Don’t Scale Until You Have Validated Your Business Model?

by Jonathan Lo

A common theme in the Launching Technology Ventures class is how to utilize a “lean” model until one has validated the business model. Companies such as Dropbox and RentJuice are examples that did precisely that to achieve success, while a company like Cake Financial is openly criticized for not following those guidelines. While I do generally believe in the lean start-up principle, some of the most successful start-ups such as Google, Youtube, Facebook, and Twitter, blatantly ignored this principle to become the companies that they are today. These companies focused on achieving strong network effects before they had any clear plans for monetization. Is this the right approach?

I am involved in a start-up called SaferTaxi, a company that is developing a smartphone application to allow for the booking, paying and rating of taxis in Latin America. While SaferTaxi plans on being one of the first movers in Latin America, this is by no means a new concept in other more developed regions of the world. Companies such as Uber in the US, gettaxi and mytaxi in Europe, have all received lots of Venture Capital funding to achieve scale within their respective regions. While there has yet to be a dominant player in the taxi booking space, initial data provided to investors have indicated that there is a lot of potential for monetization. Are these company’s successes enough to validate our own business model?

A good number of Latin American start-ups were able to achieve success by taking concepts from “developed” markets and implementing the same concepts faster than the incumbents. A great example of this is Mercadolibre, an Argentine company that implemented and scaled the eBay model throughout Latin America. While there were other local competitors that launched around the same time, Mercadolibre was able to scale quickly and gain traction before any of the other players (including eBay). Is this the model we should be following in Latin America?

SaferTaxi is currently faced with many of these questions. While following the lean start-up model is an intuitive path to validate an entirely new business model, are the successes of the likes of Uber and gettaxi enough to validate the SaferTaxi business model? Other start-ups with the same vision as SaferTaxi have already started to emerge in Argentina, Brazil and Chile. Should SaferTaxi be focusing on refining the business model using lean principles and worry about competition after a superior product has been created? Or should SaferTaxi be focusing more on a land grab before it is too late to enter certain markets within Latin America?

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