying the examples. Can you give us a couple more?

As I said, there are many. So, maybe we can just talk about one or two more. Bill Gross of Idea Lab did a Ted Talk called, The Single Biggest Reason Why Startups Succeed.  He analyzed hundreds of companies, and concluded that timing accounted for 42% of the difference between success and failure. Forty-two percent, that is really significant. One example he pointed out was a company called which was an online entertainment company that failed. They had a great business model, Hollywood talent, significant capital, but poor broadband internet availability. This was in 2000. This poor broadband that we talked about technology, but they had poor broadband of capability, and basically doomed the company. Unfortunately, just two years later, YouTube launched. Again, they didn’t have the tech. But two years the tech was there, and YouTube is history.

Really interesting. I need one more.

Closer to home, about eight years ago in Tampa, Florida Funders was evaluating investments in a company called Carvoyant. They basically had a system to plug in cars to connect to your phone which obviously you connect to your phone. And eventually you can connect to the internet. Investors could not understand the value of a connected car. We had presentations. We talked to investors. Why would I want my car connected to the internet? Now, of course cars are coming equipped with links to the internet. There’s GPS, Remote Start, Find my Car, Low Gas Alert, streaming music. These are all because now your car can be connected to the internet. Carvoyant was there eight years ago, and nobody understood the value of that. They were just too early for the market.

As we look at the SeedFunders portfolio, there are companies that have been successful or not based on timing as well.

Yes, actually quite a few. In fact, most of our companies – in our portfolio – have had some impact, good or bad from the timing. Two, that come to mind were both ready to take off in March of 2020 when COVID hit. Both were IOT products – Internet of Things. They targeted schools, hotels, office buildings and restaurants. Well, what do you think happened with COVID? Schools, hotels, office buildings and restaurants all shut down. All those facilities basically were clients of these two companies. With COVID, the demand went pretty much to zero. Now, both are relaunching. But the road back has been hard due to the poor timing. It wasn’t their fault of course. No one could have predicted the COVID shutdowns. But the poor timing really impacted those two. They might have been able to abide better however. Maybe mitigated had they recognized the extent of the timing issue early. So, again they could have maybe made some adjustments earlier or more significant adjustments or pivoted. But, without the ability to recognize the issue of the timing, both of them are trying to get back now. But it’s been difficult.

But on the flipside, we’ve had some that have benefitted from COVID.

Yes sir, as we do. I said, we go both ways with the timing. We have one company developed – get this – an automated handwashing monitoring system for hospitals and other medical facilities. We invested in that company before COVID – automatic handwashing before COVID. After handwashing became such an issue with COVID, things for them really took off. Their timing, even though fortuitous was instrumental in the success to date. Again, there’s something that was beyond their control, but based on where they were, the timing became very fortuitous.

We also invested in a wellness travel platform before COVID. Needless to say, their business went to zero, as travel went to zero pretty much, even before they launched. They recognized the timing issue, and basically slowed down. They spent their time in development till travel started to return relatively recently. Now, demand is strong. People want to catch up on this missed travel. Again, they’re starting to come out, being very strong because timing was a huge factor.

Wonderful, and good timing is perfect now for some closing thoughts.

Sure, they say timing is obviously a very important factor in launching a startup. Unfortunately, as I said, the factors that influence timing are typically beyond the control of the entrepreneur or the investor. But both founders and investors need to be aware of those factors and react accordingly. This could involve a pivot or slowing down funding or speeding up funding. But timing is a very significant factor. That can lead to success or failure of a startup, if they impact to that, you’re recognized. It’s just one more thing to think about for both entrepreneurs and investors.

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