Investors in start-up technology should have a balance of enthusiasm and skepticism when approaching potential and current portfolio companies, because in reality 90% of start-up companies fail (Forbes, 2015). Investors should be intrigued by the company’s product, but sold by its business model. A solid business model is comprised of a realistic time-table consisting of long-term growth and development. In addition, it consists of a platform that is adaptable to current and future technology trends. Not every company’s business model is completely sound, so some instances exist when investors should interject their perspective to help companies hone their business models and projections.
A relevant current example of a company with poor long-term planning is Twitter. The social network experienced success early on, but from a public perspective have been unsuccessful in partnering with outside partners or platforms to adapt to recent trends. They also have not shown any interest or attempt to seek further advice to compete with the likes of Facebook. These are troubling times for Twitter, as its user base has been stagnant, at best, the past few years.
On the other hand, Facebook’s path has been divergent in contrast to Twitter. Facebook’s user base continues to grow, and Facebook has proven time and again that its platform is adaptable to market changes. A perfect example of this adaptation, in this case through acquisition, is its purchase of Instagram. When Facebook acquired Instagram, the tech trend toward mobile-first platforms was just beginning to take off, and Instagram was the first true mobile-first social network. Facebook strategically acquired Instagram, ensuring it was on par with growing mobile usage by consumers. Sure enough, mobile-first became the dominant trend, and Facebook’s preparation largely enabled it to adjust smoothly. Instances like acquiring Instagram have significantly enabled Facebook to continue experiencing success and growth.
While Twitter and Facebook both serve as social media networks, the success stories of the two have undoubtedly followed two different paths. This is largely the result of Facebook possessing a business model and the wherewithal to adapt its platform to stay updated on current trends, whereas Twitter has been unable to adapt to those same trends.
In order to mitigate potential risks, investors should address their portfolio companies’ business models to ensure they experience sustainable success, as well as sustainable revenue well in to the future. Some investors are sold on their portfolio companies’ visions, but they do not perform the necessary due diligence to ensure their companies’ visions are on paths of sustainable growth and continuous development. Necessary due diligence cannot be done effectively without investors possessing a team with diversified backgrounds, each with a unique perspective. Investors with varying perspectives are more likely to predict appropriate trends for portfolio companies to gear towards. This is because the culmination of the investment team’s facets should be able to consider the majority of market concerns, enabling them to provide adequate advice. Investors should seek out companies with great products, but also with business models that are adaptable to changing market conditions. This is a significant part of ensuring sustainable growth and development well in to the future, and as such, it is sometimes necessary for investors to give advice to their companies, which should be constructed from understanding numerous market trends and concerns.