Ask TSF Readers – What happened to “real world” startups?

You know, the startups that actually have tangible products such as Zappos, Amazon, Redbox or Groupon.  If you can explain it to your grandmother, then most likely it has a real world aspect to it that normal people can relate to. If you’re debating a freemium model vs. Paid model then most likely you don’t have a physical product / service to sell.

As Startup Foundry grows we get more and more startups asking for us to cover them, and 99% of them don’t involve any “real life” aspects to them.  Why is that?  I have a few explanations why they don’t exist.

  1. Pure software startups have almost zero barrier to entry if the founders are developers
  2. Developers are so immersed into their digital lives, they forget about problems that can be solved in the real world.
  3. The people who have the ideas for real world startups, are not entrepreneurs, thus the idea never gets executed.
  4. There are actually plenty of real world startups, but I don’t hear about them because I’m also so immersed in my digital life.

Reason #1: Pure software startups have almost zero barrier to entry if the founders are developers

Or as I like to day: The path of least resistance.  A digital site that doesn’t involve physical things means that a developer can essentially develop and market a product without ever having to go outside of their house.  Chat Roulette being a prime example of this.  The founder of Chat Roulette didn’t have to go outside of his house and market his product to retail stores, companies or anything of that sort.  He just built it, and the initial (albeit short term) success was great.

All a developer needs is a computer and an internet connection.  Most of the popular developer frameworks are free and open source. It’s a no brainer.  However, this leads to a billion websites that all try to accomplish the same thing and there really is no innovation involved.  I don’t want another website that allows me to filter and display my online content in an easier way.  I’m absolutely dying for someone to come up with another article recommendation engine or a better way to determine my online clout.

The path to least resistance is also amplified because there are no hardware costs associated with it besides server costs (A server you will most likely never ever see).

Reason #2: Developers are so immersed in their digital lives, they forget about problems that can be solved in the real world.

This is another big reason why I think why we are too busy solving online problems instead of real world problems.  Developers are doing what they do best: Developing.  This involves a computer and an internet connection and also means most of their lives are spent are in front of their computer.  Ideas evolve from frustration you experience, and developers frustrations are mostly online because this is where they are most of the time.

If you combined the “path of least resistance” along with frustration you experience online, you end up with a digital product that solves a digital need – not a real world need.

Reason #3:  The people who have the ideas for real world startups, are not entrepreneurs, thus the idea never gets executed.

I’m sure there are plenty of mothers out there that experience a lot of frustrations in their lives with the products they use.  A baby monitor that doesn’t work, a crib that is too hard to put together, etc.  But, they are too busy to implement these ideas, or have the slightest clue where to start.  For this case in particular, i’m sure the major brands are all over it anyway.

But, as I type this, reason #4 seems like possibly the best answer to this post.

Reason #4: There are plenty of real world startups, but I don’t hear about them because I’m also so immersed in my digital life.

This can quite possibly be the answer.  Maybe it’s because I’m like everyone else, and I spend most of my time in front of a computer.  As sad as that sounds, it’s true.  The places I “hang out” are mostly online.  I hear the frustration of signal vs noise on twitter, but I never hear something like “I wish there was a better way to hang my keys”.  I’m so immersed in my online life, this is seriously the best real world problem I can come up with.  And it’s not even a problem!

In my example in reason #3, it is quite possible that sine I don’t have kids I have no idea what the newest and greatest products are and most importantly who are making these products.   Are there startups focusing on making baby products, I have no idea.

This is where I need the readers help – Where are all these real world startups.  Do they exist & if so where do I find them?

  • James

    Most “real world” problems aren’t worth the effort, the internet is where it’s at, to solve a real world problem you need at least 300k.

    • I don’t necessarily agree with this comment that you need at least 300k. I think there are plenty of ways to start a “real business” without a physical location. We can still use the internet to allow us to market our real products.

    • John

      A lot of the real world problems tend to be very big problems, like starvation, extreme poverty, disease etc, while social entrepreneurship comes into play for that and its worth the effort, it tends to be more for the benefit of society overall and not profit for an individual or company.

  • Anonymous

    I’ll assume by “startup” you mean, “technology startup”.

    That that frame there are two key reasons why you see more purely digital companies than mixed digital/physical:

    1) Friction. It’s more capital intensive to be a mixed company, and yet it’s hard to raise the required money because mixed companies are perceived as low leverage compared to digital companies. (I’m not sure I agree, I feel the expected values of investor returns are probably similar)

    2) Digital is a large Frontier: There is just more surface area to explore, and we’ve been exploring it for less time.

    Certainly there are “real world startups” starting constantly. Square, WakeMate, FitBit, GrubWithUs, Groupon clones (since you count Groupon as ‘real world’)

    For some insight into the number of hardware companies incubating right now, check out: http://angel.co/hardware

    I necessarily disagree with James below that “real world” problems are not worth the effort, as I’m starting http://www.activetheoryinc.com which builds exercise sensors that connect wirelessly to tablets/smartphones. He’s right it takes 300k (at the LEAST), but that’s not really a barrier, especially in this funding climate.

    • Yes, you are correct. Since this is mainly a tech blog, I figured people would automatically assume that.

      Agreed with points #1 & 2. It requires a little bit of capital to start it. I guess you can always start an e-commerce site without any real products, but somehow you need to get those products initially.

      Digital is a new and growing arena for sure. I would like to see less content aggregration sites and more startups like square, wakemate, etc. (Your examples were much better than mine btw).

      I also do generally disagree with James, and that is the mentallity of many of the tech entrepreneurs. We aren’t convinced there aren’t real world problems, and there are only digital problems. That needs to be changed.

  • I think #5 could be: The REAL “real-world” startups are too busy taking their real solution to their real customers and making real money instead of trying to pitch to tech blogs so they can hope someone discovers them 🙂

    and #6 could be – look somewhere other than VC backed companies. Bootstrapped = Making Money = Real Solution to Real Problem

    • #5 is an awesome comment. I think we almost forget about how to make money and instead focus on tech blogs and obtaining users instead of obtaining revenue.

      #6 is great too and this is why Jason Fried is leading the bootstrapped revolution.

  • I think in the next decade you’re going to see many “real world” startups appearing. The problem is people in the “real world” are just catching onto what’s happening online.

    Our startup (http://www.stickermule.com) is growing reasonably fast even though we sell a common real world product: custom stickers. There are 100s of vendors that sell our product including most local print shops, but we’re growing beyond our expectations for few reasons:

    1. We aim to be a “better way to buy custom stickers” which is appealing. Most real products could be procured more easily if those making them understood the Internet.
    2. We leverage the latest Internet trends to get our name out cost effectively (i.e. blogs, deal sites)
    3. We use technology to automate as much as possible so we can focus on marketing. Most real world companies are bogged down by manual business processes.
    4. We borrow (i.e. steal) marketing techniques from successful web apps, while other “real world” startups still use more traditional marketing concepts.

    Right now the Internet is all about web startups, but I think we’ll see many more “real world” startups in the coming decade. It’s just a matter of time before people in more traditional spaces realize they can grow fast & cost effectively by embracing the Internet.

    2 examples of companies that already did this: ActionEnvelope & uPrinting. Both sell commodity products in declining market places but they’re doing extraordinarily well because they understand the web. Both of these companies were tiny players in their respective spaces 10 years ago, but now they’re dominant forces. More companies will join the party soon. We certainly have. 🙂

    • I really like the site, and it’s awesome to see a startup that has something “real”. See, the real world startups know they need to embrace the internet, but they don’t know where to start. I think yours is a prime example.

      Can you contact me: robbie [at] thestartupfoundry [dot com]? Sticker Mule would be a great feature profile on our site.

  • The fundraising environment (at least in Silicon Valley) is currently quite adverse for startups having anything to do with tangible goods. I’m currently raising a seed round, and one thing I heard early on from multiple advisors was to find a way to prove out my concepts purely in software, even though delivering a software + embedded-hardware solution would clearly be the superior way to address the market need.

    I think this situation arises from three influencing factors:

    * It’s so easy to do a dipshit one-feature web startup and get some people to try your one-trick pony that it’s created investor perception that ANY startup outside of chips or medical devices can use that model. Not everybody thinks this way, but I’ve met a lot of people who do.

    * There’s a path to market that ends up with physical hardware, epitomized by Boxee and others, in which product is developed purely as software first (e.g. Boxee for PC/Mac) then converted to a physical product. I give this one a lot of credibility.

    * Physical products are seen as a mature, commoditized market with all of the innovation happening at the software layer, and it’s believed (falsely) that the only exceptions to this are if you’re able to operate at massive scale, i.e. Apple

    That said, there are scrappy startups like GreenGoose (saw them at Launch) which are doing physical products with huge potential. However, they’re the exception and not the rule.

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  • I agree that reason #4 is the best answer for to this post. Although I’m a programmer, recently I bootstrapped a construction company and grew it from 0 to $500k in sales. The problem with real world businesses is 1) it’s hard to get noticed without spending in ads and 2) everything costs much more than if you’re a software startup. You barely could renovate your bathroom for amount of money you need to start a software startup.

  • Muskox

    Well over 90% of Kickstarter projects deal with “real world” stuff.  The ultimate bootstrap model!

  • This article inspired me to write a blog post on real-world startups. tl;dr real-world startups are HARD! but the Kickstarters, Quirkys, and Daily Grommets of the world have created ecosystems that give real-world entrepreneurs the financing, development, and distribution they need.

    http://andrewmurraydunn.tumblr.com/post/26350717487/traditional-entrepreneurship-for-the-21st-century