BEING IN THE INFRASTRUCTURE BUSINESS IS AWESOME AND AWFUL
Recently I have been doing quite a bit of work identifying and describing new business model opportunities. One of the models which keep popping up is infrastructure: These are the companies which are making picks & shovels during a gold rush – the enablers on top of which others build their offerings.
Infrastructure businesses are fascinating for many reasons. Done right they are not just a business but define an industry (which means that their market potential goes from millions to billions and in some cases even to trillions). They are much more robust than an often finicky tech startup. Also, as they typically require much higher upfront investments, they are easier to defend and have less competition.
A good example is Amazon Web Services – over the years it turned into a juggernaut in the compute-infrastructure-as-a-service business, generating billions of revenue and having a pretty unique position in the market.
The same is true for the trifecta of shipping companies: UPS, FedEx, and DHL move most of the freight in the world. VISA and Mastercard own the credit card market. Databases? mySQL and MS SQL. Stripe established itself as the winning payment infrastructure provider. The list goes on and on.
Before you get all excited and decide to go down the route of building an infrastructure business, let me warn you though: These businesses come with a high price to pay. Nearly all infrastructure plays are duopolies – two large companies own the market, the rest gets scraps. Building one of these businesses is brutal – you will pour a ton of money into OpEx and CapEx, competition is often fierce, and you typically have to operate on a somewhat global scale from the get-go. The complexity of building these types of businesses is mind-numbingly high.
I find most entrepreneurs never spend much time thinking about the type of business they are building. They fixate on the problem space (which is excellent) – and miss out on putting some strategic thought into the structure of the business and the resulting insights.
Spend a bit of time to figure out where you play (and want to play) along the value chain and vertical orientation alongside your operational stack. And then prepare your company to act accordingly.
Build What Matters.