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The proliferation of competing articulations, the willingness to try anything, the expression of explicit discontent, the recourse to philosophy and to debate over fundamentals, all these are symptoms of a transition from normal to extraordinary research.

Rather than being an interpreter, the scientist who embraces a new paradigm is like the man wearing inverting lenses.

…Thomas Kuhn, “The Structure of Scientific Revolutions” (1962)

I started Cake Financial with the intention of taking business assumptions that were widely held by the investment industry as “sacred truths” and challenging them head-on.  By doing so, I was convinced that I could create a new financial services franchise by changing the paradigm under which the big brokerage firms operated.  Rather than being “confidential”, Cake would be “public.”  Rather than relying on a highly-paid “expert”, Cake would be based on fellow investors.  Rather than convincing customers to move assets away, Cake would focus on data and encourage them to stay with their brokerage firm.

Most people thought I was clever- and nuts.  And, when my founding assumptions did not bear themselves out to the extent I needed in order for the business to scale and I sold Cake to E*Trade, those people were right.  But, the pursuit was worthy because it was a big idea and IF it had worked, we would have changed the industry forever.  And created a multi-billion dollar company.

So here is the point of this post:  If you are going to do a startup, make it a paradigm breaker.  Challenge widely-held assumptions.  Do something crazy and different.  Take a large industry, completely change the economics of the business, and then own it.  See something old thru a completely different lens.  You might fail, but you will have time to build the business because everyone will think you are a novelty, and if you do succeed, it will be extremely difficult to stop you.

Early-stage investor, Mike Maples, calls companies that do this “Thunder Lizards.” Research suggests that there are only a handful of startups each year that truly matter- that are revolutionary rather than evolutionary, that produce scalable revenue, that change industries, that delight customers.  Mike does a great job of describing what they are but stops short of identifying how they are doing so.  Here are some recent examples of great startups that I think are Paradigm Breakers and some reasons for their success:

  1. Groupon:  As readers of this blog know, I love this company.  The two pillars of their business, discounts for local restaurants and services, and group buying, are not new.  What is paradigm breaking is that they have made local advertising more accountable.  Groupon has taken the act of local advertising (Yellow Pages, local newspapers) which traditionally has been a frustrating and expensive activity and transformed it into something that is trackable. Like Google did for keywords, Groupon has done for local service-based advertising.  And they have leveraged the social networking infrastructure to allow customers to efficiently market sales to their friends and family.  And that is a multi-billion dollar market opportunity that is difficult to replicate because of network effects.  The company with the best offers gets the most customers, the platform with the most customers gets the most advertiser mindshare.
  2. Chegg:  As readers of this blog know, I also love this company.  Chegg is a textbook renting serve that enables college and graduate students to rent, rather than buy, their required reading.  I detailed all the reasons why I think Chegg has been successful in my previous post.  The reason they are a paradigm breaker is that they challenged two fundamental industry dynamics: 1) that pre-Internet, college bookstores had a captive audience, and 2) that students had no other alternative to buying expensive books even though they only needed them for a short time.   What is paradigm breaking is that they changed student behavior and fundamentally altered industry economics forever.  It will be interesting to see, like Netflix before it, if the company can bridge the technical gap as iPad’s and other digital distribution replaces paper books.
  3. Blippy:  Blippy is a service that allows people to share what they buy with their friends and family. From a business perspective, Blippy is alot like Cake-  a new service based on the transparency and sharing of previously-private financial information.   Technically, though, it is a much lighter implementation.  And it has the potential for wide-range appeal.  You may be asking yourself: why would I ever want to share what I buy with everyone?  What is paradigm breaking about Blippy is that it is taking the assumption that this information is a tightly-controlled secret. It is taking something we all do- engage in commerce- and making what we spend our money say something about our personalities. It might not work.  But if it does, the business opportunities are enormous just ask Facebook, which tried the same thing with Beacon a few years ago.
  4. Hunch:  Hunch is a decision-engine that uses advanced machine learning to predict what you think, what you will want, and ultimately, what you should buy.  As the founder and CEO, Chris Dixon, has written frequently, using The Innovator’s Dilemma framework, all transforming technologies like Hunch look like toys at the beginning. Alot of folks are saying:  “why would I need a computer to help me make a decision?  It can’t possibly know me, my thoughts and needs?”  What is paradigm breaking about Hunch is that it is saying that people aren’t as unique as we all believe and that as we are confronted with more and more choices, that we will seek efficient, personalized recommendations. Like Blippy, if Hunch’s engine is better than our trusted network, the business opportunities around commerce are enormous.

This is a short list just to get things going.  Over the next few posts, I will try and throw out some crazy paradigm breaking ideas that if proved to be true, would radically change industries forever.

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