The resurgence of music industry sales marks the industry having finally worked out how to begin to manage the transition from analogue to digital.
“Manipulating people, that’s what I’m good at.” ~ Madonna.
The VC industry seems to be undergoing similar challenges: VCs being the equivalent to the record industry moguls who somewhat reluctantly realise their revenues rely on the ever-changing (and often unpredictable) whims of a market they don’t really understand, with their products sourced from an expensive, high-risk and somewhat chaotic talent-pool - whether aimed at the vibrant, disparate games and apps-market or the more staid Enterprise-market, the stakes are high.
Don’t believe the hype.
How does one spot a trend, a market opportunity and who do you back to best exploit that opportunity? In the old-days of the music-industry, each record label would have a network of (formal and informal) A&R talent-scouts going to gigs, listening to demo-tapes, etc. Although it has evolved and adapted, this simple infrastructure is still key to identifying new talent. Some new ‘talent’ comes via a different route, of course.
“Thinking is the hardest work there is, which is probably the reason why so few engage in it.” ~ Henry Ford.
This is rather like the talent-scout infrastructure in the game of football. Sure, football/soccer uses a lot more analytics nowadays, but that doesn’t help you spot the teenage raw-talent playing for an obscure non-league side on a muddy pitch somewhere in Yorkshire, on a wet Tuesday evening in January.
“A good decision is based on knowledge and not on numbers.” ~ Plato.
And how about which (hitherto) obscure artist should be given their big break, and feature in a major art exhibition?
Who/what will be the next big thing? With products it’s one thing - with people, it’s another thing entirely. And software is primarily a people business. Ultimately, the people you choose lead to the creation of a product (hopefully) being released, but this process is not an indie-musician releasing another obscure single which suddenly goes viral via YouTube. Music - like art - is an iterative process with relatively low-costs involved in creating prototypes until the final ‘product’ is realised - and this is not identified (validated) for sure until it becomes a success and thus the formula is repeated - sure, no doubt lots of angst, blood, sweat and tears is involved but the element of risk is minimal because the initial investment/expectations is conservative and the outcome is unknown. The primary investment is time: and patience.
“The object of this competition is not to be mean to the losers but to find a winner. The process makes you mean because you get frustrated.” ~ Simon Cowell.
So, as a record company boss you want to see if this new band/performer could be big? OK, sign them up, pay them a modest retainer, send them out on a perpetual tour at small venues and get some real-world market feedback. In parallel, fund a couple of low-cost music videos and let’s see how it goes. Even if this approach is not adopted, when a song/video comes from the left-field and suddenly goes global for no apparent reason it’s unlikely to be as a result of a global zeitgeist epiphany of “Wow, this is great!”
As with the rigid processes employed by the automotive industry or any FMCG company, intense market-research, knowledge of one’s chosen markets and clinical go-to-market execution is implicit - you leverage the empirical market-data you have along with your understanding of market-trends and competitive factors. It’s a big decision. It’s not the arbitrary launch of an unknown artist in a move more geared towards shocking the art-world and mainstream-media, nor is it a low-key provincial university gig for your latest band. In such circumstances it’s hard to fail. These are not binary events: they are iterative.
If you’re the chief designer at Harley-Davidson, it’s highly unlikely you’re going to recommend the next model should be an electric scooter, are you? Not just yet, anyway.
Music, art, cars and motorcycles all have one thing - and one key advantage - in common: they are emotive. They inspire people, create a passion; a loyalty. A piece of software has either to be either functional or entertaining - if it can be both, well, that’s a bonus…
“What is truth? Truth doesn’t really exist. Who is going to judge whether my experience of an incident is more valid than yours? No one can be trusted to be the judge of that.” ~ Tracey Emin.
One example of that magic blend of functionality and entertainment comes to mind.
And herein lies the dilemma - the challenges - for the VC and the startup: you are both talent-scout, A&R, indie-band, (maybe) the next global superstar, designer, researcher, manufacturer, artist, engineer, curator, etc…
“Players lose you games, not tactics. There’s so much crap talked about tactics by people who barely know how to win at dominoes.” ~ Brian Clough.