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.