What HaaS Means for the Future of Ownership

I’ve been thinking a lot about the concept of ownership lately, and in particular how millennials view it compared to any prior generation. In short, it’s not a priority. And that means that a lot of things could change.

The sharing economy was certainly catalyzed by a prolonged recession during which a lot of people found themselves laid off or underemployed, making flexible “gigs” attractive as a way to make ends meet while the economy got back on track. But the entire concept is predicated on the fact that millennials in particular are demanding services and experiences over the ownership of products and assets. This has lots of people in traditional real estate, hospitality, automotive and consumer products industries concerned, and has caught the eye of regulators in nearly every vertical. It’s also changed how we think about the interactions between consumers, producers and the communities and markets in which they interact and transact.

MILLENNIALS: Coming of Age report by Goldman Sachs

MILLENNIALS: Coming of Age report by Goldman Sachs

If everyone shares cars and rides from fleets of ever-roaming autonomous vehicles, what happens to the notion of car ownership? Parking lots? Garages? Commutes? City planning? The suburbs?

Chamath Palihapitiya thinks Tesla is positioning itself to drive (sorry) this particular shift as the first “Hardware-as-a-Service” (HaaS) company at scale. He argues that by streamlining the manufacturing and assembly process and constantly improving its software with the millions of data points it collects every hour from its growing number of cars on the road, they will be able to get very good at optimizing everything about the driving experience…at which point they could “simply decide that instead of selling a consumer a car, they can allow that consumer to subscribe to a car — or really, a massive fleet of cars.

How an autonomous Tesla sees the road.

How an autonomous Tesla sees the road.

I see this shift having an effect on more than the just consumers of on-demand services or the age at which people will buy a house. A lot of our economy--and capitalism in general--is based on the concept of ownership, particularly when it comes to consumers. Buying (material) things and holding onto them is how the previous generations defined a large part of their lives. From their first home, to their car(s), to myriad consumer products. Even the idea of a “good job” was bought into as something you earned and held onto until you hit a certain age, got a gold watch and flipped the switch to retirement.

Because ownership defined so much of modern people’s lives, the financial services, insurance, healthcare, manufacturing, marketing, and distribution systems that exist today are all designed with ownership at the center. Or perhaps it was the other way around. Either way, we’re already seeing how this shift—enabled by technology—is disrupting some of those systems. A desire for increased flexibility by millennials and future generations has changed demand for goods, services and a certain type of lifestyle. The most valuable asset is now your time.

I think if what Chamath is predicting happens soonish, we’ll see that disruption reach much farther and have much more profound impacts on every aspect of the economy and our daily lives. Exciting times we live in!

Uber, Drivers, Robots, and Costs

With the decision in California that Uber drivers are in fact misclassified employees rather than 1099 independent contractors, a lot of people are talking about the increased importance of Uber’s self-driving research and development happening in Pittsburgh.

Add to that Uber CEO Travis Kalanick’s comments last week that he would like 500,000 self-driving Teslas in 2020 and we’ve got plenty to speculate on.

The shift from now potentially much more expensive employed drivers (who might now carry with them costs like payroll tax, overtime, workers comp, social security, healthcare, additional taxes) to a fleet of self-driving robot vehicles seems obvious. Much like Netflix’s DVD delivery business evolving into a much larger streaming business. If you can get consumers on board with the new delivery mechanism (which is now commoditized), you can creep much closer to your customer on the value chain. And if Uber is already working to commoditize dispatching and modularizing cars, that will only be amplified with a self-driving fleet. 

But one fact is being overlooked: a huge reason Uber has been so profitable so quickly is because they shift an enormous amount of costs and risk over to their drivers and thei fleets. Cars are expensive to lease or purchase, maintain and insure. If Uber suddenly has to own those big hunks of metal and the risk of moving humans around in them, their business model will change drastically, even if self-driving vehicles end up costing much less to build and insure.

Finally, despite all the hype around self-driving cars, we’re still quite a ways off from that being a reality. While California is only one state, if this sets a precedent for other local governments or the IRS to jump in, Uber might be looking at several years of much higher expenses before they can bring their robots to life.

What “No Stack Startups” Could Mean For Funding Cycles

Andy Weissman from Union Square Ventures recently authored a blog post identifying a new type of startup, the “no stack startup.” Andy’s observation was in contrast to Chris Dixon’s concept of the full stack startup, in which a company “builds a complete, end-to-end product or service that bypasses existing companies…” This is not a new idea, of course. Vertical integration has been a holy grail in business for ages, and when executed well leads to terrific monopoly power. Owning (and controlling) the entire value chain allows for more predictability, power and efficiency, in everything from supply chain to sales. But it also means that a business has to get good a many different things. For a startup this is quite difficult, as focus tends to be it’s biggest driving force. Developing core competencies in many disparate slices of the “stack” could lead to doing many things moderately well rather than doing one thing 10x better than anyone else.

Of course, there are ways to attack particularly lazy sectors and do this extremely well (Tesla, Warby Parker, Harry’s, Uber, and Nest were some of Chris’s examples). This approach is also important when owning the full customer experience is crucial to both delivering and extracting the full value from the customer. And some of these examples have done a better job than others at executing well in the messy, complex parts of the business like supply chain.

But what I find interesting about Andy’s observation and the funding environment we’re in right now is that the capital needs are shifting, from development and building to adoption and scaling / “growth.” This might be a function of the fact that No Stack Startups are so easy and cheap to launch, and thus there are many new entrants into a market. Customer acquisition then becomes more difficult given the abundance of choice, and the availability of capital to spend on adoption and growth creates a sort of foot race almost immediately.

Of course launching as a no stack startup doesn’t mean one can’t become a fully vertically-integrated company at some point. Expanding one’s position across the stack is something that has been done once a profitable slice has been fully exploited (a la Standard Oil’s ascendency during the 1870’s and 1880’s).

I’m interested to see where companies like Magic and Alfred (concierge layers atop on-demand services), TextRex and Luka (restaurant recommendations), and the like are heading, and if / when they run into problems (or acquisition offers) with larger players / providers on their stack. Perhaps the "no stack startup" is just the new beachhead.

The Magic of Magic

You know you’re at the crest of the on-demand wave when your girlfriend uses a concierge service to “mariachi-bomb” you and your buddy at a bar on a Tuesday. Once I got over the fact that mariachi-bombing was now a thing, and once my buddy and I got comfortable with the fact that all of Croxley’s Ale House in Williamsburg had ceased watching the Rangers game and March Madness basketball and instead were eying us with the sort of bewildered curiosity one generally reserves for those who choose to eat hot, messy, open-faced sandwiches on the subway, I turned my thoughts to how this group of fine, charro-suited musicians ended up at our bar booth.

The answer, of course, was “Magic.”

Magic is the latest in—and I think the most literal interpretation of—the “Uber for X” startup gold rush. The on-demand economy is giving birth to so many iterations of this concept, it’s hard to keep up. But Magic caught my eye, and not only because they dropped a Mariachi band on top of hockey night. No, it was after I got a text from the girlfriend with a simple “So? What did you think?” that I sat back and marveled at the ease with which she had dreamed up, organized, and executed such a bizarrely hilarious experience on a complete and utter whim. I had to know more.

It turns out that Magic was born out of a weekend side project that a small team of YC founders hacked together while taking a break from their main startup idea, an app to monitor and improve your blood pressure called Bettir. It was something co-founder Mike Chen said he had always wanted for himself, a service you could shoot a text to and get *anything* you wanted.

The fact that you had to SMS your “order” was clearly a function of the constraints they were operating under, but to me (and probably them and many other users as well) it’s a great feature. Texting “someone” gives the service a feeling of humanity. In a world where things happen instantly at the push of a button, this felt different, more personal (yet still immediate). Because there was a real live human at the other end using natural, casual language and actively “working” on finding me a solution to my “problem”—whether it be mariachi-related or something else equally dire and pressing—I felt like this was a true concierge, and my subconscious was already accepting a premium price because there was nothing transactional feeling about the experience. Justin Kan had some interesting thoughts on this in a recent episode of Ryan Hoover’s Product Hunt Radio (starts at 3:38). Even when the price is brought up before confirmation, it’s part of a sentence written by a human, and it, at least for me, reduces the friction between acknowledging that price and replying “Yes.”

Of course, this service also crystallizes a lot of what’s crazy about startups at the moment (the fact that there were rumors they were raising $12M at a $40M valuation from Sequoia ratchets up the crazy a bit more too). The reactions have been mixed, pointing out that this feels like just another niche product catering to the valley’s elite and nothing more; that it’s solving a problem a million other companies already solve; and that it illustrates how lazy and entitled we as a society have become that we all need personal butlers at our fingertips 24/7. Some of those reactions are below:

The MVP approach of the product mixed with the massive virality it achieved (and the explosive demand it received) also raises concerns of:

1) Scaling - obviously there needs to be a good amount of automation introduced so they can move away from relying on humans for every request. As one HN commenter noted, if they could get the automation such that 90% of the requests were handled by computers and 10% were handled by humans (allowing for a true hands-on, above-and-beyond experience), perhaps then will their costs be manageable enough to scale to a real business. This would also help manage churn, because this is definitely one of those products where one bad experience could lose a customer immediately. Low response times and consistency are key in that case, as with any on-demand service, and the more technology is driving that, the better.

2) Pricing - While bundling their premium into the quoted price does reduce friction in the moment, their markups seem arbitrary and not clearly defined; better transparency and communication about that—a la Uber and its surge pricing issues-—would be important for gaining and maintaining customer trust.

3) Competition - I had forgotten that a few months ago I’d signed up to be notified when Operator, at the time a stealth startup coming out of Garret Camp’s Expa “startup lab,” launched. In the midst of the Magic hoopla I got an email alerting me that Operator’s beta was now live. I downloaded the app, flipped through a few How To Get Started slides, and realized Operator was a slicker, better-funded version of Magic. Except it was really pushing fashion as it’s primary use-case, at least to me. It was interesting to explore, because I could see they were trying to “inspire” me to ask for specific things, and they had a whole Discovery section to reinforce that nudge to get started. I actually didn’t even put a request through, because I didn’t need any clothes and I got kind of confused what else I should ask for. Nevertheless, they had a splashy article announcing their launch and amassed an impressive 80,000+ waitlist. I’m curious to see where this and other competitors take things.

4) Use-case - What Operator was trying to do got me thinking about intent when it comes to these concierge layers built on top of the on-demand ecosystem. When faced with an empty text box, what do you ask for? Is this a utility, a luxury, or just a novelty? I think what all these on-demand products are selling, when it comes down to it, is time. And how you position your product as it relates to time is important.

Most of these on-demand things follow a similar path across the spectrum of importance to daily life. They start out being viewed as a novelty (as Travis Kalanick says a lot, with Uber him and his buddies just wanted to be “baller in SF,” and Uber did that at the push of a button). Then it shifts to a mere time-saving luxury (it’s Saturday night and we’re late to a party, I’m willing to pay a little extra to get the four of us there on time in an SUV because hailing a cab right now will be a nightmare). Then it shifts to a basic utility, where Uber is the defacto choice for getting around a city (Hailing a cab? Calling a car service? What’s that?). The pricing tends to reflect this shift: as volume goes up and efficiencies increase due to better technology and operations, margins improve and pricing can decrease without killing the business, further increasing volume, etc. Obviously the current availability of growth capital to companies on this trajectory accelerates this process by allowing market leaders to decrease pricing substantially in order to capture more market share and squeeze competition.

(Chris Dixon wrote a great post about this phenomenon of important new innovations often looking like “toys” early on: “The next big thing will start out looking like a toy”)

But jumping the gap between novelty and utility (utility’s not the right word but something along those lines where a service goes from serving an occasional splurge to serving a routine need) is a difficult maneuver. There’s also an inherent catch 22 in the spread of these things: the novelty of the product or service is often what gets people talking, but redefining the value you deliver from novelty to “oh, I actually need this” is where the magic happens (sorry, I got this far without doing that, it was inevitable). I’ll be interested to see if Magic (and Operator, and any other startups that jump into this layer of the on-demand ecosystem) can find their use-case that demonstrates a more utilitarian value than simply “get anything on-demand.” As Ian Hunter, one of the founders of Zaarly, mentioned on Magic’s ProductHunt discussion, “the problem is quite obviously fulfilling blank slate requests.”

Cards Against Humanity's Black Friday "Sale"

Cards Against Humanity’s “$5 More” Black Friday Sale A lot of people have been curious about how our “everything costs $5 more“ Black Friday sale worked, and if it was successful for us.
We initially started talking about doing a Black Friday sale over the summer, and came up with the idea of a “$0.01 off” coupon. I liked the idea, but have always maintained a policy of no deals, no discounts, and no sales  for Cards Against Humanity, even during our Kickstarter. To me the game is always $25, it’s never another price, and doing any kind of deal or discount undermines the simplicity and honesty of the game.
Nothing crazy here. I put together a landing page and we replaced all the “buy” buttons on our site with the new pricing. I edited the FAQ to include:
Why do all of your products cost more today?
We’re participating in the tradition of “Black Friday,” an American holiday celebrating a time when the Wampanoag tribe saved the settlers of Plymouth Colony with incredible deals. All of our products are $5 more today only, so you can enjoy buying them that much more.
I’m mad that you’re making a joke about Black Friday.
You’re probably a bad person.
The sale made people laugh, it was widely shared on Twitter and Tumblr, and it was the top post on Reddit. The press picked it up, and it was reported in The GuardianUSA TodayPolygonBuzzFeedAll Things DChicagoist, and AdWeek. It was even the top comment onThe Wirecutter’s front page AMA, which had nothing to do with us.
I was pretty sure that our fans would be into the “$5 more” sale, but I had no idea that it would turn a day where we’d normally be totally overlooked into a huge press hit for the game.
So how did we do? A little better than last year. We kept our position as the best-selling toy or game on Amazon. My guess is that peoples’ buying decisions just weren’t that affected by $5.
The interesting thing to note is that we got a nice lift in our sales the day after Black Friday (“Regret Saturday”). That might be from people who were waiting to buy the game until it came back down in price, or, more likely, those are sales from people who heard about the game after our Black Friday press. Not bad for an ad that paid us to run it.

This is just terrific. Was equally stoked on Everlane’s Blackout for Black Friday stunt last year. We had shut down our site on Thanksgiving this year because, well, it’s just ridiculous that people were getting up from family meals early wait in line at Walmart to get a "deal” on a TV they didn’t want or need in the first place.

But Cards Against Humanity really pulled off a winner here with a campaign that was as simple and clever as their product. Brilliant!

How Quickly Things Change

Business Insider has a bit of sensationalist commentary on today’s TechStars NYC Demo Day in an article entitled “Skepticism Strikes at TechStars Demo Day But AdYapper is the Silver Lining.” Normally I just gloss over this kind of nonsense, but it actually smacked as something that had been bothering me since a recent trip to Mountain View for the MamaBear Conference in May.

Last year at the same conference, the talks were full of people “crushing it.” Tons of vanity metrics gone wild, Series A announcements, big media partners and solid “traction” going around. The enthusiasm was enough to make a humble entrepreneur sink into his chair.

This year, however, a different tune was playing. The talks consisted of cautionary tales of “raise money if you can, however you can, don’t worry about valuation.” Some started back-pedaling, talking about, gasp, real business metrics and, double-gasp, profitability, as things you should pay attention to from Day 1 or risk flaming out. There was an eery haze over the room in the wake of Jody Sherman’s terribly unfortunate passing, as a lot of the attendees were friends/investors/partners with him and Ecomom. Generally, though, it was just a bit gloomy.

As I sat there, I tried to write down what this feeling was. It wasn’t overtly apparent, as there were still some VERY successful companies and founders talking about the great things they were doing. It was just a strange vibe, like people were all of a sudden out of love with the whole subscription commerce/box-of-something-a-month/let’s sell this stuff online and call it “emotional commerce” category. And I was a bit left out of that sentiment, because I’m pretty sure I was the only founder there whose company actually “makes” something with atoms, not just bits.

The whole episode woke me up to how quickly the tune can change, especially in startup culture, and reminded me why it’s dangerous to get caught up in the fleeting success of something or someone new.

I remember walking off of Microsoft’s campus last year Charlie Brown-style (cue music), thinking we were a million miles behind the pack. This year, I’m extremely proud of where we are and what we’ve accomplished. I guess it’s all about context.

P.S. One of the companies presenting at Demo Day, Jukely, I’m completely obsessed with. Finally an app that understands how to make concerts–discovering and attending them–great! Not all doom and gloom!

Keeping Track

I’ve been using iDoneThis for almost 2 years now to keep a daily log of what I do each day. Work stuff. Life stuff. Eating. Sleeping. Everything. I’m not perfect, and miss days here and there. But recently I’ve noticed what a profound impact that small habit has had on my life. Just the simple act of taking 2 minutes (iDoneThis tells you it should take 30 seconds, but my memory isn’t that sharp) to think about and write down the things you accomplished that day is cathartic in itself.

But having a log that you can go back to every now and then, and see how far you’ve come, where your mind is now vs. a year ago (they have a neat TimeHop-esque feature that reminds you what you “Got Done” 3 months, 6 months, and a year ago) is a great booster.

Everyone has ups and downs, but starting and running a company often increases the frequency of that wave, and often the amplitude. Big highs one day, crushing lows the next. Keeping things in perspective and taking time to celebrate the small successes is extremely important. For me, this activity has helped remind me to do that.

iDoneThis also has a neat feature where you can see what terms you use most often in a word cloud, and you can see how the use of those words changes over time. The adjectives I use have trended much more positive the past year, which I guess is a good thing :)

Given how hyper-connected we all are now, and how much more information we consume each day, taking a quick break to write things down is important. Even a handwritten journal would work, but my handwriting isn’t that good.

Try Before You Buy

Today Daft Punk finally “dropped” their first album in almost 8 years. Random Access Memories is now, at last, available for download, purchase and stream.

For many, this won’t be the first they’re hearing of the 13 track album. But that doesn’t mean they’re not rushing to press play the second they have the opportunity to do so. It may not be the same as rushing home, vinyl in hand, from the record shop to run up the stairs to your bedroom, rip the disc out of its sleeve and plastic coating, plug the oversized headphones in, hurriedly place the needle on the track and soak in that stereo…but I was still pretty darn excited to boot up Spotify and double-click “1. Give Life Back to Music.”

My reaction isn’t an abnormal one. In fact, it’s an engineered response to one of the more brilliant marketing plans in music I’ve ever seen. I’m totally aware of the scheme, and yet I don’t care. It’s that good.

The groundswell that these two helmeted Frenchmen (along with their label’s marketing team and whoever else contributed to the release) built between January and today was monumental, and fired on all cylinders of the marketing mix. From the announcement (which was buzzed about in all the right communities…Reddit’s /r/musc nearly had a collective mental breakdown from the news); through to the early releases of “trailers,” which fans quickly remixed into full-length songs to be enjoyed over and over; on through to the snippets played on SNL and around music festivals in early spring; the release of “Get Lucky,” and the “leak” of the full album last week (which turned into a day’s worth of “legal” streaming on iTunes and Spotify Europe), the build-up was insane.

But hype-building aside, the majority of the attention this campaign got was due to the quality of the music. And that quality was discovered because it was made available to the public, before they had an opportunity to buy. The product had to speak for itself. And while it was placed in a frame of mouth-watering excitement and anticipation, the art had to stand on its own, and the consumer made the decision.

I see this happening more and more, giving consumers a “try-before-you-buy” option, and focusing on superior product to make the sale (rather than gimmicky marketing). Oftentimes, the try before you buy program is the marketing in itself (see Warby Parker’s Home Try-On program). But whether you’re selling eyeglasses or making music, the landscape is definitely shifting in favor of demand. The power is in the consumer’s hands. And I think that’s great.

Now if you’ll excuse me, I have some more music to listen to.

A Product Is All There Is

I love meeting with entrepreneurs because most of them are full of optimism and often driven by a big vision. It is then easy to get into a conversation about that vision and how awesome it will be. But therein lurks a great danger and one that both entrepreneurs and investors (myself included) can easily fall prey to. Outside the room nobody really knows or even cares about your grand vision. Instead, your product is all there is.
What do I mean by this? Even if you do a fair bit of marketing and evangelizing and speaking at conferences, at the end of the day for most people the product either works or it doesn’t. It either fills a need of theirs (one they may not have know they had before encountering your product) or it doesn’t. Again, the vast majority of users will neither know of nor care about your vision.
This is worth repeating over and over again: your product is all there is. For the insiders in the know it is so easy to project the vision onto the product and they will always see it. But that is not how everyone else experiences it. Always keep this in mind. This by the way is true not just for consumer products but also for B2B ones.
So what should you do? Lots and lots of enduser observation of people who know nothing about your grand plans. And product improvement based on that feedback. Rinse and repeat and good things will happen.

Spot on. A lot of times you’re placed so many levels of abstraction away from your product, whether you’re pitching the vision to investors, or press, or buyers, or partners, that you forget that all that’s left behind when you pack up is your product. Remembering that is crucial, and often harder than it should be.

Source: continuations

Solve for the Unknown

Shower thought: everyone encounters two kinds of variables, constants and unknowns. Constants cannot change, but can be used to solve for the unknowns. When a situation has reached a point where you can’t go back and change anything else and all you’re doing is rehashing ways you could have done better, it’s time to accept that variable as a constant, place it in the right spot in the equation, and focus on how that gets you closer to solving the larger problem. Not that learning from your mistakes should be overlooked. But in the heat of things, I’ve learned, it’s more prudent to focus your energy on solving for the next–usually bigger–variable, and hopefully solving that equation and putting it to bed. There will always be more variables and more equations, with endless unknowns, so making sure you’re focusing on the right things and not dwelling on the wrong things is super important. It’s super difficult too, because it’s natural to say “what went wrong?” But there will be time for that when the dust settles (I hope), and plowing ahead in search of more answers and solutions is much more crucial.