Stealing Signs - Issue 02 (12/01/19)
Marketplaces, Disney, Uncertainty, and Superconsumers
Worth Reading
How Billion Dollar Marketplaces are Built
Marco Zappacosta (Co-founder & CEO of Thumbtack) talks with Pete Flint (NFX & founder of Trulia) about what it takes to build a billion-dollar marketplace and the lessons he’s uncovered along the journey.
A great conversation between two marketplace veterans. A few highlights below:
“We need to be the most trusted place to hire the right pro for whatever you need done such that you can accomplish anything with Thumbtack.” - Marco, Thumbtack Co-Founder and CEO. They’re going horizontal. It seems to be working. He mentions there’s been no evidence that going vertical, specializing in a niche job/industry market, is a successful strategy. I think there’s still a big opportunity here.
Liquidity is king
My favorite anecdote is about how they implemented the “request for quote” feature. First, they implemented it as a manual process. The workers (supply) had to read every request and generate a quote for customers. Super convenient and valuable for customers (demand), but burdensome for workers. Turned out the workers didn’t want to spend time on it after the first few. So, Thumbtack automated it. The workers bought in and put their trust in Thumbtack to represent their services and generate an accurate quote. Easy to imagine how this could have gone sideways - workers feel misrepresented, quotes are inaccurate, etc., but they managed to execute. Workers trust Thumbtack enough to surrender more of their customer relationship and represent their business. This feels like an insurmountable barrier for competitors.
Biggest competitor is word of mouth. “The search paradigm is via users’ social networks.”
Startups and Uncertainty
“Imagine you work for a large company and propose a plan for a project that has a quantifiable chance of producing a specific multiple of its outlay within a set period of time. That is, the project is risky, but measurably risky. The sort of thing where the recommendation memo says something like “The project has a 50% chance of a 3x return on investment within two years.” Rational managers can decide whether to proceed with the project based on its calculated expected outcome...This is a quantifiable risk with a positive expected outcome and the decision can be defended no matter how it turns out.
Now imagine walking into your boss’s office and presenting an investment rife with uncertainty. “How likely is this to succeed?” your boss asks. “I don’t know.” you say. “How big will it be if it works?” your boss asks. “I don’t know.” you say. “Why don’t you know?” “Because the customers may be different than who we think; because the customers may want a somewhat different product; because the other companies we need to produce complementary products may decide not to.” Etc. “Well,” your boss says, “we’ll just have to wait until we know those things before we can make a decision.”
Many entrepreneurs find themselves in the same situation: facing these substantial uncertainties. But without the boss they can go ahead with the project anyway. The entrepreneur may decide to act, while the boss will not, because the entrepreneur does not need to explain themselves to anyone.”
Startups don’t begin with a moat - those cost time and money. Uncertainty is their biggest asset. Established companies rarely entertain uncertain projects because they’re neither incentivized nor equipped to handle uncertainty. Startups have the advantage here.
When the Government Opens a Grocery Store
“There’s no shortage of sugary cereals, processed meats and beer. Lynch says that the town “didn’t want to start off at a loss dictating what we could sell and what we couldn’t,” since people intent on buying chips and soda would just go elsewhere, and buy the rest of their groceries in the same trip. Though the Baldwin Market doesn’t need to worry about making a profit, there’s considerable pressure to break even in a notoriously low-margin business. The initial loan from the reserve fund still needs to be repaid, and the council will likely shut down the store after a year if it proves to be a financial drain.”
Kudos to this mayor. I love it. What a cool idea. It will be a fascinating experiment and I’m particularly interested in the health and nutrition part of it - will they stock items based on projected sales or nutritional value? What sells usually isn’t what’s healthy. Curious to see if they’ll sacrifice revenue for nutrition over time. The piece mentions that the council will likely shut down the store if it “proves to be a financial drain.” That kind of makes me wonder what the point of this is. It’s likely as valuable to residents as any gov’t subsidy or even services like fixing potholes, public landscaping, etc. Spend the money. Lastly, the articles notes, “the town-run market can’t compete with the retail giants like Walmart” - lol. No kidding. If the gov’t simply wanted to run a successful biz or make money they wouldn’t try to compete with Walmart. Thus, this experiment likely deserves different KPIs than a biz optimizing for profits.
Jeffery Katzenberg on Disney Studios
“The current condition of our business is typical enough of American businesses that an entire management theory has been developed to describe it. This theory is formally called the Product Life Cycle. It holds that businesses go through a natural development process that is comprised of four stages: Introduction. Growth. Maturity and Decline.
In 1984, the Walt Disney Studios had already been through the full cycle. We arrived here fresh, energetic and ready to create an entire movie studio from the ground up. We succeeded spectacularly in growing a new business an re-starting the cycle. Now, there are ominous signs of the stagnation of Maturity which leads inexorably to the disaster of Decline.”
This memo goes well with the recent Acquired podcast about Disney and Disney+. It’s a must-listen. I wasn’t aware of the struggles Disney faced with regards to content development. As you’ll hear in the podcast, the same concern addressed in this memo surfaced 10-12 years later in the early 2000’s. This time, though, they bought Pixar.
Banking on the Future
“Banks have been under pressure for some time, especially as consumers have moved online. Most of these institutions have existed for decades—centuries, in some cases—by acquiring customers in physical branches. The bank then owned that person’s full financial lifecycle: from first checking account to first credit card, first brokerage account to first mortgage, and so on. In the age of ecommerce, however, banks no longer have that same relationship with their customers.”
We’ve seen a few fintech startups attempting to build software that would allow any company to offer financial services to customers. Think a bank account with Dollar General. If we leave pure financial services companies out of this analysis, it’s clear that large companies who 1. have a significant share consumers’ wallets, and/or 2. provide the services critical to people’s livelihood have the power and scale to offer financial services. Uber is a great example. What’s less clear is who consumers will actually bank with.
The startups mentioned are betting that financial services will become abundant, but in conditions of abundance, relative position matters a lot (source). My hypothesis is that consumers will bank with the companies they depend on most for work, food, pleasure, etc. The companies I bank with will be determined by their position in my “line,” and I’m only banking with the top five. It’s difficult to differentiate checking accounts, so why bother with 15 of them? Even if I get special rewards for banking with a specific company, do I transact with the companies in positions 10-15 in my line often enough to open a bank account? Is the hassle worth it? Probably not.
In other words, I’m betting customers will end up choosing a few companies to bank with, not many. This begs the question: How diverse is everyones’ top 5?
It’s a half-baked hypothesis for now but I’m going to spend some time digging into it in the future.
This phenomenon is playing out the SVOD space with the streaming war between Netflix, Disney+, Hulu, etc. Netflix is at the front of most customers’ line:
That’s exactly what’s happening here. Netflix has likely read the room and concluded that most consumers are probably going to pay for 2 or 3 streaming services and no more. So Netflix’s place in line in customer preference relative to Disney+, Hulu, HBO Max, Prime Video, Apple TV+, Peacock, etc is the most important thing for them to secure right now (Source).
<stuff> Weekly!
LOL Weekly
“50 Cent versus Kanye: Should Fiddy have used the Objectives and Key Results (OKR) system?”
Lollllllll. This is gold.
Funding Weekly
This is pretty cool. Something I wished all the food tracking apps for years. Hopefully this works. Could be a game changer.
Baseball Weekly
“likely means cord cutters will soon be able to stream MLB games in their home markets”
This is HUGE news. As of now, the only time viewers can stream their home market team’s game is when they play a nationally televised game on ESPN or if they’re in the playoffs. This policy suggests teams can now stream games and do so on any service, as they now own their broadcast rights. So pumped. Can’t wait to finally watch 162!!
While this is a huge step forward, the article suggests MLB.tv will remain unchanged, meaning Cubs games will still be blacked out on the service if the viewer is in Chicago. MLB.tv costs roughly $120/yr. In what other industry could a company get away with charging over $100 without serving what is arguably their customers’ biggest need? Idk, man, seems like no other industry.
It appears this is not MLB’s choice, rather media rights restrictions, but they’ve dropped the ball on this for too long. If they could figure out how to show home market games, younger viewership would skyrocket. Further, it would immediately give the MLB very strong pricing power with MLB.tv. All of the sudden it becomes a no-brainer. As long as they’re showing Cubs games, I’ll pay anything. I’ll need to address this development as it relates to team-specific broadcast services like the Cubs’ new Marquee Sports Network. They might introduce a streaming service after the cable channel is up an running.
Video Weekly
No better time to surface this video. Truly a national treasure. The football jersey tucked into sweatpants + the long hair is an all-time rockstar look. There are 1 million people on the field, acrobats flying through the air, a children’s choir — what more can one ask for? Pure entertainment. This year’s Thanksgiving game halftime show was 2 minutes of music from a semi-popular country duo that was delayed by a stadium power outage. The NFL has lost its way. Bring back the flying acrobats!
p.s. I may have just become a huge Creed fan
Art Weekly
Universal Everything is a digital design studio out of England and they do some incredible work. The link will take you to my favorite project, “Superconsumers.” A description of the project from the site:
Superconsumers is a response to the luxury consumer products on sale within the department store. Universal Everything created a series of extreme digital-pop-art amplifications of these products, bringing them to life as a diverse, animated parade of characters – from metallic puffer jackets to elaborate jewellery, gastronomical creations to bold floral arrangements.
It’s amazing how much personality is conveyed with body movement. It’s easy to imagine what each character’s voice might sound like, for example.
I love the title. I think I’m a superconsumer. Less as it relates to luxury goods and more in the way I consume goods and services. Not quite sure where to go from there but I’m thinking on it. I can easily see this term catching fire on the VC/tech scene, and developing a clear definition or having specific tech companies associated with it over time.