Domain Experience Gives Entrepreneurs an Unfair Advantage

Posted on Feb 7, 2010 | 41 comments


This is the final part of my series on Entrepreneurial DNA that was originally published on VentureHacks.  OK, it’s not really my final part.

I started with a Top 10 list for Nivi (at VentureHacks), but I couldn’t cram it into 10 so it became a Top 11 list.  I originally conceived it as the Top 11 things that I believe “all entrepreneurs need to succeed.”  If it stuck to this theme then I would stand by my top 11.  But Nivi envisioned it being the “Top 10 things I needed to see before I wrote a check.”  I think the title sounded better to him ;-)

This became comical as I published my “attention to detail” post because some people noticed that the Top 10 list had 11 items.  Made ME laugh, anyways.  So sticking to my definition of “attributes for success” it had to be my  Top 11 +1 rather than a Top 12.

11. Domain Experience – “Domain experience” means that the founders have worked in the industry before.  It isn’t a “must” for me but it’s certainly a huge positive when entrepreneurs have it.  When you’re researching a market you can spend a year putting your hypotheses on paper but you somehow never really have a handle on the minute details of the industry until you’ve lived in it.  It’s not an absolute requirement for me that you have domain experience but if you do it’s a HUGE plus.

Are you launching a mobile application?  If your last company was Apple, Blackberry, AdMob or JAMDAT and you have some experience in the sector then I know that your product will have your experiences baked into it.  When Evan Rifkin of Burstly launched a new ad network for iPhone (and soon to be other devices) applications I knew he would have a very strong offering out of the box.  He’s built two ad network companies – he knows what he’s doing.  I’ve now validated with 3 independent sources that he’s really on to something so if you have an iPhone app that you’re looking to better monetize you should check it out (no, I’m not currently an investor.  I’ll always point out when I am.).

I learned the domain lesson myself.  My first company launched in 1999 and we were offering a SaaS document management in the cloud (we were called ASPs back then).  I didn’t have first-hand experience in document management systems other than as a user and nobody had SaaS experience – the market was too new.  We made lots of assertions about what features we thought people would want, how to price them and how to overcome the objections that people have to managing data in the cloud.

When I began to hire product managers, sales reps and implementation staff from existing document management companies like Documentum and OpenText is when I got first-hand input into what lessons they had learned in their companies over the previous decade.  I know this stuff cold now.  So when I launched my second company which was also a SaaS Document Management company we already had a vision for what would do well in the marketplace.

Domain experience also brings relationships.  I have a good friend who spent years building relationships with senior executives at media companies.  He’s a star.  He wanted to launch his next venture in financial services because it was a bigger industry.  Fine.  But I pointed out that he would be up against competitors that had spend years building relationships with the big financial services companies (as well as channel partners) and he was going to have to start from scratch.  I’m not sure why you’d do that unless you had to.

Examples: There is a company called GreenLink Networks based in San Diego and Philadelphia.  Their first company was called Traffic.com, which they sold in March  2007 to Navteq for $180 million (not too shabby).  I met the CEO Brian Malewicz several times.  He’s a classic entrepreneur and exactly the kind of person I look to work with.  Traffic.com sold 10-second in-content advertising spots to local TV broadcasters.

They had built significant relationships with the local broadcasters and a knowledge of how to sell non-standard ad units.  So when it came time to start their next company the starting questions was, “OK, what big problem could we solve for local TV broadcasters?”  They’re taking on the declining revenue streams of local TV and creating new, measurable ad activities.  In no time after they had researched their market they were up with pilots with local TV stations in 3 key DMAs.  They had relationships – trust – that couldn’t easily be replicated.  I’ll be they’ll build a successful business.

This is exactly the reason I like people who present to me to start with their personal bios.  Before they’re presenting I want to know “what unique experiences you bring to the table that are going to give your business a faster time to market, a better designed product, more knowledge of your customers problems – a higher likelihood of success.”  It’s what many VC’s call, “An unfair advantage.”

Another example.  We recently met the management team of Assistly – CEO Alex Bard and COO Gary Benitt.  When I first met the team in San Diego they had only been working on their software for 5 months.  I was ASTONISHED (yes, it was worthy of all caps) by how good their V0.9 version of their product was.

Assistly is a customer support product designed to meet the needs of the current era of multi-channel touch points (think Twitter, email, chat, forum in addition to phone calls).  The exact same team had worked on 2 previous customer service startups (and 1 non-CS product).  So the whole customer development cycle is very streamlined.  I absolutely love their product, team and vision.  And the progress since my first product review is also great.

I normally don’t talk about specific companies we’re in the process of looking at but I guess when teams Twitter that they met your or check in on FourSquare it’s pretty hard to hide it ;-)  Note: every time I use CoTweet to find old Tweets (as I did with Alex’s Tweet that he met with GRP) I feel compelled to plug them.  I’m not an investor but the ability to so easily go back and pull up old Tweets is vital.

So summarizing my message to you – I know that not every entrepreneur has deep domain experience when they launch their ventures.  That’s OK.  Bill Gates, Steve Jobs and Mark Zuckerberg didn’t really either.  Some people claim that too much domain experience can actually harm you because you become cynical of all the things that can’t be done – you’ve got the scars to prove it.  There IS some truth to this argument.

But if you have it – use it.  If you don’t have it – see if you can pick up team members that do.  There is no doubt in my mind that on balance it offers you a huge Unfair Advantage.

  • http://twitter.com/SyedShuttari Syed Shuttari

    I debate about the same point with my friends, who tell me to look beyond the website/internet to start businesses like bakery or hardware or things like that saying not all the entrepreneurs are restricted to internet/websites, P Diddy, Donald Trump etc telling me not to restrict myself just to the web business.Whereas i feel i know internet/websites better than starting things like my clothing line or a restaurant or some hardware business.

  • marshallhaas

    I'm actually in the middle of watching your TWIST appearance with @Jason where you talk briefly about this.
    Do you think there are cases where you can have domain experience by just being a user, possibly in cases that would seem to be extremely simple contrary to something involving chemistry. For example, say I have a new twist on to-do applications. I don't have experience creating to-do applications but I'm an entrepreneur and have experimented intently with most options, using them to track my own to-do's on my projects. Would you define a situation like that as domain experience?

  • subbu4

    This describes our startup perfectly – i feel that domain experience/ knowledge has helped us move faster during the early phases of trying to figure out product-market fit – we're able to work directly with the folks with whom we're trying to build our product for… and when we make mistakes, they forgive us… and let us poke them with the next iteration… all of this is possible because we worked with them in our previous “lives”, and they trust and like us – definitely makes it easier if you're a first-time entrepreneur, i think.

  • http://twitter.com/KellerII JT Keller

    Great Post! This is a very relevant topic and one that I think entrepreneurs should pay closer attention to. As a first time entrepreneur, I've been trying to digest as much startup related material as I can and one of the common themes seems to promote being a fantastic technologist and letting the agile development process build a winning product for you. There's some truth to this, however, I think it's very easy for technology/Web 2.0 startups to oversimplify the development of a platform or product. I can read about skydiving and watch videos about proper technique until the cows come home, but it's not a true experience until I've jumped out of a plane myself and it definitely doesn't translate into expertise until I've repeated the task several times.

    I had a few solid ideas with similar market potential on the table when I chose to move forward with my startup and the deciding factor came down to my domain expertise. I can't tell you how happy and satisfied I am with my decision. My experience is paying major dividends as we move forward with our development. It's obvious to me that the competitors in the space that we're entering are new to this market. When our competing platform launches, we'll have several distinct advantages that have been the direct result of my expertise.

  • sikakkar

    Completely agree with the value of experience. Like so many other things, I learned this through poker. The connection may seem tenuous, but it makes perfect sense in my mind – the more hands one has played in the past, the greater the understanding of situations one faces in the future. And then the same thing applies in going from one “flavor” of poker to another – experience with one game really helps in picking up another.

    But you said that this is not an absolutely must have. So for an entrepreneur who wants to succeed in an area with limited or no domain experience, what would you suggest as good proxies? Is the best way to seek council (in some sort of advisory role) from someone who does have the experience? Or if that's too expensive (which I suppose it often is) to spend some time working for someone in that industry first? Or is just a ridiculous amount of research the best way to go about filling that experience gap?

  • http://twitter.com/SyedShuttari Syed Shuttari

    I debate about the same point with my friends, who tell me to look beyond the website/internet to start businesses like clothing line, restaurant or things like that saying entrepreneurs need not restrict themselves to internet/websites giving examples of P Diddy, Donald Trump etc.Whereas i feel i know internet/websites are my domain and i can do better in it than starting things like clothing line or a restaurant or some hardware business.

  • http://www.kidmercuryblog.com kidmercury

    definitely. outsiders have huge advantages as well, namely their “pure” vision, untainted by the chains of the status quo. ideal combo IMHO is total outsider plus industry veteran, then you have all the ingredients needed to cross the chasm.

  • http://twitter.com/marshallhaas @MarshallHaas

    I'm actually in the middle of watching your TWIST appearance with @Jason where you talk briefly about this.
    Do you think there are cases where you can have domain experience by just being a user, possibly in cases that would seem to be extremely simple contrary to something involving chemistry. For example, say I have a new twist on to-do applications. I don't have experience creating to-do applications but I'm an entrepreneur and have experimented intently with most options, using them to track my own to-do's on my projects. Would you define a situation like that as domain experience?

  • http://arnoldwaldstein.com awaldstein

    Great comment Kid.

    At one time everyone is without experience and that is made up for with vision and chutzpah.

  • http://twitter.com/legit_nick Nick Sanchez

    Great Post!

  • http://www.bizplanit.com/blog Scott Pollov

    Mark. Excellent article. I believe that entrepreneurs who have proven themselves in one domain can transfer that success to another domain. The learning curve is certainly much steeper but by surrounding yourself with a team with deep domain expertise you will smooth out the ride. Plus, it is always more fun to succeed in something new than to conquer that same challenge again and again.

  • subbu4

    This describes our startup perfectly – i feel that domain experience/ knowledge has helped us move faster during the early phases of trying to figure out product-market fit – we're able to work directly with the folks with whom we're trying to build our product for… and when we make mistakes, they forgive us… and let us poke them with the next iteration… all of this is possible because we worked with them in our previous “lives”, and they trust and like us – definitely makes it easier if you're a first-time entrepreneur, i think.

    PS – good use of the word puccka – more people should use it – i will start injecting it into my vernacular

  • http://twitter.com/KellerII JT Keller

    Great Post! This is a very relevant topic and one that I think entrepreneurs should pay closer attention to. As a first time entrepreneur, I've been trying to digest as much startup related material as I can and one of the common themes seems to promote being a fantastic technologist and letting the agile development process build a winning product for you. There's some truth to this, however, I think it's very easy for technology/Web 2.0 startups to oversimplify the development of a platform or product. I can read about skydiving and watch videos about proper technique until the cows come home, but it's not a true experience until I've jumped out of a plane myself and it definitely doesn't translate into expertise until I've repeated the task several times.

    I had a few solid ideas with similar market potential on the table when I chose to move forward with my startup and the deciding factor came down to my domain expertise. I can't tell you how happy and satisfied I am with my decision. My experience is paying major dividends as we move forward with our development. It's obvious to me that the competitors in the space that we're entering are new to this market. When our competing platform launches, we'll have several distinct advantages that have been the direct result of my expertise.

  • http://bothsidesofthetable.com msuster

    Focus on 3 things:
    1. Something you're passionate about
    2. Something you feel you know well
    3. Something where there is a large enough market opportunity

    Good luck.

  • http://bothsidesofthetable.com msuster

    Listen, if you feel you have unique insights on a market I'm not one to dissuade you from pursuing your dreams. But I don't believe that being a user is the same as being a domain expert. Once you've run a product, a business unit or even a company in a certain sector then you REALLY know the industry. It is seldom the same as what you read about in the press. Being an insider means knowing the economics, the customer values, the competition and the industry partners. Also, if you are using to-do's as a real case (rather than just an example) be careful. I'm concerned it's a FNAC (feature, not a company).

  • http://bothsidesofthetable.com msuster

    pointing out the obvious from your comment – relationships matter! Thanks for the input.

  • http://bothsidesofthetable.com msuster

    Awesome. I look forward to learning more over time how your business develops, JT. Good luck.

  • http://bothsidesofthetable.com msuster

    re: poker – I”m sure there are many analogies with poker and startups that apply. The one you're pointing to is the 10,000 hours principle articulated in Outliers, by Malcolm Gladwell. I agree with his conclusion in this book that a certain amount of hours put into any activity is required to be an expert.

    re: research as a proxy – I don't think so. I think that we learn from doing. Better that you work with someone in the industry OR if your financial circumstances allow it – try things on your own so you can learn by doing. Might be that your first venture isn't a home run but you'll be much more ready for number 2!

  • http://bothsidesofthetable.com msuster

    Yes, as I pointed out some of the biggest wins come from people who don't have domain experience. It's an argument for “naive optimism,” which I would argue accounts for a lot of innovation that comes from the US as a nation. Sometimes we do things because we don't understand that they can't be done.

    So, my thesis: really big, hairy, industry changing innovation probably comes from outsiders without the domain knowledge but success is much more rare. Garden variety success (which can still be massive) comes from people with domain knowledge and has a higher probability of success.

    Thanks for your insights.

  • http://bothsidesofthetable.com msuster

    I would argue that having domain knowledge and trying to build a huge success in the same industry won't be the same challenge over and over. Building something novel, meaningful and commercial adopted is usually a new challenge in and of itself. But I get your point – some innovation is transferable.

  • http://10pens.com sikakkar

    Completely agree with the value of experience. Like so many other things, I learned this through poker. The connection may seem tenuous, but it makes perfect sense in my mind – the more hands one has played in the past, the greater the understanding of situations one faces in the future. And then the same thing applies in going from one “flavor” of poker to another – experience with one game really helps in picking up another.

    But you said that this is not an absolutely must have. So for an entrepreneur who wants to succeed in an area with limited or no domain experience, what would you suggest as good proxies? Is the best way to seek council (in some sort of advisory role) from someone who does have the experience? Or if that's too expensive (which I suppose it often is) to spend some time working for someone in that industry first? Or is just a ridiculous amount of research the best way to go about filling that experience gap?

  • http://arnoldwaldstein.com awaldstein

    The only exception to this that jumps to mind is Evan Williams (Blogger, then Twitter) but yes, this is probably true.

    To drive radical change, often the ideas come from the outside and the willpower is driven by belief and energy more than logic.

    Thnx,

  • http://www.kidmercuryblog.com kidmercury

    definitely. outsiders have huge advantages as well, namely their “pure” vision, untainted by the chains of the status quo. ideal combo IMHO is total outsider plus industry veteran, then you have all the ingredients needed to cross the chasm.

  • http://arnoldwaldstein.com awaldstein

    Great comment Kid.

    At one time everyone is without experience and that is made up for with vision and chutzpah.

  • http://twitter.com/legit_nick Nick Sanchez

    Great Post!

  • http://www.bizplanit.com/blog Scott Pollov

    Mark. Excellent article. I believe that entrepreneurs who have proven themselves in one domain can transfer that success to another domain. The learning curve is certainly much steeper but by surrounding yourself with a team with deep domain expertise you will smooth out the ride. Plus, it is always more fun to succeed in something new than to conquer that same challenge again and again.

  • http://bothsidesofthetable.com msuster

    Focus on 3 things:
    1. Something you're passionate about
    2. Something you feel you know well
    3. Something where there is a large enough market opportunity

    Good luck.

  • http://bothsidesofthetable.com msuster

    Listen, if you feel you have unique insights on a market I'm not one to dissuade you from pursuing your dreams. But I don't believe that being a user is the same as being a domain expert. Once you've run a product, a business unit or even a company in a certain sector then you REALLY know the industry. It is seldom the same as what you read about in the press. Being an insider means knowing the economics, the customer values, the competition and the industry partners. Also, if you are using to-do's as a real case (rather than just an example) be careful. I'm concerned it's a FNAC (feature, not a company).

  • http://bothsidesofthetable.com msuster

    pointing out the obvious from your comment – relationships matter! Thanks for the input.

  • http://bothsidesofthetable.com msuster

    Awesome. I look forward to learning more over time how your business develops, JT. Good luck.

  • http://bothsidesofthetable.com msuster

    re: poker – I”m sure there are many analogies with poker and startups that apply. The one you're pointing to is the 10,000 hours principle articulated in Outliers, by Malcolm Gladwell. I agree with his conclusion in this book that a certain amount of hours put into any activity is required to be an expert.

    re: research as a proxy – I don't think so. I think that we learn from doing. Better that you work with someone in the industry OR if your financial circumstances allow it – try things on your own so you can learn by doing. Might be that your first venture isn't a home run but you'll be much more ready for number 2!

  • http://bothsidesofthetable.com msuster

    Yes, as I pointed out some of the biggest wins come from people who don't have domain experience. It's an argument for “naive optimism,” which I would argue accounts for a lot of innovation that comes from the US as a nation. Sometimes we do things because we don't understand that they can't be done.

    So, my thesis: really big, hairy, industry changing innovation probably comes from outsiders without the domain knowledge but success is much more rare. Garden variety success (which can still be massive) comes from people with domain knowledge and has a higher probability of success.

    Thanks for your insights.

  • http://bothsidesofthetable.com msuster

    I would argue that having domain knowledge and trying to build a huge success in the same industry won't be the same challenge over and over. Building something novel, meaningful and commercial adopted is usually a new challenge in and of itself. But I get your point – some innovation is transferable.

  • http://arnoldwaldstein.com awaldstein

    The only exception to this that jumps to mind is Evan Williams (Blogger, then Twitter) but yes, this is probably true.

    To drive radical change, often the ideas come from the outside and the willpower is driven by belief and energy more than logic.

    Thnx,

  • http://twitter.com/blusie Erin Lawlor

    I appreciate this post – I am usually dismayed by advice to entrepreneurs minimizing domain experience. I think that lack of domain expertise (in established markets) results in products that do not fill the needs of a domain and therefore continue the opportunities for improvement once the users realize that their needs have not been fulfilled.

    I wonder if you're really an entrepreneur if you have too many scars to see the opportunities in an established market where you have actual domain experience.

  • http://twitter.com/blusie Erin Lawlor

    I appreciate this post – I am usually dismayed by advice to entrepreneurs minimizing domain experience. I think that lack of domain expertise (in established markets) results in products that do not fill the needs of a domain and therefore continue the opportunities for improvement once the users realize that their needs have not been fulfilled.

    I think there is a reason why we keep hearing the “eating your own dog food” quote – even if you don't have prior domain experience, to be really successful, it seems essential to have hands on experience that can be incorporated into your product.

    I wonder if you're really an entrepreneur if you have too many scars to see the opportunities in an established market where you have actual domain experience.

  • Jason_Wolfe

    Domain experience come with one other massive advantage, as hinted at in some of the comments. Contacts. As veterans of the UK financial services industry, as well as web, we were able to talk very frankly with the guys still within that industry about what their major challenges were.

    This allowed us to identify a significant opportunity (my favourite word) and build a product with almost instant market fit. It's very possible to do this without huge domain expertise, but it certainly creates a short-cut and eliminates some of the risk.

  • http://www.jasonwolfe.co.uk/ Jason Wolfe

    Domain experience comes with one other massive advantage, as hinted at in some of the comments. Contacts. As veterans of the UK financial services industry, as well as web, we were able to talk very frankly with the guys still within that industry about what their major challenges were.

    This allowed us to identify a significant opportunity (my favourite word) and build a product with almost instant market fit. It's very possible to do this without huge domain expertise, but it certainly creates a short-cut and eliminates some of the risk.

  • Pingback: Domain Experience Gives Entrepreneurs an Unfair Advantage | CloudAve

  • Vivek

    Dear Mark,

    Following is a link that might interest you. http://www.cpd.ogi.edu/MST/capstone/BuildingStr

    Love your articles,

    Vivek

  • Vivek

    Dear Mark,

    Following is a link that might interest you. http://www.cpd.ogi.edu/MST/capstone/BuildingStr

    Love your articles,

    Vivek

  • Vivek

    Dear Mark,

    Following is a link that might interest you. http://www.cpd.ogi.edu/MST/capstone/BuildingStr

    Love your articles,

    Vivek