I think about Uber a lot, before this week, to the point where I committed to write a book about the company (back in October) and its effect on the world. As a disclaimer, I’m a fan of the company. I do not own shares in the company (but I wish I did) and will likely buy shares as a civilian when the company goes public. Yet, despite this, like many others feel, it’s disappointing to see a company with so much potential and the future in their hands fall on their face — not for taking product risk, or launching new features — but for not being smart about how powerful they are and will be. Power requires awareness, and everyone in technology now plays for Yankees.
I’ve been contacted by countless media outlets (CNBC, Bloomberg, and more coming) about my own views on this week’s news given I’ve written about Uber and the space they’ve opened up for years now. Here’s what I’ve told everyone, see below. I copied this from an email I sent to a reporter, modified slightly:
Michael: I have to believe they’re making preparations to part ways. I don’t see how he will be effective in his role as inking BD partnerships when his name is plastered across the web in such a manner. However, there is a case to be made that keeping the team intact at this time is best for the company, however painful it is, so we will have to wait and see.
Kalanick: I have to believe he’s waiting to make a statement and give an interview. Maybe at tomorrow’s Goldman Sachs keynote in Vegas. He has to because if not, he’ll be asked this even more and more. (This is the #5 ranked post on my blog by total page views, it’s about Travis’s entrepreneurial journey.)
Impact On Fundraising: Uber has been rumored to been soliciting inbound offers to invest for months. I wouldn’t be surprised if it’s already done (before this all happened), and I wouldn’t be surprised if the valuation number is much higher than is reported. If and when that happens, expect Twitter to break again.
Role Of Investors: Lots of people seem to want the investors to “reign in” the company execs. I’m not sure that’s possible. They also want them to speak up, but I can’t imagine any of them saying anything before Travis does. The CEO leads the way. (I also have to imagine the larger investors are discussing this with management privately — and a lot.)
Impact On Brand: Uber had a complicated brand before, but this kind of narrative is one of the rare examples of truly bad PR. Like many of you, I believe it will stick and it’s on the company to earn back respect from those they have spurned.
Impact On Company: I have some friends who are early employees of Uber. I haven’t talked to them, but I imagine they’re pissed because all of their good work is taken out of the spotlight for a series of bad decisions. I don’t know enough about Uber on the inside to know what it’s like, but my hope is that this all moves the leadership to examine within and hopefully get better.
The Role Of The Crowd: I will admit being naive, I was surprised at how many people actively dislike Uber. I underestimated the intensity of that. I like Uber (the product) but certainly don’t condone what happened this week. My hope is all of this unfortunate news forces the company to not repeat history, lest they want this kind of congressional attention. About five years ago, Zuckerberg was under an intense microscope, was dubbed to have had a “Nixon Moment” at D8 by AllThingsD, and received congressional inquiries from the Federal Trade Commission. Facebook built an unstoppable network of IDs on top of the Internet, and that translates to power; Uber has built a network on top of mobile operating systems, it too getting into the unstoppable territory, and therefore, the masses are just starting to learn just how much power Uber has accumulated.
Earlier this week, I helped lead a discussion re: on-demand services with an old friend (Kevin from Shyp) and a new friend (Sara from Postmates) — Basti double-booked himself! Our chat was part of Emergence Capital’s annual fall “Mobile Enterprise” event (see below for the Twitter timeline from the event), which is always great. I learn a ton at these events. My favorite sessions were the 1:1 interviews with David Barrett (Expensify) and @Stewart Butterfield (Slack). Both founders are unapologetic about how they work and provide real-talk in the face of generalized mantras and blogs people read/share re: how to startup, how to get investment, how to hire. These guys are the real deal and I wish I had my hands on the audio feed for these chats.
I seem to get called to help organize every “on-demand” panel, which is nice but also confusing. Is it really a big deal? I go back and forth. Almost two year ago now, when I was lucky to invest in companies like Instacart and DoorDash, I thought — yes, it’s a big deal. Then, I started to get wind of more companies, and they were contacting me, and I got overwhelmed, so I shied away. That turned out to be a mistake and I missed one awesome company because my brain shut off. Then, more recently in LA at the Rutberg Media event, on another panel, someone from the crowd asked a question about on-demand services for business, and Kevin got me thinking about something — what if on-demand is now just table stakes for delivering new customer experiences, even when the customer is a business?
That’s what we discussed on stage, and what I’ve been looking for in my investing. So far, I’ve invested in a small handful of ODS geared at businesses as the end customer, and it turns out they also like this type of service. Maybe there’s something here. And, maybe a bigger trend. The phrase “consumerization of the enterprise” is quite overused and old, but what if consumer concepts like the sharing economy, on-demand services, and personalized software invade the business segment and give new companies a leg up on incumbents and even growing startups? That’s what I’ve been thinking over the last few weeks and would love to meet founders who are thinking along similar lines.
Now that the frenzy has passed a bit, I wanted to share a few brief thoughts on Slack, their latest investment round, and all the chatter it all created. Whenever a company breaks out under our noses and simultaneously hit that billion-dollar mark, the peanut gallery (myself included) try to figure out why. Incidentally, a few days before that, I wrote my annual “Breakout Tech Company Of 20__” post and concluded that 2014 didn’t produce any singular breakouts, but instead the new incumbent elite (Uber, Stripe, Snapchat) widened their gap from the pack. While I don’t think I was directionally wrong, my post was premature and I should’ve waited and picked Slack rather than just mentioning them in the comments.
As usual, it’s the founders who make moves and prove the rest of the field wrong. I overheard so many people around town talking about Slack, the really high valuation, how investors are piling money into companies, how this provided 60 years of runway, but no one mentioned that the team may want to grow fast, it’s hard to hire right now, companies need cash in the bank for extra leverage if they enter any kind of bigco M&A discussions, and with all the SaaS seeded companies out there that won’t make A, they may elect to acquihire some of them. We just don’t know.
With that said, here’s what’s interesting re: Slack’s rise and $1B mark, from my point of view:
SaaS Attack & Connective Tissue: We live in a time when there are *so* many SaaS companies. Both private and public investors love the predictability of the SaaS model, and it’s of course a huge evolution from having to sell licenses and require updates in the old school ways. As a result, however, it’s become more difficult to suss out which early stage SaaS companies have breakout potential, and enterprises themselves (the end customers here) experience fatigue in the same way consumers and consumer investors experience app fatigue. Slack addresses this by having done the “schlep work” of integrating with a variety of 3rd party SaaS services and adding a communication layer on top that’s different than email. In a sea of disparate SaaS solutions, Slack becomes critical connective tissue.
Email Overload: Ask anyone at a startup or larger company if their use of Slack at work cuts down on email, and the resounding answer is “yes!” That’s not only a threat to Google Apps, but something employees don’t want to lose. People don’t like to be on threaded, cc’d conversations that are 17 or 80 strings long.
Humanized Conversations: On top of this, a friend remarked to me that the interactions at his work on Slack turned more conversational, and as a result, more humanized. People didn’t feel they were being told what to do and managed over email, but that they were part of a conversation, and people were polite, casual, and focused on helping each other. I’m sure that varies from place to place, but that’s quite a powerful endorsement.
Valuations On Multiples Vs Intangibles: So, much was written about Slack making $12m a year, but we don’t know churn yet, and the price of the round valued the company at $1.2B, about 93x earnings, so that’s crazy, right? But, let’s step back…Dropbox and Box need workflow layers to compete with the big companies, Google has tried and failed at collaboration, Asana and Trello are great but don’t yet have the product that will breakout nor a distribution strategy to get there (I say this with love as I like both products very much). So, who is going to do it? And if Slack does, does a $1B or $1.2B price tag matter? Remember, the folks at KP are close with Google and Google Ventures also was in this round. And, then there’s the founder — first time lucky, second time for real? Who knows, but from what I’ve heard, this guy doesn’t mess around and figured out a widespread problem to solve and did so with cross-platform software. It’s the people that venture investors back. This person led his team to this point. Who is going to bet against him now? And, therein lies all the answers to the valuation the company earned.
The mobile-fueled “on-demand economy” has gone through a few phases. It started with magic, like — “hey, I can order an app from my phone!” Then, as distribution choked on mobile, entrepreneurs starting building “Uber for X” ideas like Postmates and other great apps — then people said, “hey, how many of these services can we have?” It started to sound like a bubble of ideas that wouldn’t be supported by the market, let alone venture capital. The economics of providing an on-demand service in today’s mobile world vary from company to company (and related to the cost of goods sold, where the delivery is often a loss leader or subsidized by the customer through a fee and/or tip).
For now, as 2014 ends, it seems the next phase for on-demand services is going to be seeping into the mainstream. Whether the economics work or not, the reality today is that consumers now expect on-demand service options and offering them can change consumer behavior. This month, Starbucks CEO Shultz announced on a public earnings call that Starbucks will begin testing “coffee delivery” in 2015. Or, consider Costco, which is now open to shoppers (note: they don’t have to be members) through Instacart or Google Shopping Express. Or, consider a startup called Curbside, which offers the ability to order and pick up at store — not quite on-demand, but moving in that direction. Has your spend at Target declined over the last few years? I thought so.
I was paying my credit card bill this morning and noticed the charges were overwhelmingly for two things: transportation or food. With transport, aside from airlines, the charges were for ride-sharing services, and with food, spread out over an array of new services and payment apps, many of which deliver things to me. It is the new expectation for mobile-first consumer experiences. Look at companies like Sprig and Spoonrocket — these are are entirely new brands and could be delivering amazing craft coffees right to your desk, bypassing your need to wait in the Blue Bottle line for 20 minutes. This is a silly example, but illustrates a point — when mobile is combined with a clear brand which offers a suitable or better substitute to something we already do, companies like Starbucks even need to start thinking about new interactions around consumer experience.
A startup idiom can go something like “stealth mode is overrated” or “counterproductive” or just plain “dumb.” Lately, however, there are more and more companies I’m seeing which remain stealth, don’t announce funding, or their investors, or much of anything. Here, the conventional reason given is: “Press and coverage no longer drives attention and, therefore, conversions or customers.
But, I think that’s not entirely it. I think a deeper force is at play.
Over the last few years, companies couldn’t wait to announce funding, their backers, and work the PR angle. Investors fueled this further writing on their blogs about new investments alongside press events. Nowadays, not a day goes by when someone tells me about a new stealth company that has been funded by a great investor, for around $3m or so (give or take), and there’s little or no trace of the company, the founders, or investors. All carefully cloaked.
My theory — people are afraid of competitive forces and ruthless copying. Working in the dark now may preserve all sorts of advantages, such as the ability to focus, the protection from recruiters or poaching behavior, and not giving ideas to overfunded teams of talented souls who are clever enough to pivot 180 degrees into your neck of the woods. I should underscore here this has been so common over the past year that when I see tech headlines on Twitter, it just feels like an entirely different universe. I should also underscore that these companies are often on a different level from what is publicly discussed about other companies. A growing but derivative company may get people chattering online, but some of these new companies — if public — would make for great blog posts, discussions, and debates about what our future may hold.
That gives me hope but also puts me in a bind. I have survived here by being open and public, but also working very hard to work with several competing interests while maintaining confidentiality. And, I like to distill what I see happening and then write about it here, as a way to deepen my understanding and learn from others. But as more things go stealth, I will hear about things less, and even if I do, like I did this week, the information can’t go anywhere but patiently wait to launch or seep quietly into the mainstream one day. From what I’ve seen, I hope they do.
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.