Change is the only constant in business
After I exited my startup, I was wondering what I would do with my life. It was around this time that I decided to dabble at angel investing. Suffice it to say, I was terrible at it.
Fortunately, I met others that had been investing for much longer. I would meet these battle-scarred veterans of the startup scene at angel investor events, pitch competitions, and startup conferences. It was at one of these events that I connected with a prolific angel investor and co-investor into a few companies I had also invested.
While we talked about a lot of things, one thing in particular stuck with me during our conversation. I had asked him about startups that seem to at first do okay, but then all of sudden stall out, become zombies, and eventually fold.
“This happens with every company when they no longer innovate, whether big or small. When innovation stops, a company stops being valuable. You evolve, iterate, or die!”
For context, my startup was in the HR tech industry. One thing I noticed was how many HR tech startups seemed to have fast initial growth, then plateau without ever hitting scale or finding an exit. When the financial crisis hit in 2008, it managed to kill off many of these startups that no longer had a VC lifeline or customers that had the need for software to better hire and manage employees.
What my newfound investor friend was pointing out is that innovation is how companies thrive over time. Every company starts out with an idea and a market. For Coca-Cola, it was a carbonated beverage. For Apple, it was personal computers. For Amazon, it was selling books on the Internet. Over time, companies innovate, improving the original idea, then launching new ideas.
Why? Because this is what customers ask for! In his 2017 Shareholder Letter, Jeff Bezos, founder of Amazon, said the following about customers:
One thing I love about customers, is that they are divinely discontent. People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’.
Customers want and expect innovation from the companies they spend money with. We see this all the time with consumer electronics, fashion, and food. Remember those epic lines at Apple stores to get the latest iPhone model?