Which are you of these 2 types of startups?

business tools

People often ask me what the difference is between a startup and a new small business. At Pollenizer and in their terrific book Focus, the difference is defined as follows:

A new small business – has a proven business model and method of success – e.g. a cafe.

A startup – tries to prove a new business model through solving problems in a new way.

If it is that you are the latter – then it pays to know what kind of startup you are having a crack at. Is it an If & Then or a When & Who?

If & Then – A business where something needs to happen during the building process for a commercial model to emerge – possibly critical mass or wide adoption of a new concept. Then, it will work…. The IF bit is what makes it hard and the most unpredictable type of startup. I’d put Airbnb in this category.

When & Who – A business which seems inevitable, often aligned with a technology curve jump. It can either be a race to get the tech ready or a timing issue for when people are ready for it. I’d put social networks and most e-commerce categories in this category.

Knowing which one you are matters. It changes everything from how and when we scale, to who matters when we launch. The challenge of course is that when it succeeds, even the If & Then startups seem like When and Who’s.

You should totally read my book – The Great Fragmentation.

Yes, we know Uber has no cars, but what do they really sell?

So by now everyone knows that Uber has exactly zero cars and Airbnb has zero hotel rooms. But this shouldn’t really be that surprising given it has been the playbook of the internet since like Altavista was a thing. So we can stop putting it in presentations as though it is a surprise. The web is a connection device, those who make the most useful connections win. It’s all about access, not ownership. While these two tech companies don’t own the assets they rely on, we ought remember some older examples from the ‘Connection Playbook’.

  • Apple have 800,000+ app developers they don’t pay.
  • Alibaba has 4.2 million factories they don’t own.
  • Facebook has 1.2 billion content creators.
  • Amazon sells almost every author in the world.
  • WordPress has 75 million journalists writing for them.
  • eBay doesn’t own any good it sells.

The web has always been about leveraging cognitive surplus and idle assets. Owning stuff and paying creators is so Industrial era.

Now let’s consider what people are really buying when they get an Uber: Certainty & Transparency.

Uber time to arrival

For me the thing that makes Uber valuable isn’t the nice black vomit-less cars, or the random risky strangers who drive them. It’s knowing the car will be at my house in 6 minutes. It’s far superior to whenever I order a taxi – they still to this very day have the gall to tell me they’ll send the ‘Next Available’ – which does not help me get to the airport in time. I’m also a fan of just leaving the car without having to waste like 7 seconds swiping a credit card to pay. Yes, human laziness knows no bounds. Interestingly, the key features that make it work could all have been done by the taxi industry. But heck, why would they do that in monopoly conditions?

As for Airbnb, I’d much rather stay in a hotel when travelling on business. Hotels are far more convenient and have a number of services that matter when travelling for work – like late night burgers and concierge. But whenever I hear someone talk about their Airbnb experience, it’s never about convenience and amenities. And it’s not always about price. Most often it is about the story of where they stayed and how authentic it was. Airbnb sell the story of accommodation. They localise the experience for strangers.

Yes, it’s quirky that many big businesses connect things rather than own them, but it’s more important we understand what their customer advantages really are.

You should totally read my book – The Great Fragmentation.

Do you know what you're really selling?

GE Jet Engine B787

I’ve become convinced the reason businesses get overthrown, is that they get confused with what they actually sell. They define their business by what they make, instead of the problems they solve.

The problem with defining a business by outputs instead of solutions, is that companies can fall in love with their infrastructures. Which makes it nearly impossible to transition to new solutions which come from different systems.

I recently came across a very novel way to redefine what is sold. Surprisingly this happened at GE Aviation, a big, monolithic and justifiably conservative organisation. GE recently announced it will be selling its aircraft engines, not at a price, but at a cost per thrust. Wow.

Thrust is the clear benefit of jet engines, so why not sell the solution. Very innovative indeed. Why would they do this? It enables GE to own the solution rather than a particular product which solves it today. It gives GE a greater influence on an IoT driven Aviation Industry, better feedback loops, and it creates a permanent platform they control for aircrafts and their operators. Add to this a cheaper acquisition price of engines and everyone is happy. You can read more about it here.

So, what is it your business is really selling? 

You should totally read my book – The Great Fragmentation.

The one thing you should take without asking in business

Chairman Mao

When we’re driven by the desire to do more for our startup, customers, or even an employer, we often think about constraints.“If they’d just promote me, I’d do this, that and the other thing.” We hope for a stamp of approval that it’s Ok for us to go and do the thing the business so desperately needs.

But instead of waiting to be given authority, what we need to do is take responsibility. This will help us understand more about ourselves and those we work with than waiting ever will.

You should totally read my book – The Great Fragmentation. 

Why predicting the future is more about sociology than technology

Technologies arriving by 2025

This chart above is from a new World Economic Forum report, Deep Shift: Technology Tipping Points and Societal Impact, predicts 21 dates in the future when previously unimaginable innovations will enter our daily lives, transforming the way we live and the way communities and governments function. And after perusing the report, I couldn’t help but think that the results focused too deeply on technological capabilities rather than social and economic incentive. It seems that while predicting the future is always a difficult task, every time I read such predictions, human behaviour is not considered at a deep enough level.

I disagree with most of the predictions above, but mostly for two reasons:

  1. The flawed and simplistic definitions from the past. (This is how companies get disrupted by the way, but more on that later)
  2. The lack of consideration given to how incentives shape behaviour.

Simplistic Definitions:

Report Claim: 10% of people wearing clothes connected to the internet. Reality: We are already wearing technology. Our phone is a device we have been wearing as clothing for nearly 10 years. The definition given in the report doesn’t serve the function of why you’d wear technology – it’s too limited. It’s a yesterday definition.

Report Claim: Over 50% of internet traffic to homes to be for appliances & devices. Reality: The internet of things (IoT) in the home will be at least 10 times the size of humans connected, current estimates are for 50 billion items. So in pure connections it will be way bigger than their estimate. But as a portion of traffic and bandwidth it will still be small compared to human generated internet traffic. Most IoT devices will have simple sensors and awareness functions through connected nodes, which in real terms generate very little traffic as long as we maintain Net Neutrality. I’d also add that we are already generating more than 50% of web traffic through home connected devices – aren’t TV’s, smart phones and laptops in the home ‘devices’? Again the way things are defined mislead.

Report Claim: First city of over 50,000 people with no traffic lights. Reality: We already have hundreds of cities around the world of more than 50,000 people without a road rule in sight, let alone traffic lights. Seriously, have any of these people behind the report ever been outside of the confines of Davos or their Ivy League Learning Institute? China, India, Indonesia, Africa, Eastern Europe and South America all have cities that fit this definition today. Another example that the world view of the economically fortunate is often myopic and first world centric.

Report Claim: 1st 3D printed production car by 2025 Reality: At volume this will not make sense, but it also depends on what they mean by ‘Production’. If less than 10,000 units then this is a clear ‘No’ as the industrial production line has advantages 3D printing will never have, an undisputed fact among 3D printing experts. While many parts of cars will come from printers, the entire production process will not. In fact, they key benefit of 3D printing is the exact opposite of ‘production efficiency’, it’s about customisation. They’re missing the reason.

Ironically, the reason many companies get disrupted through technology is how they define their business. They define things in terms of what they sell, and not the problems they solve. Technology often unveils new ways to solve old problems, which renders yesterdays logistics and infrastructure outdated. 

Incentives & Social Considerations

Report Claim: First Robotic Pharmacist will arrive by 2025. Reality: We already don’t need pharmacists and it is largely the strength of their government lobby that keeps them putting little labels on little bottles. There is no economic incentive for the pharmacists to replace themselves, and so I doubt they’ll let it happen. If this incentive existed, they’d already be selling medicine in grocery stores. If however, the report is referring to 3D printed medicine, well the FDA approved that in August this year.

Report Claim: 5% of consumer products printed in 3D by 2025. Reality: While I think 3D printers will be in a majority of homes, it’s still like 1975 was for personal computers. An entire infrastructure of software, materials and socialisation around the industry needs to be created. The opportunity is really in platforms to support the potential of 3D printing – read here, selling shovels, not finding gold nuggets. But let’s add the social reality to the mix. We are more than 20 years into the World Wide Web and e-commerce is still only 7% of US retail sales. And this is more evolutionary and easier to adjust to socially than 3D printing items is. This tells us the truth more than any predictions will.

Report Claim: First AI machine on a corporate board of Directors by 2025. Reality: As per the pharmacists being a Board Member is not a question of need and decision making ability, it’s a question of power, influence & gettin’ paid. The incentive for board members to replace themselves, is really not there. If someone does it, and they will, it will be a mainly be about company PR.

Report Claim: Driverless cars will represent 10% of all cars on US roads. Reality: This number will be significantly higher, maybe even higher than 50%. This is true for a few reasons. Firstly, the cost of self driving cars will be a lot lower than people expect. Because cars are now rolling computers, the same pricing dynamics now apply. Costs decline while performance increases exponentially. I’ve already written about why every car on the road will be electric in 10 years, and when we add things like; the ability to watch movies or sleep while travelling; having an extra drink after work on a Friday night, putting your car to work to earn money while you’re not using it (if indeed you own one); and not having to pay insurance for a self driver, then the incentives for self drive put this in the smart phone category – we curve jump to it as soon as it’s available.

The problem with the report, was in my view, that it was done by asking opinions and averaging them out. A bit like designing something by committee. You end up with well, average results which probably don’t reflect the real views of any individual who was asked.

You should totally read my book – The Great Fragmentation.

Why aliens have never made contact with humans

Aliens

The reason that aliens have never made contact with humans is that they don’t think we’re in charge.

I go jogging every other day, and I always see humans walking behind dogs. The dogs are leading the humans along a path, with a rope attached to the human. The humans are following the dog with a plastic bag. If the dog happens to do a poo, then the human stops, picks it up, and keeps on walking behind the dog while carrying the poo. If aliens ever happened to drop into our fair planet, I’m pretty sure they’ll think the dogs are running the show. Any conversation aliens have with a life form on earth would be directed at the dogs, not us.

So what would the aliens think of your startup based on what they see? Would the product tell the story you want? Our customers might as well be aliens, as they can only judge us based on what they see.

What we do, and others observe, is where reality lives. While we might talk a good game, the way we actually play it is far more important.

You should totally read my book – The Great Fragmentation.

What startups can learn from Studio 54 and the velvet rope

Studio 54 opening night

As soon as we launch a startup we’re secretly desperate to get as many users as we can as quickly as possible. Even if we’ve hacked some kind of alpha test, or user MVP – or any other buzz mechanism to justify that this shit is gonna work. That aside we still want users, bodies, customers, people to come, use, share, evangelise as quickly as possible. It’s all about speed to market, so we move super quick to make this happen. Speed of customer acquisition is the key right?

Maybe not. Maybe what we should really be doing is the exact opposite. Maybe we should keep people out. Even those in our desired audience. Maybe we should be focused less on the quantity of users and instead focus on the quality and frequency of interactions with insiders. Those we let in. Just like a popular night club does, it creates desire by creating a space not everyone is allowed into. The line outside, is not a bug, it’s a major feature.

Look at anything valuable in life, and you’ll see a place where people had to earn their spot. People had to get invited, pass a test, earn recognition, or create value before they were allowed to be part of the thing in question. This process creates the human fear of missing out

When Facebook launched you had to have a Harvard email address to join.

When Gmail arrived, you needed an invite to get access.

When Uber came along it launched city by city.

The first Tesla cars went to high profile people.

Even the original Frequent Flyer programs were by invite only.

And Studio 54 turned exclusivity into an art form, literally.

While it is very hard to build a big business with a tiny audience, it is much harder to create a great product while trying to please everyone. We should instead create an isolated market so we can serve the faithful few. Make a product they love so much that they can’t help but talk about how great the thing is. we need to get them raving about it so others will want in on it. We need to put a velvet rope around what is on the inside. We need a door person who has the task of saying ‘Not in those shoes pal‘ or the classic ‘members only tonight.’ Of course, none of this is actually designed to exclude others, it’s more about making those on the inside know how special they are, that they are part of creating something valuable. It’s only then that they’ll help you make something which can grow beyond the group who started it.

You should totally read my book – The Great Fragmentation.