One of the concepts I teach in my entrepreneurship class is that a new business concept is really just a hypothesis until annual revenues reach about $10 million. Too many entrepreneurs lock on to an initial idea of who their customer is and run out of cash before they find a customer base of sufficient size to sustain the company. By considering a new business concept a hypothesis I am trying to encourage my students to be more flexible in their thinking, to realize that their initial thinking may be wrong and to be on the lookout for a better market for their product.
In 2005 I helped raise the initial Series A venture capital for a location-based services company--LOC-AID. LOC-AID originally planned to target the large carriers and offer them location-based games, geo-fencing products and related consumer apps. The longer term strategy was to provide a gateway for consumers to share their location regardless of the cell carrier they used (in 2005 this sharing was not possible). Neither of these strategies appear to have ever worked, but in building the gateway LOC-AID found its customer and market. It was neither the consumer nor the cell carriers.
Read Write Mobile reports that LOC-AID is now one of the largest providers of location-based information. Their customer base is now financial institutions and other firms that use location as an additional way to verify security. For example, a credit card is presented to a merchant in San Francisco but the card holder's cell phone location shows that they are in NYC. FRAUD ALERT. LOC-AID's gateway to all the carriers provides a location on almost all cell phones in the U.S. for financial institutions. Other examples are in the RWM story.
A couple of other points to note:
- We presented LOC-AID to over 20 leading Silicon Valley VCs, who all passed, before finding a lead investor on the east coast
- The consumer is not the only market for all of this modern technology; B2B applications can be large markets if you are flexible enough in your thinking to find the new opportunities
