3D

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Every startup says they’re somehow faster, better, or cheaper. I hate faster/better/cheaper, for two reasons. First, there are people out there with far more resources than you: if Kayak or Travelocity decides to come after a travel startup, they’ll outspend you on whatever tech sits behind “cheaper.” Second, faster/better/cheaper lays out the roadmap for exactly how to beat you. (When David described a travel app offering 30% to 90% off airfares, I pushed him to find what’s truly different: it turned out to be “destination-less” search, where the customer says where they’ll leave from but not where they’re going. That’s a different form, not just a cheaper one.)

What you want is a 3D breakthrough: something Disruptive, Discontinuous, and Defensible. If you can get there, then even a small startup has a real chance, because that’s the whole story of why startups succeed: they punch through the noise with something completely disruptive.

DISRUPTIVE (often a business model, sometimes a technology). Airbnb changed the travel industry without inventing anything or owning a single home; they created a means to connect people and share resources others weren’t using. That could have been dreamed up in this room tonight. On the technology side, multitouch was a game-changer: instead of a dedicated interface for every function, a single surface can reconfigure itself. Picture a surgeon in an operating theater whose one interface changes through the stages of an operation and monitors the patient in real time, versus learning a separate instrument for every task. Multitouch can save lives; it’s not just for games. Google is the archetypal disruptive business model: it gave software away free and monetized users, search, and advertising, which completely disrupted Microsoft’s model. If Microsoft’s stock was a dial tone for years, it had nothing to do with technology and everything to do with that business-model disruption. And uTest disrupted both the model and the method: they crowdsourced a global community of about 7,000 professional testers across 190 countries to do the testing, and they moved the industry from pay-per-hour to a fixed monthly fee, a full SaaS model.

DISCONTINUOUS (something you couldn’t do before, not a linear step). Akiban built a way to join and organize data that had literally never been done before; they even coined a term for it, “orthogonal,” patented it, and delivered 10x to 100x faster access without changing anything else. Amazon is a subtle case: it wasn’t a breakthrough when it launched (Tesco had already done e-commerce in the UK), and much of its early success was scale, marketing, and convenience. But Jeff Bezos’s insight was that customers shouldn’t have to choose between low prices and fast delivery, and there was a third leg, selection: Amazon first won as a bookstore because you could finally reach the long tail of any book by ISBN, which no physical store could stock. Then came the truly discontinuous move: AWS. Amazon had built such scale in its own operations that its compute and storage became marginally cheap to rent to others, and cloud computing was born. Andy Jassy, who created it and is a donor to this i-lab, has told that story right here. Cloud is now a discontinuous foundation: almost everything on our phones, and everything we did to keep working through COVID (Zoom, staying connected), depends on it. Reality TV is a discontinuous innovation from a different world entirely: nobody predicted it, nobody knew it would be entertaining, and it created a whole industry (there’s a long way from Survivor to Real Housewives, but both are the same discontinuity). And laser drilling: we invested in Foro Energy, which uses lasers to drill through rock too hard even for diamond, going miles deeper and turning corners to reach oil fields you simply couldn’t access before.

DEFENSIBLE. There are many ways to become defensible:

• Intellectual property: real, patentable breakthrough innovation (TerraFlow and Akiban both have this). Akiban’s is architectural: a competitor would have to rewrite their entire database from the foundations to match it, which is like being told a two-story foundation now has to carry five stories plus an elevator.
• Switching costs: once a product is adopted and proven effective, it’s hard to remove. If TerraFlow becomes the way a Pharma company interprets its trial data and communicates internally, they won’t rip it out. The same logic explains why you wouldn’t switch to a “better” phone if it meant giving up your number and carrier, or to a cheaper university that doesn’t teach your course.
• Network effects: if I built a much better social network, easier to post photos, but nobody else was on it, you wouldn’t join, because there’s nobody to share with. That’s why Instagram and WhatsApp are so defensible; the network is the moat, and a “me too” competitor faces the impossible task of getting everyone to move.
• Data: Vivian is building an actionable data product for marketers that reads what users respond to. If more marketers use it, it gets better data than anyone, which is exactly the moat: “I’ll understand the human face the most.” The more people use it, the more data she gets, the stronger the network effect, the bigger the moat.

Startup Secret: if you’re going to pick a fight, pick a big one. It’s often just as much work to go after a small opportunity as a big one, so if you’ve built something genuinely disruptive, aim it at a large market. At North Bridge we focus on what we call Game Changers: deliberately hard problems, because hard problems tend to mean defensible IP, great value when solved, and room for interesting business models and real growth. When mobile phones took off, everyone assumed voice traffic would surge; what actually exploded was data traffic. An entrepreneur we backed multiple times saw that and started Starent, building the heavy, unglamorous boxes that sit in carrier networks (Verizon, AT&T) to carry that data. It took two years to get the first product working and the carriers months or years more to adopt it, but it became impossible for them to handle the data flood without it, and the company was ultimately worth about $2.8 billion and is now part of Cisco. If you’d insisted on a minimum viable product you could ship in six weeks, you’d never have funded it. Game Changers need three things together: big markets, strong IP protection, and compelling economics in the business model. The ideal is when your breakthrough hits all three D’s at once.