Editor’s note: This is a cross post from The Meaford Group written by Peter Smith . This post was originally published in August 20, 2011.
According to Wikipedia, YA stems from "yet another…" which "is an idiomatic qualifier in the name of a computer program, organization, or event that is confessedly unoriginal". In this case, YASN is "yet another social network" and is becoming a derogatory terms amongst Angel investors, VC's and those of us whom advise and mentor startup companies.
Social media and mobile applications are the hot. Ideas for new applications abound. At the same time, the cost to develop a product is relatively low and hosting the application in the cloud using service like Amazon or Microsoft is relatively cheap to start and scalable. Go-to-market vehicles like app stores and platforms like Force.com are viable strategies for sales and distribution for some companies.
As a result, in the last year, I have seen a landslide of young entrepreneurs presenting their vision for building their start-up venture around a social community or mobile applications for activities ranging from dating, to restaurant selection, to consumer retail communities, to event ticket selling, to meeting the needs to a specific community of like minded individuals and so on. Many of the ideas are innovative in that they include twists on current products by using near field communications, geolocation, mobile apps based on HTML5, or other emerging new technologies, some of which were novel twelve months ago but have already become mainstream.
The reality is that few, if any of these start-ups are going to make it and become a viable company. A great idea is not enough. A knock-off of another idea with some added competitively unsustainable innovation is certainly not enough. It is this phenomenon that drives people to roll their eyes when the next YASN walks through the door to present their company. To have even a hope of success, these entrepreneurs must be able to show a killer idea, a sustainable innovation and a marketing plan to create the volumes of users required to become financially viable.
I recently met with the CEO of a company that was started just after the Dot.com era of the early 2000's. While the company has struggled, it has established itself as one of a handful of viable competitors in its market. We were discussing his company's prospects, its plans for the next round of funding and its valuation. The CEO observed that the competitive landscape is pretty well fixed in his space. He doubted that any new entrants will appear, regardless of the next great tech innovation, because the complexity and sophistication of the business process they solve required over one million lines of code in their application. His point was solid. Why would anyone want to invest to build a new competitor to play in what is already a crowded marketplace when the level of investment is so significant. Yet so many YASN's base their company's value proposition on an unprotectable innovation that any large company like Facebook, Google, LinkedIn, Groupon, etc, could build from scratch in a couple of months.
Another company started their business two years ago as a hardware product. They have evolved their business to now offer a slick SaaS based content manager that not only feeds their box but also many other types of related devices used by their clients. Even though the hardware business is a pain in the ass to manage and requires more working capital than the software business but I like it because it provides an easier point of entry to sell to new customers and is sticky. On top of that, it is a huge differentiator against any competitor considering entering their space.
Whether your prospective customers are businesses or consumers, they need a Return of Investment (ROI) before they buy your product. While in Business-to-Business (B2B) transactions, the ROI is precise and quantified, in Business-to-Consumer (B2C) transactions, the consumer is still looking for a benefit. Even where applications are free, the consumer must justify to themselves the inconvenience of cluttering their mobile device with one more App, and the time to build and maintain another profile, manage another password and promote themselves in yet one more community. It is for this reason that I solely use LinkedIn and have rejected invitations from a number of other business social networks. The benefits of connection to a few people who don't use LinkedIn plus whatever other enhancements these networks have do not outweigh the time involved in using them. Most YASN's I meet don't have a "killer" compelling differentiator that I believe will propel them ahead of their competition.
The other area that I continually see YASN start-ups underestimate is the cost of creating the buzz around what they are doing in order to generate sufficient traffic to build a viable community. Consider this; social media success is measured in millions of member and visitors, not thousands. If you are a startup and want to create market proof points for potential investors, you want to generate tens of thousands, if not hundreds of thousands of "Freeium" subscribers in your first few weeks and months after launch. Since conversion from awareness to subscription is generally measured in a few percentage points of click-through emails or paid and organic search, your early marketing plan is going to have to demonstrate how you are going to get the buzz going. Not only does your message need to be incredibly tight, focused and compelling, it also has to hit millions of potential targets. And that is just to get started in order to attract the notice of early round investors.
So if you are one of the start-ups pounding the pavement, the road ahead is crowded. Before you become just a YASN to the people you are meeting, make sure your product is competitively sustainable, that your marketing plan is in the right order of magnitude and your idea is totally unique and incredibly compelling. Otherwise, I would recommend that you pass and move on to your next opportunity.