There is no doubt about the fact that starting a startup is difficult. With a failure rate of approximately 80%, launching a startup can be tough but entering the wrong space can make your chances of success next to impossible. Having an inexperienced team, difficulties in gaining funding and poor timing are other key factors that often contribute to failure. However, entering the wrong space – particularly at the wrong time, is another easy path to failure. So, what is the wrong space at this moment? Here is a short list of spaces to avoid for now:
5. Event Ticketing – This space is very mature and there are several big players who dominate. We can all name the largest – Ticketmaster- but there are several mid- to small-sized players who have done well. The key is finding a source of tickets to a wide variety of events. Some companies in this space, like Stubhub, depend on current ticket holders who want to sell their tickets. The major players get their tickets directly from the venue, and that allows them to have more control. A new startup, Ticket Scalpr, recently entered the space and shows promise. Ticket Scalpr, a mobile app, has a business model that depends strictly on timing to give it an advantage. The company specializes in moving tickets “at the last minute” by connecting the buyer and seller to conduct an in-person transaction just before the event is due to begin. Ticketmaster is getting a viable competitor with the start of AXS – it will be Goliath vs Goliath. This is one space to be avoided.
4. Personal Finance Management – This space almost seems like the place where so many well-meaning startups went to die. It has had a great success with Mint, but it has seen a lot more failures. Why do so many startups fail in this space? Frankly, it’s due in large part to a lack of consumer interest. Success is highly dependent on the startup’s business model – the more intuitive the better. Creating a site that requires substantial data input from the consumer is a formula for disaster. This space can be tricky – and you don’t be the next Wesabe.
3. Online Business Reviews – This space has a lot of big names, from CitySearch to Yahoo Local and many more. Of course, Yelp dominates the space and has left all other competitors in the dust. Google Places also operates here. A new startup will face several deep-pocketed competitors. There is already a proven business model in this space. A new startup would have to either copy it or create another successful model. The best way to go is niche in this category. Smaller, but successful review sites include TripAdvisor and AngiesList. One promising startup is TruReview. They have recently entered the space but by taking a different approach: reputation management. They tout the benefit of being able to validate reviews in order to avoid fake reviews, and help you monitor the reviews that are coming in, both positive and negative. TruReviews has chosen not to use a free business model and we will have to see if their paid monthly subscriber model gains any traction.
2. Tutoring – With the recent failure of TutorSpree, this is a tough space to conquer. It seems easy enough to get tutors, but then the trouble begins. Getting students, or their parents, to pay for tutoring is the catch. If you set up a premium service, rates can range from $50-100 an hour, which makes it difficult to enter smaller markets. Tutoring rates can be all over the map. Major markets can bear a higher rate, but what about the rest of the country? Creating a discount tutoring service might make it more difficult to attract investors and therefore, limits the ability to scale quickly. This space also proves to be a problem when trying to “keep the money” on the site (particularly for sites that take a percentage of the hourly fee). How do you prevent tutors and students from striking private arrangements? The key is having a good team and gain traction. InstaEDU is one good example and they have implemented an on-demand model that matches tutors with students who need help ASAP.
1. Online Dating – Please, we beg you, do not start another dating site. Yes, they fail at an alarmingly high rate, but we also can’t take another one, for the sake of sanity. On a serious note, a few of them have been successful. We all know about Grindr but many more have failed. Don’t be the next Blendr. At this point, niche is king. However, someone seems to have already thought of every possibility. The major competitors are match.com, eHarmony, Zoosk and Plenty of Fish. Niche areas have been created for almost everything else and some of the most successful niche sites have been for Gays, Seniors and Christians. There are even dating site for people who are already married – to other people, of course. Try it if you must but it is not recommended.