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Thanks to angel investors and VCs who have as much money to invest as Kool-aid to drink, young entrepreneurs with an idea and a dream increasingly have the opportunity to roll the dice.

Thankfully, most of them aren't trying to build the next Facebook. And while many are technology-focused, a growing number are industry-focused. If you look down the list of YCombinator-backed startups, for instance, you'll see quite a few that are targeting a traditional vertical.

To be sure, this is a good thing. While building a consumer internet media play is sexy, there are so many opportunities for new companies to apply technology to industry's greatest challenges. That entrepreneurs are increasingly trying to do so is a positive thing.

But how many of these startups will succeed?

Having recently had some interaction with a couple of startups fitting this mold, I realized something: many of these startups are run by individuals with little to no domain experience. The impact this has is often significant:

  • The startup requires its users/customers to change their core internal processes, which in many cases will never realistically happen.
  • There are fundamental misunderstandings about the market, and invalid assumptions about use cases.
  • As a result of the above, the startup, at worst, offers a solution to a problem that doesn't exist, or, at best, a solution that doesn't solve the problem.

Sure, there are examples of hot startups created by twenty-something founders with no prior domain experience, but out of the thousands upon thousands of internet startups formed each year, it's clear: these are the exception, not the rule. Which makes sense: to solve industry-specific problems, it helps to have an understanding of the industry.

Given the number of startups created by those with no domain experience, now would seem to be the ideal time for those with experience to step up and apply their knowledge in an entrepreneurial fashion.

Here are three tips for doing just that:

Think outside of the box, but not too far outside

As noted above, one of the biggest challenges outsiders face when developing industry-specific solutions is that they often require their potential customers to reengineer important processes.

In many cases, this just isn't going to happen, so while creativity is desirable, remaining realistic is crucial.

Consult for a while

Going from employee to product or service provider can be a big leap. One of the best ways to make the transition is to consult.

Not only can it provide a funding mechanism for your product or service development efforts, it can give you the type of insights that will validate your ideas and refine them so that when you do launch, you know you have something viable.

Many times, your consulting clients will be eager to serve as your first customers.

Use your relationships

If you've been working in an industry for a while, your relationships can be worth their weight in gold. Relationships provide credibility, and credibility can mean the difference between early success and early failure. 

For instance, when your potential customers know and trust you, they're more likely to buy in to what you're offering. After all, they know that you know their business.

Patricio Robles

Published 6 June, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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