software is eating the world. it uses the smartphone and the internet as knife and fork to do so. looking to learn a foreing language? hello duolingo. want to learn coding? start on codecademy. wish to take an econ class? sign up at coursera. looking to dine at a snazzy restaurant? reserve using opentable. looking to meet that special someone? get on tinder. hungry & busy/lazy? order on grubhub. dream of a wardrobe that has infinite selection? stitchfix will take care of that. one can keep going on.
software is literally everywhere, right? wrong. one sector that software is yet to devour is affordable housing. how can we leverage software to provide reliable affordable housing? this is a huge market globally and ripe for disruption by software. many families spend close to 30% of their annual income on housing.
are there other sectors where software is not eating the world but could/should?
The similarity in the two charts above is unmissable (no points for guessing the second chart, timeframe gives it away). The renewable energy sector that started out with immense promise and enormous market opportunity is now in a shambles. But this is in no way an attempt to dismiss the huge potential that exists and continues to be untapped. This is a point of view and should be taken as such. I will find time to write a separate follow-up on this topic.
Cleantech startups made the following judgement errors per the contrarian czar:
- markets & competition – problem with huge markets is that you can’t protect yourself from whatever monsters are out there, ready to eat you up
- secrets – Solar costs fell slowly over a number of years. Wind power came down a bit quicker, but there was still no real step function to it. Improvements in battery technology have been fairly incremental as well. No real secrets.
- durability – What are the odds that your incremental solar cell technology is going to be durable over that kind of timespan? When there’s an identifiable pattern of incremental progress, it is very unlikely that you’ll have the last mover advantage when you make a marginal addition
- distribution – companies literally couldn’t distribute the power they would generate. Even if you build a huge, efficient solar farm in Southern California, how do you build power lines to get the energy to L.A.? In practice, people tended to ignore the difficulty of connecting with the grid. It was assumed not to be a very interesting or major problem.
- timing – Where you are on the timing curve is incredibly important. The usual timing argument in cleantech goes like this: cleantech is inevitable because it’s really important. The big wave will come 4 or 5 years from now. So we should start now and we’ll catch that wave when it comes.
- financing – Solyndra for instance, took $1.65 billion in late stage venture financing. When investors put in that kind of money into a company, it has to grow phenomenally large for things to work out. A good, broad rule of thumb is to never invest in companies who are looking for less than $1 million or more than $1 billion.
Moving on now to the future of human progress. This chart is pretty self explanatory and no points for guessing where a tech optimist will land.
Finally, to wrap up this series on zero to one, my favorite chart:
Let us all move vertically, intensively, from zero to one, by doing new things that don’t necessarily scale!
These charts are a great way to think about and identify startup founders. There are many founders on either side of the trait spectrum but close to zero who will have a blend of the extremities. That tells you a lot about founders and startups. Not for everyone.You have to display polarizing traits.
The chart below depicts the self-reinforcing loop that is prevalent among successful founders. They realize that they possess certain extreme traits and start exaggerating them. Soon, other (press, members of community, etc) start focusing on these traits and finally the founders just morph into someone really different.
Today’s conventional wisdom is skewed towards the “build it, and they shall come” ideology. This is driven by the overwhelming focus on product which is a direct result of technical founders at the helm of startups. Not to forget the lean startup movement and the MVP framework, both of which are focused on bettering the product by incorporating user feedback.
Although it is ideal if your product is viral and you do not need to spend a dime on customer acquisition, it is not always the case. Early in the life of a startup founders should explore ways to accelerate viral growth through referral programs, and focus on providing a ‘wow’ customer experience.But eventually, every founder must have a paid marketing/sales strategy that weighs the LTV of a customer against the CAC (cost per click/conversion).
Let’s talk about the graphic at the top. This scale is a great way to understand the magnitude of spend on acquiring customers broken out by customer segment. Businesses seem to have a good grasp of the techniques to reach consumers like you and me, referral programs, fb/twitter ads, SEO, etc. On the other end of the spectrum you have pioneers in complex sales like SpaceX (NASA deal), VMWare (b2b), and Palantir (US gov deals).
The big opportunity though is in the middle. Small business is a tough nut to crack. They are highly fragmented and no great strategy exists to cater to these companies. How do you convince a mom-and-pop store to buy your order management software solution?
This begs the question, if you build it, will they come?
Top row (left to right): the beginning of a fund, mid-life of a fund.
Bottom row (left to right): mature fund, j-curve of a successful fund (dotted line is break-even point)
I love PoVs or insights captured in 2×2 matrices. The contrarian czar theorizes: if we continue down the path of making replicas of developed world innovations in every country, work will eventually flow to cheap labor pools and consumption will become terribly competitive.
Thiel rather contends that software (more broadly tech) won’t literally eat the world but will mostly be complimentary to human labor. The bonus is that computers don’t have wants/needs (they do need electricity) and are not competing with humans for resources.
Watch this space over the next week as we touch upon 7 themes from the book. I hope to continue this chart series as I have come to realize the power of such communication.
A great way to think about the role of tech is to think of software as a balancing mechanism, ex Palantir, the theoretical golden mean of the CIA and the NSA.
Been thinking a lot about the cable industry of late. The media is carried away by the current re-transmission battle and is devoting a lot of real estate to that end. I want to touch on other inflection points that will hit the industry in the future. The only question is whether it will happen quickly or slowly. Lets look at residential services. Currently cable companies provide three types of service namely, wire-line, video, and data. The gambit is data. Unless 4G LTE adoption breaches desktops/laptops/tablets the cable companies will have a great opportunity to become a coherent service provider i.e. high speed data. At current pricing for 4G LTE (15 MB/$) versus cable (100 MB/$, assuming lower end) it will be a while before LTE competes with high speed data. Reliability/availability of data services is also a big win for the cable incumbents versus the telcos (think subways, remote areas etc). Verizon’s FiOS, the fiber alternative to the coax offers a price point of ~90 MB/$ (for roughly same speeds). Also, Verizon has decided to stop investing in FiOS and there will be no further build out. Google is still only experimenting with Fiber and is not mainstream yet. Ergo, cable companies will continue to be in the driver’s seat as far as high speed data is concerned.
I was at an event to hear Chet Kanojia (Aereo) speak a couple weeks back. An entrepreneur walked up to me and we started talking about the industry at large. We both agreed that the TV experience really sucks for the user. Google’s Chromecast is a great start in this regard. This brings me to the other inflection point. The TV is destined to become a ‘dumb pipe’.
Finally, with the democratization of content distribution via cable companies, over-the-top services like Aereo, Netflix, Hulu, Amazon Prime, content creators are gaining more options to reach the consumer. More avenues to recoup costs. This is in essence the crux of the battle. The distributor feels that the digital rights for content is now a commodity as it is available over multiple platforms and should therefore be cheaper. Or just added to the existing distribution deal as a kicker.
This democratization of content will lead to a portfolio theory of accessing content. Rather than depend on a bundler to provide services, customer will soon start to BYOS (Build Your Own Service). Imagine a household with a Netflix account, Amazon Prime, Aereo, and on demand live sports. At an annual price of $280 + bandwidth for sports it’s a win for the customer. Compare this to a conventional double play service’s annual price, $1000 (low end). What this means is that the cable companies will essentially offer on-demand live sports (maybe not?) as well as the key ingredient – access to the internet. It comes down to how much pain are they willing to stomach. Will they stay in the $720 range for sports & internet or will they hike rates? Time & some competition will tell.