When Bad Companies Do Good Things

Entrepreneurs often ask me where good ideas come from. My answer usually is from bad companies.
The most obvious example of this is Facebook. MySpace prospered despite its founders’ penchant for pornography, spam and spyware. San Franciscans loved Friendster despite the reputed self-destructiveness of its founder, Jonathan Abrams. Was it really so hard to imagine that a Harvard computer scientist could build a better social network?
Citysearch was left for dead by IAC, but it was still folks’ only option for local online guides when Urbanspoon and Yelp came along. When Yahoo couldn’t do anything right, Yahoo Answers was a hit, which wasn’t lost on the founders of Quora. The same is true of newspapers and The Huffington Post, of Flickr and Instagram, of IAC’s Expedia and Kayak, of Match.com and OkCupid.
In all of these cases, the problem of social networking or photo-sharing seemed to have been addressed by a company that had lost its mojo. The reason that no one tried to build a social network after 2000 was because we all saw what happened to Friendster. The reason no one tried to build a technology-powered real estate brokerage is because we watched eRealty go down in flames.
These companies become the dead bodies in a passageway that new entrepreneurs have to step over before conquering the usual dragons a startup faces, of getting customers and making money. “Isn’t Yahoo doing that?” potential partners or investors ask. “Didn’t eRealty try that?” The answer to that question is “Yeah, but we’ll do it much better, cheaper, faster.” It can sound like empty swagger, and sometimes it is. But that’s how almost every startup succeeds.
What the entrepreneur has to focus on is whether people want a Q&A site, a local guide, a technology-powered real estate broker. Wherever there’s demand, especially demand so strong that consumers work with a company they don’t even like, you can find a way to win.
A professor of my brother’s once complained that freshmen who sprinted through One Hundred Years of Solitude as part of a 12-week survey course would go through life thinking they had read the book, never coming back to the experience when they could truly appreciate it.
The same is true of startups. The market concludes about an idea that we’ve been there and done that, but often it’s the second or third time that’s a charm.