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Why the "end of the start-up era" could be great for entrepreneurs

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Three prominent technology thinkers recently declared the end of the start-up era, questioned the future of technological innovation in general and announced the rise of the 'scary Five' – Apple, Amazon, Facebook, Google and Microsoft – who will dominate the future of technology. All the messages make credible arguments, but do not know how the consolidation could be good, or even great, for the startups.

If we define start-up success as the construction of leading companies that will go down in history and worth hundreds of billions of dollars, we could, in fact, enter a lean period. If we define success as building an ever wider assortment of products, ship them to tens of millions of users and earn hundreds of millions or even billions of dollars in tight deadlines , the good times are just starting.

Just look at the tbh case – Ben Thompson suggests that Facebook probably paid ~ $ 80 million for the one-year, seed-funded company. Each founder probably earned nearly $ 15 million for a year of work, which paid them better than NBA champion Stephen Curry. Entrepreneurs may have to content themselves with acquiring generational wealth, rather than becoming "promises to cure all diseases" rich, but the death of startups has been greatly exaggerated.

How consolidation could be great for startups

The kind of industry consolidation we see with the "Scary Five" is not new to technology, it's the norm in most industries and can actually boost the business. # 39; innovation. The pharmaceutical and packaged food industries are highly consolidated, have successful start-up scenes, are hyperactive in mergers and acquisitions, and provide insights into how the future of technology can unfold.

Pharma

The pharmaceutical industry was one of the first technology companies and is one where the first-mover advantage is real. Like many leading pharmaceutical companies were founded before 1780 after 1980, and eight of the top 10 companies are over 100 years old. This sounds like the makings of a moribund market, but in fact, between 2014 and 2015, there were more than 100 IPOs in the biotechnology sector that generated $ 10 billion in revenue . One hundred years after the creation of the "winners" in the pharmaceutical sector, start-ups still produce miracle drugs and hit the founders of multimillion-dollar start-ups with surprising regularity.

Company

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year of foundation

Market Capitalization

Johnson and Johnson

1886

$ 382B

Novartis

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1758 (1)

$ 215 billion

Pfizer

1849

$ 215 billion

Rock

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1896

$ 201B

Merck

1891

$ 170 billion

AbbVie

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1888 (2)

$ 146 billion

Amgen

1980

$ 130 billion

Sanofi

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1718 (3)

$ 121 billion

Bristol-Myers Squibb

1887

$ 105B

Gilead Sciences

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1987

$ 104 billion

1) Originally founded as Geigy. 2) Originally founded as Abbott Laboratories. 3) Founded originally as Midy Laboratories. Market capitalization data via Google Finance.

How did this happen? Established companies have scaled up their organizations to handle the tedious work of putting a drug through clinical trials, a previous review of the FDA (and its global counterparts) and, once authorized, in the hands doctors and patients. This organizational structure and scale make them unsuitable for pursuing innovative R & D, where start-ups shine. Startups can now focus entirely on finding breakthrough remedies and not worrying about marketing. If a startup develops a new anti-cancer drug or even a promising molecule, Sanofi, Novartis or one of their peers will buy it.

Food

Critics of the pharma comparison will point out that intellectual property is essential in the biotechnology and life sciences industries and that software-based technology startups do not have the same negotiating weight. This is a good point. However, the tendency of large marketing and distribution-oriented companies to acquire agile innovators is also evident in the packaged food sector, which, like software, has few IPs, uses commodities as inputs and surf the changing tastes of consumers. Look at the top 10 packaged food companies by their incomes and the years they were founded:

Company

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year of foundation

Market Capitalization

Nestlé

1886 (1)

$ 90.2 billion

Pepsico

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1898

$ 62.8 billion

Unilever

1872 (2)

$ 48.3 billion

Coca-Cola

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1886

$ 41.9 billion

March

1911

$ 35.0 billion

Mondelez

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1909 (3)

$ 25.9 billion

Danone

1919

$ 23.7 billion

British Related Foods

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1935

$ 16.8 billion

General Mills

1856

$ 16.6 billion

Kellogg & # 39; s

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1906

$ 13.0B

1) Founded originally as "Anglo-Swiss Condensed Milk Company". 2) Founded originally as "United Margarine". 3) Founded originally as "Kraft Foods". via Business Insider.

Despite this consolidation, last year there were 614 business acquisitions of food products and beverages.

The diversity of startups is impressive, their simplicity of offering even greater. Krave Jerky served palaeo enthusiasts, and Dave's Bread was a boon to gluten lovers, but both were rewarded with quarter-billion dollar releases to enhance the product categories that are around 10,000 years old.

Startups are not limited to acquisitions either. Chobani has grown from a niche product to owning 20 percent of the yogurt market in just over 10 years. In 2015, two dog food startups made their public markets debut with a combined market capitalization of $ 6 billion.

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It is true that the founders of RX Bar are unlikely to go into history as WK Kellogg did, but they still managed to turn a $ 10,000 investment into a fortune from $ 600 million in four years . This seems to be a sign of a healthy entrepreneurial ecosystem, not a weak ecosystem.

Not only could this model work in technology, but in some areas it is already the norm. Google has acquired at least 211 startups since 2001. IAC has owned Match.com's online dating space and has purchased several of the 45 sub-brands that make up its portfolio.

Tech is coming of age

Some believe that the technology industry will be constantly moving and will create new leaders in the market. While Friendster gave way to Myspace, and Myspace lost to Facebook, Facebook should be outdone by the next big social network. Once, Microsoft seemed unassailable and was eventually lowered by changing technology and the Department of Justice, and so on, they say.

It's still a possibility, but the reality is that these companies have taken advantage of the billions of users' capture in the move from the desktop to the mobile computing and established business models that are native to the web. The founders of Facebook, Amazon and Google will probably run their businesses for decades to come.

How to navigate the post-start landscape

Fortune Favors Effective Entrepreneurs …
In a world where new technology start-ups do not have a clear path to Facebook's valuations, one way to thrive is to Avoid becoming the "next Google" is the only way to win. There is no shame in a $ 100 million startup. Fred Wilson and USV have created a legendary $ 1-3 billion outbound company (with some notable outliers).

If a start-up does not build for the long term, it should point to a world where humble ratings are the norm. There are dozens of startups that are huge with almost no capital. It is possible to make more money as an entrepreneur by raising very little capital and selling at a low price rather than raising huge sums and selling at a high price. Entrepreneurs should not aim small or plan their business around an acquisition, but they should not close the door on the option by overfunding.

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… and daring projects
Today, many liken start-ups and entrepreneurship to the simplified public development process that allowed Mark Zuckerberg to create a dormitory in a dormitory. the most powerful media company in the world. . This is not the historical norm. We could be due during a period when significant capital expenditures are needed to create the platforms of the future.

This process may seem messy. Magic Leap was able to easily evoke piles of money, but until then did not want to accomplish the simplest round of the show, leading many to speculate that its final outing was would translate by a splash of Juicero instead of a Jobs revelation.

But is it crazy for a start-up to invest $ 1.9 billion to develop something, which, if successful, will be a new type of display technology with the potential to compete with OLED? If this investment pays off and the patents are strong, Magic Leap will be able to compete with Apple, Facebook, Google and Microsoft in the race at AR. Even if it ends up being "just" a great gaming platform, the amount invested is not crazy. Sony has spent more than $ 3 billion in R & D to develop its third-generation PlayStation console and Microsoft has spent $ 100 million to upgrade its Xbox game controller. If Magic Leap finally delivers a functional product, the founder Rony Abovitz will deserve applause for its vital efficiency.

See places other than San Francisco …
Consumer drones represent an $ 8 billion technology industry largely dominated by DJI, a Chinese startup. Maybe WeChat will decide to take Facebook in the United States? Or Alibaba could one day decide to challenge Amazon in the United States? The idea of ​​a Japanese loom manufacturer beating Ford and GM to become the leader in auto sales in the United States seemed crazy at one point, but Toyota did it all the same . And who knows what is developing in the dormitories of Tsinghua University.

… including vape shops
In a world where Warby Parker, Casper and Juicero are considered technology companies, it is worthwhile to recognize that the e-cigarette category is has become an $ 8 billion market and is expected to be worth $ 20 billion over the next five years. This is at hand from Ethereum's market capitalization, but unlike cryptocurrencies, which have been obsessed by technology connoisseurs, electronic cigarettes have emerged from gas stations and bodegas apparently from day to day. next day. Vape stores will not stimulate the next big start-up, but their rapid growth shows that technology has not taken its last breath (scented beer root), and that huge opportunities for startups can come from n & rsquo; Anywhere.

The market is never really settled

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Nvidia was founded in 1993 with the aim of producing better graphics cards for gamers. On the occasion of his twentieth birthday, he had reached a mature and comfortable age with a valuation in the one-figure billions. So AI people started to rely on Nvidia hardware, and the company benefited from a 10% improvement in the price of its stock in the space two years. What was once a company that served a niche segment of the technology industry is now a major player – the market capitalization of Nvidia is twice as large as that of Tesla! It may be the end of the world of startups as we know it, but business history students should feel good.

Featured Image: Andy Roberts / Getty Images

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