Hello! Hope you have a great week.
Articles to Read.
This post is all about the only thing that matters for a new startup.
If you look at a broad cross-section of startups -- say, 30 or 40 or more; enough to screen out the pure flukes and look for patterns -- two obvious facts will jump out at you.
First obvious fact: there is an incredibly wide divergence of success -- some of those startups are insanely successful, some highly successful, many somewhat successful, and quite a few of course outright fail.
Second obvious fact: there is an incredibly wide divergence of caliber and quality for the three core elements of each startup -- team, product, and market.
In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup. Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter -- you're going to fail. The #1 company-killer is lack of market.
What should an essay be? Many people would say persuasive. That's what a lot of us were taught essays should be. But I think we can aim for something more ambitious: that an essay should be useful.
To start with, that means it should be correct. But it's not enough merely to be correct. It's easy to make a statement correct by making it vague. That's a common flaw in academic writing, for example. If you know nothing at all about an issue, you can't go wrong by saying that the issue is a complex one, that there are many factors to be considered, that it's a mistake to take too simplistic a view of it, and so on.
Though no doubt correct, such statements tell the reader nothing. Useful writing makes claims that are as strong as they can be made without becoming false.
It's also two other things: it tells people something important, and that at least some of them didn't already know.
Earlier this year, I noticed something curious: four Craigslist ads, selling the same brand of mattress, using nearly the same text, at the same location, but illustrated with different photographs. Let’s just say it doesn’t take a crack journalistic mind to suspect something odd was happening.
So this journalistic mind responded to all the ads. What I found was a story that went beyond mattresses in Minneapolis. More Americans are buying more stuff online, a trend driven partly by free and easy return policies. But as retailers sell more, they also end up with more items being sent back — creating a long, winding logistical trail that can very easily end up at the city dump.
The problem only gets more complicated when the thing being sold is a large, awkward block of heavy foam. Many, many online bed-in-a-box retailers have sprung up in recent years.1 The first of these companies popped up around 2010. Today, there are dozens of them, and as mattress-in-a-box companies proliferate like so many bedbugs, they’re finding themselves with a waste problem.
Part of what has made these companies successful is their return policies, said J. Andrew Petersen, a professor of marketing at Penn State University. In the early 2000s, his research demonstrated that returns weren’t necessarily bad for business. His work tracked sales data for a catalog clothing company over six years and found that as customers returned more items, they also purchased more — even as they also were receiving fewer of the company’s catalogs in the mail because of their return habits. There are limits to this, he told me, but in his studies, return rates as high as 13 percent were actually associated with higher profits.
How frequently do you find yourself mildly annoyed at software dysfunction? Tapping phone numbers in Google Calendar opens them in Maps. The Mac WiFi menu is slow. Google Docs doesn’t let you share external docs on mobile. Etc. Etc. Lots of small papercuts.
Do you ever report these bugs? I don’t. When I use something I’m usually trying to get a thing done. I’d be willing to, but I budget very little energy for this side-quest.
For years I’ve had my email plastered on my Twitter bio. Recently I opened my DMs. Messages started flooding in. Where were these people? Did they not see the email address in the bio?
I think the lesson from both of these points is that product usage follows a certain momentum and flow. Users might be willing to break momentum, but only slightly. You’re on Twitter. The way to message people on Twitter is through DMs. Not email. If there’s no DM option, well, whatever. Move on. Similarly, the user who experiences a bug with Google Docs isn’t going to go through the trouble to write a detailed report to Sundar. Too much energy, breaking from the flow of usage.
A popular strategy for bootstrapping networks is what I like to call “come for the tool, stay for the network.”
The idea is to initially attract users with a single-player tool and then, over time, get them to participate in a network. The tool helps get to initial critical mass. The network creates the long term value for users, and defensibility for the company.
Here are two historical examples: 1) Delicious. The single-player tool was a cloud service for your bookmarks. The multiplayer network was a tagging system for discovering and sharing links. 2) Instagram. Instagram’s initial hook was the innovative photo filters. At the time some other apps like Hipstamatic had filters but you had to pay for them. Instagram also made it easy to share your photos on other networks like Facebook and Twitter. But you could also share on Instagram’s network, which of course became the preferred way to use Instagram over time.
The “come for the tool, stay for the network” strategy isn't the only way to build a network. Some networks never had single-player tools, including gigantic successes like Facebook and Twitter. But starting a network from scratch is very hard. Think of single-player tools as kindling.
I am almost always interested in utility infrastructure. I see it every day, and often don't think about it. The electric power distribution grid is a gigantic machine, one of the biggest devices ever built, and people spend their whole lives becoming experts on just one part of it. What is it all for, how does it work? What goes wrong, and how do you fix it? Who makes the parts, and how much do they cost? Every day I go outside and see things like these big cylinders…
and I wonder what they are. In this case from clues in the environment I was able to guess they were electrical power transformers. Power is distributed on these poles at about seven thousand volts, which is called “medium voltage”. But you do not want 7000-volt power in your house because it would come squirting out of the electric outlets in awesome lightnings and burn everything up. Also most household uses do not want three-phase power, they want single-phase power. So between the pole and the house there is a transformer to change the shape of the electricity to 120V, and that's what these things are. They turn out to be called “distribution transformers” and they are manufactured by — guess who? — General Electric, and they cost a few thousand bucks each. And because of the Wonders of the Internet, I can find out quite a lot about them. The cans are full of mineral oil, or sometimes vegetable oil! (Why are they full of oil? I don't know; I guess for insulation. But I could probably find out.) There are three because that is one way to change the three-phase power to single-phase, something I wish I understood better. Truly, we live in an age of marvels.
Newsletters are growing like mushrooms these days.
Newsletters have been called “the future” and “the next generation” of media, “a more attractive medium than the newsfeed” and people’s “favorite new social network”.
What’s interesting about newsletters is that consumers are willing to pay for them. While blogs have never really figured out monetization (apart from ads), Substack alone claims more than 50,000 paying subscribers.
This might partly be a timing thing (blogs were popular during a time when people weren’t used to the concept of paying for digital content yet), but I wonder if it’s also driven by the nature of how newsletters work: You have to wait to receive them – like an Amazon package. Maybe that makes the medium feel more tangible and thus worth paying for?
More to Check Out:
- The Real Problem with Palm Oil
- That Time I Worked for A Criminal Organization
- Inside the Pentagon's Secret UFO Program
- The Case for the Self-Driven Child
- This map shows which companies have lasted hundreds of years
Who should I talk to?