Earlier this week, I ventured down to San Diego to hang out at Stocktoberfest 2014. As soon as I touched down, I asked myself: “What took me so long to go down here for this?” It was fun right from the beginning, and Howard puts on a great event. As I ventured over to the bar for the opening happy hour and to watch Game 5 of the World Series, I immediately made new friends, talked shop, and even stress tested my presentation for Monday on someone with way, way more knowledge about the topic than I have. That turned out to be a useful beer. (More about that in a second.)
I’ll start with Tuesday first. @HowardLindzon graciously had me participate in two sessions. On Tuesday, it was a more general panel on mobile trends for the whole audience. The panel consisted of Howard moderating, myself, Jordan Mendell (DraftKings), Alex Bard (Campaign Monitor), and Justin Overdorff (Yelp). We discussed the classic stuff around mobile ecosystem — Apple vs Google/Android, Yelp and Pandora, and apps which truly benefited from the timing of the shift to mobile. As this is mostly a crowd of technical public stock enthusiasts, it was harder to explain how to play mobile in the public markets, partly because mobile is still immature in the big picture yet maturing for entrepreneurs given the distribution constraints. Public investors think about the big companies, the handset makers, the chip layers, infrastructure, carriers, and other parts of the ecosystem. Outside of Facebook or just mobile ads in general (a growing market), it’s hard to pull this off in the public markets.
Now, back to Monday. I wasn’t worried about the Tuesday panel because I’ve done tons of panels on mobile. Easy. But on Monday, Howard wanted me to lead a breakout of how I come about picking technology stocks. I called it: “Can insights from startups drive public market calls?” Given the audience is quite technical about stocks, my method and presentation are the exact opposite, so I was a bit nervous. As a result, I worked to make it more of a question than a session, and then fostered a discussion after explaining my own methodology. (I’ve put up the slides from the talk below.) What was great about the session, after overcoming the fear of presenting it, is that nearly everyone in the breakout raised their hand and offered a comment about their reactions, and it started a great discussion. My biggest takeaway from the session actually applies to investing generally, public or private — so much of it is driven by “entry prices,” as investing is about multiples, and right now, so many of the private entry prices to obtain equity are getting quite high.
Finally, Howard and his team did a phenomenal job to make everyone feel comfortable and I saw some old friends and made new ones. As the tagline goes, for “profit and joy.” It was a joyous occasion, indeed, and speaks to the community Howard has built with Stocktwits. Thanks for hosting, Howard!
About a year ago, a close friend of mine told me to get back in touch with @lg, and I did immediately — and that was a good choice. I had known Larry before and wanted to invest in Envoy on the spot. (You can read the Envoy story here.) As Larry and I reconnected, he graciously introduced me to this guy who was leaving one of my favorite startups to create his own product and company. So, of course, I took that recommendation seriously. And, I’m glad I did.
Larry recommended that I met Henrik, one of the earliest employees at SoundCloud. I love SoundCloud and have been friends with Alex for a while. Henrik was in town from Stockholm and I rushed to the city to meet him. We walked around the city for about 90 minutes. I was definitely going to invest and just was hung up on one detail — creating for the iPad vs iPhone. I was stuck on iPhone, he was bullish on iPad for music creation.
Auxy is iOS software that allows anyone to create their own electronic sounds, to stitch them together, to change the tone, pitch, tempo, and beat to create their own electronic music. Check out the video above and make sure to download Auxy for iPad — Henrik convinced me of why the iPad is better for this to start, just like good entrepreneurs do. Aside from that detail, I believe electronic music is the music of today’s and tomorrow’s generation, and is a lingua franca to connect people around the world in a common belief or experience. [Product Hunt discussion on Auxy.]
Henrik lives in Sweden. It’s the first international investment for Haystack. It was a quick decision in a product that’s built many miles away. But, like electronic music, our shared belief in the power of music makes that distance a minor footnote. Now, I have a friend in Stockholm, and I wonder what new things I’ll learn from him.
For the past two years, I ended the year with an attempt to name “The Breakout Tech Company” of that year. In 2012, I picked Stripe [see post here]. In 2013, I picked Snapchat [see post here]. Had I done this in 2011, I would’ve picked Uber. Each year, I tried to use the same framework — “the right person, the right idea, the right product, the right time, and the right market.”
As 2014 rolls to a close, I’ve been thinking about which company achieved this feat. And, I’ve been thinking about it for the past few months, and asking other friends in the industry. And, yes, there are great new companies forming every month and many of them are growing quite quickly. But, compared to what we’ve seen over the last three years, it’s hard to find a suitable comparison.
So, therefore, my vote for Breakout Tech Company of 2014 is to simply say that the previous three — Uber, Stripe, Snapchat — are actually continuing to breakout even more. They’ve already left one orbit, and now lurching for the next orbit. Uber is growing rapidly worldwide into the mega-market which makes up transportation and logistics; Stripe is operating on all cylinders and one of the marquee partners for Apple with Apple Pay; and Snapchat “Stories” are creating a new media format that’s poised to be a hit with advertisers given the scale, brand, and interactions native to this unique app.
So, there you have it — this will be a short post. It’s not fair or ideal, and I know many newer tech companies are doing well, but I don’t see anything breaking out on the level of Uber, Stripe, and Snapchat. They’ve raised the bar, and right now, these new “incumbents” are widening their lead with the help of different tailwinds. So to speak, the rich are getting richer, and the bar for newer companies to breakout is getting even harder.
On any given weekday, I can order Sprig or SpoonRocket for lunch while I’m in San Francisco for the day, just with the tap of an app. When I go home back to the Valley, I can have any one of the following services deliver food and dinner to my place: Fluc, DoorDash, Instacart, Postmates, Munchery, OrderAhead. (I’m guessing eventually Square will offer something similar after acquiring Caviar.)
Food, like transport (Uber, Lyft, etc.), is hot because it’s the ultimate daily active use case. Much has been written about this. And, while most of these services can bring you the same level and type of food, how it’s done is just slightly different, with some being more efficient, or more tech-based, than others. For instance, Postmates and DoorDash charge for food from the vendor and then add deliver fees in their own manners, fixed or variable. Munchery, on the other hand, makes its margins on the food because they prepare it from start to finish — here, delivery is not used to extract value. Instacart can pick up ready made dinners at grocery stores, and they build up a margin through annual subscription, dynamic pricing, and using tipping to subsidize the rates for personal shoppers.
Food itself is a big category, no doubt. Groceries, for example, is a $600Bn+ annual market in America alone. So, in one sense, these companies can focus and build out scale (if they get that far) and provide insulation and a consumer interface to many grocers, restaurants, and more. However, depending on where their margins reside, some of them may feel under pressure to expand the “SKUs” they offer to include things besides food. This is why we’re seeing specific retail on-demand delivery services like Deliv (malls) and Curbside (Target). So, another way to look at it is that these are all logistics businesses using mobile as the consumer interface, bringing in SKUs, and starting with a type of item Amazon or Google could likely never deliver despite being a many times a day habit.
The ultimate concern, then, is “Will Amazon and Google just run over these startups?” And, as @jess pointed out below, probably fair to add Uber to this incumbent list as well. I don’t think that will be the case. If anything, it is startups that will be fiercely competing with each other, and some may undercut prices to gain mind- and market-share. Amazon and Google can take this on as loss-leaders, too, but there could be something about the 1099 Economy which taps into a new cultural mindset to favor on-demand wage opportunities in exchange for having control over their time and labor market participation.
The tricky part for me is that Amazon has most everything a household needs and can bring it to most urban customers within set periods of time. Google could do the same at some point, but would take a while. But, neither of them could deliver fresh food in the manner folks in the Bay Area have grown accustomed to, and because of that, this may create a very, very small opening for a new set of consumer brands to emerge. That’s what’s happening now, and the while its too early to tell who will be left standing, the unit economics and margins of each business may give us a clue, though ultimately, I believe the winners will have more SKUs to manage.
@semil you ask “Will Amazon and Google just run over these startups?”, I'd add Uber to that list as a scaled contender.
For early-stage startups with the luxury to have this problem, a common topic that comes up in conversation lately is: “Well, how much should we raise?” I have a hard time answering that question with a specific number because everything is so case dependent and I don’t usually have a good sense of what the founders have in mind for long-term planning. And, even though I have my own experience to draw from, I’m not sure it’s applicable or proper to extrapolate from. So, in the absence of that, I end up stitching together three separate posts from investors who have way more experience than me:
“What A CEO Does.” In this post, there are three jobs for the CEO, one of which is he/she “makes sure there’s always enough cash in the bank.” Sounds obvious, but worth repeating and adds a solid foundation.
And, finally, there was a @pmarca twitter thread about this. I believe some people drew the wrong conclusion from that online discussion, getting hung up on the name of a round (seed vs A, etc.). All that crap is semantic. I tried to write about what it really means here. Essentially, if an early-stage startup has ended up raising around $3m or more, an investor like Marc Andreessen (and maybe this shifts with each person) will expect that startup to have even more evidence of usage, traction, and/or revenues. Those are the expectation of a big top tier fund, and in discussions with folks at those places, they all agreed.
I have noticed in the past few weeks that founders I’m talking to are now more aware of this. I didn’t connect these dots until a few days ago, so it was helpful to go through these conversations. One founder, for instance, wanted to raise $1.2M. He blew by that, and then decided to go up to $1.75M if high-value or strategics came in. But, he asked me, “What should I stop at?” He could’ve kept going. It can be tempting. But, I didn’t have a good answer for him…so, I wrote this post instead.
Earlier this week down in Los Angeles, I led a panel discussion as part of the Rutberg Wireless conference (agenda here). This was a fun breakout because I’m good friends with everyone on the panel and have been investing in and writing the space. On the panel we had Tri from Munchery, Kevin from Shyp, Sean from Zirx (valet parking), and Basti from Postmates. All CEO/founders who are deep into this space. Here’s a brief snapshot of the themes that came up in the hourlong discussion:
Contractor vs Employee Status: This issue has been in the news, discussed on Twitter, and reached the Supreme Court. At Munchery, drivers are brought on as part-time employees. At other companies, their contractors work with other services too, but the startups go to lengths to collect and offer benefits (like health club memberships) to their contractors. Basti from Postmates also raised a great point in highlighting that there’s a generational change as well, in that some people don’t want the trappings of a full-time job but prefer the flexibility and control of working for an on-demand startup.
Horizontal vs. Vertical Consumer Demand: Some folks seem to think eventually all of these services will consolidate under one brand (like an Uber), but I don’t believe that and the data for some of these companies proves that. The issue, of course, is — who can stay independent long enough, and this is where things get into the unit economics of each business and where they make their margins, not just how much in margin. More on this below.
Threats From Incumbents vs. From Startups: I’m sure all of these startups get asked “What if Amazon or Google do this?” Usually it’s a throwaway question but in this case, these incumbents are putting real money and resources into delivery. No one was really worried about these bigco’s, however; instead, they were more worried about startups who can come into the market with little barriers to entry and undercut prices to gain share. More on this below, too.
VC-fueled Services In NYC & Bay Area: We talked about how VC money was fueling and subsidizing this activity (and parking, and shipping, and etc.) but that it’s OK because the best execution and models win and get the chance to spread across the country.
Why So Much Activity In Food? Food is a daily active use case. On any given weekday, I can order Sprig or Spoonrocket for lunch in SF, and when I’m back home in the Valley, order dinner delivered to me by DoorDash, Instacart, OrderAhead, Postmates, and maybe even Square. Eventually, the winners here can maybe turn into platforms and/or deliver other things, too.
On-Demand Services In Unlikely Places: This is the part that surprised me the post. I live in an early stage startup bubble and don’t often interact with bigco’s. The bigco’s that were in our session were definitely interested in what types of on-demand services they could offer. This was interesting because it seemed like while we think of the space as overheated, there are more and more non-sexy opportunities out there for founders to go after that aren’t just pure consumer. Kevin had a great line to sum it up — that with mobile in today’s economy, the bar for a customer experience is so high, it creates opportunities for founders to create new experiences. In way, it’s just that simple.
The type of language we use is important, and especially so when a founder and investor are discussing a business. Lately, I’ve come across the word “customer” quite often in conversation. It’s a sign of the times today that even early-stage seed level companies are courting and retaining customers (which is the topic for another upcoming post). For now, I want to focus on the word “customer.”
When I hear most founders say it lately, it is intended as monolithic — for instance, “We have seven customers right now.” But, what I hear is something different. My ears and brain interpret the word “customer” differently and therefore, I usually stop and interrupt. I want to know more. All customers are not equal. Here’s how I segment them today — and, please, if you have a better way, please let me know and I’ll update the post.
[Alpha Customers] These are customers of any size (often not paying) who are doing the startup company a favor by testing the software or service. Founders need these customers to refine the product, collect data, etc. Over time, they may, of course, convert to real customers.
[Beta Customers] These are customers who might be paying but are limited to set a set size by the startup and, in good situations, coming off a waiting list as the founders figure out how to scale and meet more demand.
[Reference Customers] I’ve observed some founders using their networks to target bigger, brand named companies as customers and giving away their product or service for free, on the implicit agreement that the larger company would act as a future reference for the startup. For instance, a startup may have a connection to WorkDay, give them their beta mobile app across the company for free, and in return, WorkDay’s CIO (or someone) will act as a reference for future customer leads.
[Real Customers, SMB] How one classifies “small” and “medium” here is up for debate, but maybe it’s all under 1,000 employees. Who knows. The point is, they need to be distinguished from large, enterprise-scale customers.
[Real Customers, Enterprise-Scale] The toughest to get and the most sought after. Logos and scale matters, not only for business purposes, but as a signal toward how the founding team can access and sell into larger companies.
I have some personal news to share. I am going to write a book. Yes, a book that you can physically hold in your hands, or download to your Kindle. Though many people who know me came to know me through my writing on blogs, I don’t consider myself a writer — rather, it is just the way I interact with the world around me and just a byproduct of the work I’ve been doing, either at companies, in venture capital, and as an independent investor. Yet, about a month ago, on a Sunday morning tailgating before a football game with a bunch of colleagues, we had a few beers and got on the topic of an idea that turned into a longer conversation.
And, since then, I couldn’t shake the idea. The more I thought about it, and the more I socialized the idea with friends, they too agreed it would be a good idea and that my background, more diverse than deep in any one category, could provide an interesting lens with which to write this book and share the associated ideas widely. I am going to put my name on the line and use my little platform to market the book. My intention is to make the book an organic extension of this blog, with more organization, and to share the story in an authentic, civil manner and attract the proper audience for it.
“OK, OK,” you say, “What’s the book about already!?” My answer: “Uber.” For lack of a better title, for now, I’ll call it: “The Uber Effect.”
Over the past year, I noticed that I would write more and more on this blog about Uber, and then when I searched the history on the site, I noticed it came up much more than I had imagined. And, recently, it has come up in conversation more, and when people I’m talking with realize the company is a big deal but have a harder time imagining how big the company can get and what type of influence it will collect and exert, those conversations turn into debates that touch on many aspects of how we organize society today. The more and more I think about the company and its growth potential, the more I’ve come to realize it will not just be a financially powerful company, but Uber will hold all other sorts of power related to data, mobility, logistics, commerce, transportation and more. Like Amazon, Google, and Facebook before it, it is a once-in-a-lifetime company, it is on the verge of going public within the next two years, and I have made a personal decision to commit some of my time to organize and tell that story as the drumbeat gets louder.
“What will the book cover?” you ask. I am still sorting that out, but expect it to touch on how mobile devices help create the largest technology market our society has ever witnessed, how humans are migrating to cities worldwide, how centralized systems (like governments) are being challenged by decentralized networks, a citizenry more willing to pay by the mile rather than pay more taxes and the subsequent effects on public transit infrastructure, a bifurcating labor market between high-skilled and not in an age with automation on the horizon, the distribution of knowledge via cloud-based servers and mobile devices, just-in-time inventory management powered by mobile devices, and how autonomous vehicles may turn this all upside down again.
Truth is, I’m still sorting this out, talking to an agent and publishers, but I want to commit to it, so I’m publicly sharing it, and I will need to really sharpen the scope and focus. That’s what the holidays are for, I guess!
All that said, here’s what will not be covered in the book:
One, this book will not be a hit-job on the company, nor an excuse to be an academic cheerleader for the company. I am an Uber “bull” and would love to own stock in the venture, but I have no financial connection to the company and I do believe Uber will face some bumpy times ahead. Uber is also a company which has been described as “unscrupulous” by many, and I will look into those stories. I want to write a fair book.
Two, the book won’t be unnecessarily long — rather, I want to write it in a style that a smart person can dig into it for a few weeks, let it marinate and digest, and then talk about it with other people.
Three, the book won’t go into gossipy detail about the company’s formation or startup competition — nothing wrong with someone else taking up this angle, and I’m sure there’s an audience for it, but it doesn’t interest me personally.
Four, it won’t be an excuse to show off data porn — I don’t want to be reliant on getting proprietary data nor do I want to get into academic debates about how one labeled a graph and such. There will be people who disagree with the book, and that’s great — heck, right now, many smart people think the company is grossly overvalued.
Five, my goal is to not make it the typical business or strategy book — think of the brilliantly short “Holidays On Ice” book by David Sedaris that you can read every holiday season with a heavy dose of the type of writing that’s on this blog already, but much more organized.
And, Six, this won’t be an “official” account or the “official” book on Uber. I won’t have that kind of access nor would make that claim. It will simply be my point of view on the company, in greater detail than could afford on this blog, and something tuned for the more casual reader who is interested in issues like globalization, mobile technology, new business models, labor markets, and reimagining cities.
Anyway, that’s it. I’ll share more details as I organize them. Will probably start with a Table Of Contents. Also, there will be many people reading this and on Twitter with a much better grasp of the company than I have — I want to write this book both for the technology early-adopters who have seen the Uber tidal wave coming for a while, but also for a more general audience who may have not yet. I hope that I can set expectations here and write a book that will appeal to both. Thanks for reading, and thanks to friends already who have listened to my idea and offered feedback and guidance. (And, yeah, there are probably typos in this post, so I’ll have an editor and fact-checker clean up the book.)
Earlier this week in NYC, I was invited to participate on the investor panel at the SVB Marketplaces Mashup. In short, it was an outstanding event. At the bottom of this post, I’ve embedded a hashtag search from the event, and if you touch on marketplaces in your work, I’d recommend scanning the timeline. Before I dig into the meat of the event, I’d like to give a shout out to friends at SVB (like Shai) — I’ve now been to about 5 of their events, and each time, it’s outstanding. They care about the framing of each speech, panel, and cocktail hour. I learn a ton at these events and would highly recommend them as high-signal. (I know this sounds like an ad, but it’s how I feel.)
The main point of this particular event was to talk about marketplaces. And the deck was stacked. Execs from Airbnb, Uber, and the founder of oDesk all gave keynotes sharing key stats and best practices for the cutting edge of marketplace design, growth, policy, and management. The presenter who stole the show was Todd Lutwak, of eBay fame (and now at a16z) — if you can get your hands on his slides, it’s a business school course right in there. As they usually end these events with the investors up on stage, I spent the day going in and out of sessions, catching up with friends, and trying to wrap my own head around marketplace issues that matter in my line of work. And, that is, specifically, that the word “marketplace” is defined by different people differently and, moreover, used to describe specific businesses in a somewhat apt yet not precise way.
After the event, I was hanging out with Andy and we talked about how, on one hand, marketplaces are going to increase in number. Of course, they’re antifragile! And yet, on the other hand, how we don’t have a good way of classifying them. So, below is a more structured recounting of our chat. I don’t share this framework as an absolute, so I’d love your feedback and thoughts on what makes sense and what needs work. At a high-level, I see four (4) types of businesses than one could classify as a marketplace, though I do believe resiliency is a function of how pure the marketplace is:
Pure Marketplaces: Connecting buyers directly with sellers. These are the eBays of the world, using the web to find equilibrium between supply and demand of goods and services. There are very few of these that don’t need much curation or policing, but ones that get big in this category get *really* big. See: Airbnb. And if the web spawned an eBay, imagine what mobile could create — see: Uber.
Curated Marketplaces: Some marketplaces need curation. Ride share companies need to vet drivers and conduct background checks, for instance.
Other Business Models With Marketplace Dynamics: Companies I’m involved with like Instacart and DoorDash are sometimes called marketplaces, but I don’t think that’s quite right. To me, they’re e/m commerce companies that contain a marketplace dynamic, like metered pricing, and having their drivers pick times and jobs to claim.
Marketplaces Plus Subscription Services: This was brought up at the panel and I was curious to hear of these models. I asked Andy and he too hadn’t heard of them. Josh from Sigma West wrote a great post on this hybrid model (click here), and I’d love to see more of these, if anything that all investors, private to public, love the resilience of marketplace models and love the predictability of SaaS business models. (Josh is a great thinker on this subject, I’d also point out to this post he wrote about slicing marketplaces startups yet another way.)
Push notifications are awesome, right? I think so, and have for a while. Yet, recently, they’ve been on my end ever since iOS 8 reveals which apps take up battery power. And, then, a funny thing happened — my love for push notifications was called into question. As I’ve been mulling it over, I have found there are three big problems with notifications (as they are construed today). I call these “The Three Push Notification Taxes:”
 User Interface & Control Tax: The whole way Apple has dealt with user permissions and how the average person controls their notifications just doesn’t make sense to me. I find it tiring to manage all the various options (pop up vs banner, badge vs sound, etc.), so I can’t imagine what the average consumer does other than just throw up their hands and move on. The result is that we all get more notifications, usually, because competition for attention and distribution is so intense on mobile, developers live by the push notification to get users back into their app, which helps foster two more taxes…
 Cognitive Load Tax: Interruptions, galore. We all know this. Yes, “Do Not Disturb” is a great meta-OS level settings options to suppress any notification outside of a phone call from a contact marked “favorite,” but in the absence of that, notification buzzes, sounds, vibrations, and “pings” ring through the rooms and our minds, splitting our focus for even a split-millisecond. (I’ve been reading “Organized Mind” and have been lately obsessed with the author’s simple yet powerful framing — that we as humans evolved in a simple hunter-gatherer setting and had to make a normal set of simple decisions a day, but today, we have to make so many more. Given how much we look at our phones to begin with, push notifications add an extra cognitive tax on our brains.)
 Battery Tax: Yeah, but we’re not going to stop looking at notifications, right? I thought so too, until iOS 8 created a setting under “usage” to determine which apps were hogging battery power. I have been following mine over the weeks. The highest one is TweetBot, because I live inside that app. It makes sense. But, consistently, “Homescreen” has been either #2 or #3 ranked battery hog offender. Turns out, notifications sent by the device when “Do Not Disturb” is not activated essentially “wake up” the screen of the phone, which requires battery — significant battery. Even with tightly groomed controls for push rules, I may get over 100 push notifications per day, and that means my phone needs to wake up for each one and then stay lit for a while after the push, soaking up battery rays in the process. (Open this Twitter thread and see screenshots of battery usage from other people.)
Don’t get me wrong, I love the idea of push notifications and all the new interactive features that will roll out moving forward. And, most people won’t likely care about the points I’ve made above, but I found myself questioning enabling push outside of some key apps, and now a few days in (with “Do Not Disturb” on most of the times), I’ve noticed things feel calmer as I’ve minimized these taxes. I still get push, but I control which apps (about 10, most infrequent) can notify me, and I have to physically wake up the phone (which impacts battery) in order to see them. Since, I’ve experience better battery performance, better app experiences, and less of a cognitive burden to shoulder. What’s concerning for iOS, however, is the Apple Watch. Notifications become more important as people may begin to “glance” at their phones more.