Some Advice for Startup Founders in the Era of Big Tech

By David Frankel

Over the last five years, Google/Apple/Facebook/Amazon (GAFA) have gone from being inspirations to … competitive sharks that can easily gobble up the market share and margin of the smaller startups surrounding them.

Here’s some advice for founders in the era of Big Tech…

The primary danger that Google, Facebook, et al. pose to startups is in getting entrepreneurs hooked on *seemingly* cheap growth. The targeted advertising these platforms provide produces a quick revenue boost that can scale surprisingly well.

Unfortunately, the good times don’t necessarily last. Startups see diminishing returns, competition arrives, CAC can rise to unsustainable levels … Woe unto those startups that haven’t developed alternate channels (Earned/owned media, sales teams, etc.) to reignite growth.

Truthfully, if rising ad costs are the extent of your issues with GAFA, you should consider yourself fortunate. The more worrying scenario is when the product team at one of these behemoths takes aim at your category and decides to “disintermediate” you.

Ask any startup that sells airline tickets or hotel bookings how they’re feeling about Google these days. Big tech can make life hard for startups, even large, publicly-traded ones, in any number of ways. So aside from avoiding complacency, what can entrepreneurs do?

The tech giants have become so large, that there are often ways to extract revenue *from* them. We’ve seen companies generate meaningful revenue by taking advantage of revenue share programs offered by GAFA.

Amazon’s affiliate program is the best-known but others exist. You are again subject to the whims of these companies in this scenario. They reserve the right to alter the deal at any time if the revenue share gets out of whack (from their self-evident, self-interested POV).

Focus on industries where you can build supply-side advantage. This was key to Uber’s success, Peloton’s surge, and the rise of many of the D2C consumer brands of the last five years. Be unrepentantly greedy with the things that make your startup unique.

Don’t assume you’ll figure out how to handle Big Tech when you get to scale! Your business plan should be developed with them in mind. You’re not going to be competitive with them on day 1, but plan that you will be one day and act accordingly.

Sales teams and content can differentiate your operation. One major downside of GAFA’s scale is the lack of a human touch — something that a startup can decide to offer. Find ways to provide white-glove service to customers and you may be able to thrive.

Now is the time to go after the really crazy startup ideas.

Weird ideas scare away competitors.

Weird ideas attract true believers.

Weird ideas often lend themselves to efficient marketing.

Most importantly, weird ideas are less likely to be a GAFA priority.

Focus on building a business, not fundraising. Stay away from the press and serve your customers SO WELL that they become cheerleaders for you. It’s still too easy to get swept up running a startup and to forget you’re building a business.

There have been fewer and fewer “decacorns” over the last decade. Most startups exit for much less than $1B. Don’t buy the lie, all too common in the startup world, that you are a failure if you’re not the next Stripe. Preserve optionality!

We’re entering a new era of entrepreneurship.

Big companies can outspend you. Out-hire you. Out advertise you.

They’ll have better products. Lower prices. More data.

They’re not dumb. Not slow. Not unprepared.

Be paranoid.

Be afraid.

Most important, be prepared!

And take heart that it’s not just startups that are struggling to navigate this new environment. I’ve talked to CEOs of multi-billion-dollar public companies that have complained about GAFA’s merciless intrusion into their markets, new “tolls” they’re erecting, etc.

Many are urging the creation of new regulations to curtail GAFA’s dominance, and while that may be the correct course of action, the process is slow, dominated by officials and lobbyists, and will do little to help founders starting new companies today.

Take heart that no tech monopolies last forever. Everyone is searching for a way to beat Google. An alternative to Amazon is on every VC’s shopping list. Whoever succeeds will be richly rewarded. No reason it can’t be you!

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