I can’t remember if it’s a theory sufficiently formalised to have its own name, but there certainly is a theory that in the early stages of development of new markets, the earliest pioneers very rarely make any money or indeed in most cases survive at all.
The theory, I think, goes on to explain that these pioneers fail for one (or actually often both) of two main reasons:
– as subsequent waves of market entrants come along with more sophisticated and better-developed products or services, it becomes clear that the pioneers’ offerings weren’t actually very good;
– and since the golden rule of new businesses is that acquiring customers always takes longer and costs more than you thought, they run out of money.
At the moment, we’re starting to see some of these early pioneers proudly unveiling their new services, invariably online, in the new and emerging investment-services-for-unsophisticated-private-investors market.
As I shall be demonstrating over breakfast tomorrow (no need to feel sorry for my wife, the breakfast is a biggish launch event for the new report into the direct-to-consumer investment platform market which I have co-authored with Holly Mackay and her team at The Platforum), the D-I-Y market for unsophisticated investors undoubtedly exists, and has outstanding future prospects. Sooner or later, some firms are going to make a lot of money in it
I fear, though, that few if any of the first early pioneers are going to be among them. Look at the websites of businesses like lovely Andy Creak’s rPlan, or smart Justin Modray’s Candid Money, or DCisions Group’s InvestorBee, and you can see lots of bright ideas, strong content and fresh thinking. But you also see two kinds of things that alarm you:
– First, important parts of what’s on offer are amazingly badly-conceived or presented. InvestorBee, for example, pioneers what I believe to be the single most important new idea in the next generation of financial services, namely the opportunity to make your own decisions on the basis of insight into the decisions which other people like you are making: but the brand is just all wrong, silly and childish and twee when it ought to be big and populist and vibrant. rPlan’s actual financial management functionality is pretty strong, but it’s so hopeless at explaining what it is, who it’s for and why they should bother that I can’t see many people getting as far as the functionality. And Candid Money is a bit of an odd-man-out, because as far as I can see it’s a pure labour of love with no business model or functionality at all, but anyway its credibility is shot to pieces by its homespun appearance, crude graphics and rambling copy style.
– And then second, although all these sites are fairly new (Candid Money by some distance the oldest) there is already a good deal of tumbleweed blowing through them. Blogs that have no entries written by anyone except site founders, and even then nothing much for several months; Q&A sections without a single Q; out of date information; all the signs that the cyberdesert is starting to reclaim the little patch of territory marked not so long ago with its shiny new white picket fence.
We shouldn’t overlook the fact that as well as dodgy functionality and presentation, the pioneers’ big shared weakness is lack of money for promotion. No-one – and when I say no-one, I mean no-one – has heard of rPlan, Candid Money or InvestorBee, and with no promotional budgets no-one ever will.
It may sound a bit as if I’m giving these fledgling businesses a hard time. I don’t mean to. If you stole all the best bits of what they’re doing, but then also dumped all the worst bits, and added in marketing and customer acquisition budgets of, say, £12 million over the next three years, you’d have something pretty close to a brilliant, successful and highly-profitable business. And frustratingly, in a few years’ time, when there’s nothing left to be seen of these pioneers except a few of those big hand-painted plywood posters like the ones that Warren Oates paints in Badlands, faded and peeling by the side of the highway, that’s exactly what some much less agreeable, less innovative and all-round less admirable firms will have done..