For the past few weeks, I’ve been teaching my three-year-old son how to hit a baseball.
It’s not going well.
He’s got the right stance and lots of power. But he’s struggling with timing. Simply put, he can’t seem to time the pitch.
The thing is, timing isn’t just important for baseball…
It’s also important for startup investing, where it can make all the difference between striking out — and knocking it out of the park.
Let me explain…
An Important Commandment
When Matt and Wayne launched Crowdability more than a decade ago, one of their goals was to help investors like you navigate the world of startup investing.
So they created a valuable resource called “The 10 Commandments of Crowdfund Investing.” (You’ll find it on our Resources page here.) Essentially, this is the ultimate reference guide to investing in early-stage startups.
One of my favorite commandments is the 7th one — “Thou Shalt ask ‘Why now?’”
In other words, it’s very important to consider whether the timing for the startup is advantageous.
Because the answer is one of the most reliable ways to predict whether an early-stage company will succeed.
Stop Me if You’ve Heard This Before
One way to think about this question involves an old story that’s often told in introductory economics courses:
It seems an economist is walking to lunch one day when he spots a twenty-dollar bill on the street.
Most people would bend down and pick it up. But not this guy — because he believes that if it were a real $20 bill, someone would already have snatched it.
Personally, I’d have picked up the money. But this calls to mind a question that startup investors often ask themselves:
“If this company has such a good idea, how come no one else has done it before?”
Here are three ways to answer that question…
Answer No. 1: The Technology Wasn’t Ready
YouTube is a great example of this concept.
Plenty of video websites existed before YouTube. How come none of them were successful?
For the most part, it’s because the technology wasn’t ready yet.
But then a flurry of tech innovations occurred at the same time — things like:
- Proliferation of high-speed internet access.
- Advancements in Flash technology.
- And the emergence of social media.
Any startup that launched a YouTube-like business before these innovations emerged faced an uphill battle.
But once they existed, a viable path appeared for video-focused companies. And YouTube quickly took advantage of it. Less than two years after launching, it was acquired by Google for $1.6 billion.
Answer No. 2: Regulations Made it Impossible
Prior to 1986, if a company published investment ideas in a newsletter, it was required to be a registered investment advisor with the Securities and Exchange Commission (SEC).
But Christopher Lowe changed all that.
Lowe argued that newsletters and newspapers were simply exercising their right to free speech. As long as certain safeguards were in place — for example, the content and advice couldn’t be personalized — a publisher should have the right to say whatever they wanted to.
The U.S. Supreme Court agreed. And that decision paved the way for the creation of the multi-billion-dollar financial publishing industry.
It’s a similar story for any sector that’s been deregulated, from railroads and airlines to telecommunications. There are billions to be made — as long as your timing is good!
Answer No. 3: Nobody Knew How to Market It
Many entrepreneurs believe they’ve unlocked a “secret” and created something truly unique.
Bless their hearts.
But most of the time, that’s not the case. Their idea or product has been done before.
That being said, what’s truly innovative might not be the company’s technology or product, but how it’s presented.
Apple’s iPod is a great example of this.
The iPod wasn’t the first portable music player to hit the market. And technologically speaking, there wasn’t anything special about it.
However, it had the Apple brand. It was beautifully designed. And it was marketed by legendary pitchman Steve Jobs.
And that was a recipe for success.
Thou Shall Ask “Why Now?”
Launching a startup without the benefit of good timing isn’t necessarily the kiss of death.
However, launching at the right time can set up an early-stage company for overnight — and hopefully long-term — success.
That’s why, when you’re evaluating startup investment opportunities, ask yourself if the company is emerging at the right time, with the right solution.
In other words, ask yourself “Why now?” Because the answer could lead you to a windfall of profits.
Happy investing.
Best Regards,
Editor
Crowdability.com
