How to Spot "The Next Big Thing"

By: Wayne Mulligan   Imagine if you’d gotten in early on Apple... Or Facebook... Or more recently, Uber or Airbnb. None of these companies seemed so mind-blowing when they were getting started—in fact, many of them seemed silly. But each went on to return millions (or in some cases, billions) of dollars in profits to early shareholders. Wouldn’t it be great if there were a simple trick for spotting the next big thing? Well, there is—and that’s what I’ll be showing you today. The Innovator’s Dilemma Have you heard of the book, The Innovator’s Dilemma, by Clayton Christensen? Christensen is a professor at Harvard Business School. He’s one of the world’s foremost thinkers on innovation. As an innovation expert, he advises many of world’s major corporations, sits on the board of publicly-traded companies like Tata Consulting Services (NSE: TCS), and serves on governmental boards such as Singapore’s Research, Innovation and Enterprise Council (RIEC). In his book, Christensen examines why tiny tech start-ups can beat out the large “incumbent” competitors. It happened, for example, when Amazon captured the market for books from Barnes & Noble and Borders. It happened again when Facebook put MySpace (and all the other social networks) out of business. And now it’s happening with companies like Airbnb and Uber, both of whom are disrupting multi-billion dollar segments of the travel market. In Christensen’s book, he discusses why this happens. And if you read carefully, you’ll discover something fascinating: He’s helping you spot the next big thing. It’s Not All Fun and Games Accordingly to Christensen, there’s a simple reason start-ups beat big incumbents: The incumbents take one look at a start-up’s product, and they have a gut reaction… “Ha! It’s just a toy...” So the established companies dismiss these start-up… it doesn’t occur to them that these start-ups and their “toys” pose a competitive threat. And, actually, their reaction makes sense. Let me explain... When a start-up is just getting off the ground, it doesn’t have the resources to attack an incumbent head-on. So instead of creating a product or service that’s comparable to its competitor’s, it’ll start by building a niche product… something that appeals to some people, but not a lot of them. And as it turns out, this is a smart strategy: By creating a narrow, focused, “tip of the spear” product, a start-up can actually penetrate a market—the same way a spear can penetrate a hard block of wood. Look at Airbnb, for example. When Airbnb first got started, it offered travelers the ability to book a spare room in someone’s home. That’s a niche service. Only a small segment of the population (not including me, that’s for sure!) would find an offering like that attractive. So, years ago, if big hotel chains like Starwood and Hilton took a look at Airbnb, they would have quickly dismissed it. To them, it probably looked like a “toy.” It certainly didn’t look like a monster that could threaten their survival. Fast-forward a few years… and today, Airbnb is a $10 billion company. Travelers can use it to book accommodations in more than 1.5 million rooms in over 190 countries. That’s larger than any hotel chain in the world. Now that it’s expanded, Airbnb is relevant to millions of travelers. Personally, I used it for my last two business trips in the U.S., and for a vacation to Italy. And what incumbents once thought of as a “toy” has now become an existential threat: In the past 12 months, Marriot’s stock is down by more than 15%... Hilton is down 25%... It’s the same roadmap that’s been used by Amazon, Facebook, Apple, and others: A start-up launches with a small, niche product… It targets a tiny segment of a market… And before you know it, it’s one of the most valuable companies in the world. Here’s What Matt and I Do... When Matt and I are exploring an investment in a new start-up, we sometimes catch ourselves saying things like: “Meh… that’s not going to be a big business...” “Let’s pass. It’s too niche of a product...” Or, “Fun little service, but I don’t see how it’ll become valuable.” But when we find ourselves saying those things, we hit the "pause” button... We remind ourselves about Airbnb, Apple, Facebook... We take a second look at the little start-up… And then we try to imagine this little toy turning into the next big thing. Spot It… And Invest In It For the past 83 years, the SEC only allowed wealthy insiders to invest in “the next big thing” at its earliest stages. But we’re happy to report that everything changes in just a few weeks: Starting on May 16th, you’ll be able to spot the next big thing... and invest in it! We’ll tell you more as the big day approaches. Happy investing. Best Regards, Wayne Mulligan Founder Crowdability

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