Thematic Driven Theses & Accessing Idle Supply


In today’s discussion, we did a deep dive on developer platforms and the key elements that separate the best from the rest. And I couldn’t help but see some parallels between Ethan’s framework and the theses we invest along at New Stack Ventures. Of our three thematic thesis areas, two of them are directly related to Ethan’s commandments. One of these items we refer to as Tractable or Automation… which gives anyone the capability to complete something that previously could only be done by a scientist, engineer or skilled professional. The other related thesis area we call Democratization, a term Ethan didn’t love but uses as well. In our case, we define this as businesses that are creating a platform or community where users are creating and driving the value; and as more users join, more value is created for all.

As I reflected on the takeaways from the discussion with Ethan and the themes that I look for in startups, I realized that his 8 commandments are principles that transcend even developer platforms. These characteristics apply and can drive value for startups in every category.

Setting aside developer platforms for a moment, let’s take a look again at the commandments… and I’ll use Uber as an example.

  1. Is the product or service delivered in a way that it can be measured? Clearly, with Uber, converted customers can be measured and their usage can be tracked at a very discrete level.
  2. Can the startup’s revenue increase as the customer increases use? Yes, in the case of Uber, the more one uses it the more money Uber makes. They are highly incented to create a positive customer experience and encourage greater engagement over time.
  3. Does this replace an existing service that the customer already spends money on? Yes, many people spend money on point-to-point transportation, most often in the form of taxis. But, even broader than that, Uber causing some millennials to forgo car ownership, a significant line item in the budget of most consumers.
  4. Is the User Experience Amazing? I’ve heard differing viewpoints on this. Some people hate Uber. Others love it. And as I had hoped, as I wrote in an article last year, Uber has now created a number of different tiers (ie. Select, XL, etc.) that appeal to consumers with different service needs. Usage per user continues to increase, which indicates that the experience is a net positive.
  5. Do customers love and promote the product/service? Whether you love it or hate it, I think the love for Uber bears out in the numbers. The growth per user and new user growth is off the charts, which indicates significant virality and net promotion.
  6. Are there strong network effects? As more people use Uber does it become more valuable for all? I don’t think I need to explain this one… it’s quite clear that the more users that request rides, the more drivers are required… and the more drivers that exist, users in well-served areas will get drivers faster and users in underserved areas will get drivers where they weren’t able to previously.
  7. Does the service eliminate something that nobody enjoys? I think it’s a safe bet to say that most folks enjoy arriving at their destination but do not like the process of figuring out how to get there. A service that significantly reduces the complexity of transit planning delivers on this commandment.
  8. Does it democratize something complex, allowing non-experts to execute expert tasks. To me, it seems Uber accomplishes this in two ways. On the consumer-side it allows any lay-person to move from one point to another, in a frictionless way, without learning a new skill. On the driver-side it allows almost anyone to become a personal driver, whereas previously only certified, medallioned taxi drivers could perform this task.

As I review these commandments and their application to a consumer startup, I can see why companies like Uber have become so successful. And there is a key characteristic of Uber that is not captured in these commandments. If I were to be so bold as to add my own commandment to the list, I would add something that I like to call: Accessing Idle Supply.

Taking a quick sidebar… ย A couple years ago, I fell in love with a TV show on AMC called Halt and Catch fire. It’s a show set in the mid-80’s that follows a group of entrepreneurs in Dallas during the personal computing boom. They develop their own personal computer within confines of a large, slow-moving company called Cardiff-Electric. And I hear this fictional story is largely based on the real story of Compaq. Part of the reason I liked it so much was because the team of characters and the issues they encounter present an incredibly accurate reflection of the startup world. The other reason I enjoy it so much is because the situations are so similar to my own challenging experience as a product developer, building something disruptive and different, within a large organization. It’s amazing how technology can change so much in two decades but people and challenges remain the same.

The reason I bring up the show now is because the lead character, Joe MacMillan, discovers an enormous opportunity. He realizes that his company is using their servers, only during the day. And, if he could sell their server downtime to others, they’d be able to create an entirely new revenue stream. This is a perfect example of idle supply. There is an asset, with tremendous value, that does not operate at 100% utilization. And if one can determine a way for folks, in demand for that asset, to be able to use it, everybody wins.

Back to present day… Many have said the success of Uber and AirBNB came from their ability to capitalize on the macro-trends of “On Demand” and “The Sharing Economy.” And while that may be accurate, I think they’ve become some of the most valuable private companies in existence for a different reason. Their adoption and engagement exploded because they addressed real demand WHILE accessing idle supply.

Idle supply can come in different forms… It could be a person’s time (ie. Instacart), it could be an asset which is utilized less than 100% of the time (ie. Airbnb), or it could be a combination of the two (ie. Uber). Think of all the valuable assets you own, aside from your home, that you don’t use 100% of the time. While your toothbrush is probably the worst example of something that should be lent during idle time… what if it were easy, safe and frictionless to make some of your more expensive assets available for compensation? Things like your vehicle, your parking spot or even your laptop’s computing power.

So today, I challenge you to leverage Ethan’s framework for any startup. How many of the commandments do they fulfill? Which of the commandments apply? And finally, are they leveraging high-value, idle supply? While these characteristics don’t make for startup success, they can be the difference between a modest vs out-sized exit.