[perspective] what is unfair advantage and why investors love it | YC Startup School

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Whether if you are about to start your first or next venture or in process of fundraising, here is a guideline what explains what investors are looking for when evaluating each investment opportunities. Have you ever wonder what are key elements are essential in building a company that is 10X better and faster in solving problem and delivering service? Y Combinator, world top accelerator VC, shares with entrepreneurs on how to build a startup clearly with one or more unfair advantages to truly separate with other current and new competing service/product.

3 key elements in 90 sec pitch

What are the 3 key components in a 90 sec pitch? How to capture the undivided attention of investors and resource owner in order to jump into your venture with open arm? Often we focus in explaining how our product/service is different than others and the passion we have in making the world better.  However, investors and resource owners may wish to receive the introduction with the following format in order to quickly evaluate the next step when it comes to decide which entrepreneurs or startup companies to work with.

  1. what is the problem your solving? why current solution (product/service) can not solve or remove the pain point behind the problem
  2. what is your product/service? how do you remove the pain point? what is the market insight (reason to buy) explaining why customers don’t use the current product/service and use yours?
  3. why you? what unfair advantage(s) do your startup company have? what are things that you can do that other can not?

5 elements of unfair advantage

Y Combinator points out that often a startup company may just have 1 of the 5 elements and the 2nd elements (i.e. tapping into a market with over 20% growth) is one of the weakest among the 5 elements. Therefore, in the early stage of building the ventures, entrepreneurs need to focus in building a company that supports sustainable growth with user acquisition.

  1. founders:
    • are you one of 10 people in the world or super expert?
    • being an ex-employee of Google / Microsoft does not give a founder unfair advantage, but the person with patent and extreme domain knowledge.
  2. market > 20% growth
    • it’s great that your market is better than average where market grows, but is one of the weakest unfair
  3. 10X better than your competitors
    • is your product 10X faster / 10X cheaper / 10X better than other?
  4. ZERO acquisition expense
    • grow by word of the month without the need to pay for and free
  5. Monopoly
    • is your startup difficult to be defeated with network effect and market place where the winner takes all?

why investors love to learn about your unfair advantage(s) ? 

In early stage of investment when entrepreneurs are in the process of acquiring customers or launching prototype, it is challenging for investors and resource owners to evaluate which startup company to work with or to invest since the early stage companies tend not yet have the financial data to support the potential strength of one company.  Thus without truly understanding or a tool in place to help investors and resource owner to understand what makes one company stands out from others, making a investment decision can be very challenging or blindly or delayed.

Video from YC Startup School

Kevin Hale is a Partner at Y Combinator (YC).  He was cofounder of Wufoo, which was funded by Y Combinator in 2006 and acquired by SurveyMonkey in 2011. He was responsible for Wufoo’s much-admired design and speaks widely about UX.

In this video, Kevin shares many amazing point views on how YC and investors evaluate startup ideas and companies. In the section of “unfair advantages”, Kevin shares on why these 5 elements are critical when building a startup.

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