There’s no question that companies like Facebook, Apple, Amazon, Netflix, and Google (FAANG) have disrupted their respective industries, in many cases creating new ones that are worth billions of dollars. When I mention tech to the average person, these are the names that come to mind. Be the next ‘Zuckerberg’, 'Jobs’, etc. But what does it take to build the next Facebook?
In this post, I’ll go over my thoughts around the characteristics of massive tech companies, what it might take to build the next one, and emerging players that could be exactly that. A lot of this stems from a convo I had with a friend at Penn (thanks Will!), so giving credit before we jump into anything.
‘It’s a platform play’
Within the tech / VC community, this phrase is seen more as a meme or joke than a serious consideration. Any startup looking to raise capital will have at least thought of mentioning this in their pitch. To build a massive tech company, it’s not enough to have product-market fit and a profitable model — there’s a need to build something that has the ability to foster additional businesses.
A company like Salesforce isn’t just CRM software; they have an ecosystem that provides an environment for other integrations (i.e. email marketing, data enrichment, etc.) to thrive. Their market capitalization is $115B, but their ecosystem is valued at around $859B. The same goes for companies like Facebook, Apple, and Shopify (each with their own app stores).
I’ve mentioned in past posts that it’s an incredible success to build a business that has product-market fit and is profitable as a company. However, I don’t believe that alone is enough to be the next Facebook. In fact, there are businesses that make 8-figure revenue whose sole clientele are Salesforce customers. This goes the same for platforms like Shopify — agencies like BOLD and BVAccel generate tons of revenue for Shopify, and in turn, Shopify Plus customers make up a big portion of their revenue.
Industry & market size
I personally hate the mentality of ‘shoot for the moon’ when you’re building a business, especially for the first time. Sure, it’s more exciting to be tackling an industry or problem that is massive and ready for disruption, but this makes execution especially important — and for entrepreneurs with no track record or background, probability of failing (which is already very high) skyrockets.
There is a difference, however, between ‘moonshot’ businesses and ones that try to tackle a unique industry, with a lot of potential for expansion into a large target market. Amazon didn’t start as the de facto option for ordering online, it started as an online bookstore. If you looked at the company 1-2 years after starting, no one would have predicted the rise of Amazon Web Services — which has since risen to become one of the incumbents in the web hosting space.
An easy example to look at to better understand the difference is Square. They started with a Point of Sale (POS) reader that allowed merchants to take electronic payments. There was no dashboard, fulfillment integrations, or services for discounting and customer management. You’d be a fool to think they would ever venture into being a financial institution — offering loans, debit cards, or P2P money transfers. And that’s exactly what they did.
They didn’t do it from day one, with a slide deck and a 5-year plan. Square did it by starting with something they knew they could tackle (POS), and grew to involve other aspects of the business. Eventually, when a huge portion (if not all) of a business’ revenue was being processed by Square, they could predict future revenue and costs, allowing them to offer loans with a high probability of repayment. Square is now emerging as a financial institution, and is on its way to taking over the industry.
Tackling the right niche / problem, with potential to expand into a larger market, is another characteristic of businesses that will become the ‘next Facebook’. I have personal conviction behind the idea that finance will be the next industry where this happens — hence my bullish attitude towards Square, Shopify, and other companies that are tackling this (directly or indirectly).
With an incredible team, product, and level of validation, a company can achieve success. Without the right timing, it will always fall short of its true potential. When I think of timing, the last two elements (industry and problem it solves) comes to mind. A great example comes in the form of Virtual Reality.
The possibilities of Virtual Reality are endless; it would reduce the need for many visual displays (i.e. TV, monitors, etc.) that we currently require for other devices (i.e. computers, gaming consoles) to function. The idea that you could have what is basically a brick-and-mortar experience from the comforts of your living room is mind-blowing. At some point, it could make remote working experiences the near equivalent to the physical office environment.
But not yet. Although it has some consumer appeal, Virtual Reality is more of a luxury than a practical piece of technology. Startups tackling this space may see some success, especially if they can find a niche and execute well, but really blowing up is challenging when consumers just aren’t ready. Facebook hit the timing well, when consumers were being used to having computers + the Internet in their everyday lives, but lacked an (effective) method to stay connected with each other.
In order for a company to become the ‘next Facebook’, timing will have to be near perfect. Anyone who comes too early will either fail or see limited success, while those who come late will see strong returns but fail to be the incumbent.
Technology companies have been changing our lives for 20+ years. It started with IBM and Xerox, then Apple and Google, and finally with Amazon and Facebook. Each one of these companies found a problem with a larger target market they could grow into, and had great timing. Others may have tried, but couldn’t get the formula right, and are eventually forgotten. Try it yourself — I can easily name ~ 5 companies that have recently failed; I’d be hard pressed to do the same for the 1980s.
The caveat in all of this, as I mention with many of my blog posts, is that I know nothing and am constantly learning. The elements I mentioned above could be essential to the ‘next Facebook’, or they could be entirely irrelevant. Send me a message if you disagree, and your thoughts on the ‘next Facebook’.