Stealing Signs - Issue 53
Fintech Founder Series, BG & StitchFix, How Apple is Organized for Innovation, Amazon Third Party Seller Ecosystem, & Some News!, & Iris Automation Raises $$
Worth Reading
Fintech Founder Reflections & Predictions
Sarthak Haribhakti (GM @ Slice)
“Fintech is for everyone” is a meme I think (I hope) will catch on by next year. Last week, my 70-year-old father and my 14-year-old niece both texted me asking if they should use a retirement banking app and a teen banking app, respectively. By next year, I think it’ll be well understood that a diverse set of entrepreneurs will build financial products geared towards every possible community or market segment. I hope that every time we see a launch, like a “bank for Hindi/Spanish/Mandarin speakers” or “App for runners now offers life insurance,” it’s followed by “fintech is for everyone” :). I also hope people don’t get fatigued by seeing these launches -- the world needs them to exist!
This is part one of Sar’s two part series surveying fintech founders on their 2020 accomplishments, aspirations, and predictions for 2021. The series is truly a gem.
One striking theme throughout the series is the specialization of fintech. This looks like financial products and services for specific industries (farmers, barbershops) and customer segments (LGBTQ, elderly, teens) with features tailored for the unique needs of these groups.
I’m skeptical of the specialized approach’s defensibility in the near term, but over time the advantages are much clearer. As fintech companies collect more data on specific user groups, they’re better positioned to serve customers with even more specialized products and services, and the winners that emerge can claim their large data set as truly differentiated. The unique data set on specific customer segments is a compounding advantage.
To squeeze the most out of the specialized approach, I suspect many fintech companies will attempt to build a community around their product. Specialized communities offer support similar to that of the specialized financial services these companies attracted users with in the first place.
Stitch Fix: Reinventing Retail Through Personalization
Bill Gurley (GP @ Benchmark)
The promise of “Big Data” is that we can enter the age of personalization, providing a unique customer experience for each and every user. Yet in practice it is remarkably hard to affect such a reality, and it is even harder to “personalize at scale.” In order to deliver its offering, Stitch Fix has analyzed over 500 million individual data points. And despite having shipped over 100,000 Fixes, the company has never shipped the same Fix twice. Benchmark could not be more excited about the opportunity to work with Katrina and her team at Stitch Fix. The special differentiation of the company gives it not only the opportunity to be a leader in its field, but also the opportunity to revolutionize an entire industry.
I came across this post when digging into the founding story of Stitch Fix after listening to founder Katrina Lake’s interview with Harry Stebbings on 20 Minute VC. I was *shocked* to see that Bill Gurley compared Stitch Fix to, of all companies, Dell! The similarities of their “value creation engine” he identifies below:
Better understanding of their customers
Better serving needs of customers
More efficient business
Better economics
Seems Stitch Fix created a powerful engine (despite relatively flat performance as a public company (2017 IPO) until very recently)…
It’s not far-fetched to suggest we’ll see more DTC companies adopt the “try before you buy model” Stitch Fix perfected. This model could serve as an effective differentiation for consumer companies as eCommerce becomes ingrained in our society and is certainly a benefit for customers. For this to be true, retailers must be able to handle returns and complex inventory management from a technical and logistics standpoint, which means tools must exist to enable these capabilities.
How Apple is Organized for Innovation
Joel M. Podolny (Dean of Apple University) & Morten T. Hansen (Professor @ UC Berkley & Apple University)
We don’t mean to suggest that Apple doesn’t consider costs and revenue goals when deciding which technologies and features the company will pursue. It does, but in ways that differ from those employed by conventionally organized companies. Instead of using overall cost and price targets as fixed parameters within which to make design and engineering choices, R&D leaders are expected to weigh the benefits to users of those choices against cost considerations.
Apple is designed for innovation in that they are the preeminent functional organization. What’s unique from other functional organizations is that Apple has a $2.19T market cap. Historically, the functional organizational structure has worked best at smaller companies because it’s difficult to scale such an integrated structure, so Apple’s feat is impressive.
To illustrate Apple’s effective execution of a large scale functional organization, the authors offer examples like the creation of iPhone’s portrait mode feature, which required the orchestration of “no fewer than 40 specialist teams: silicon design, camera software, reliability engineering, motion sensor hardware, video engineering, core motion, and camera sensor design, to name just a few.”
While the examples offer great detail, Apple’s structure can be boiled down to a simple phrase: Experts leading experts.
This phrase immediately reminded me of an excerpt from Trillion Dollar Coach, the story of legendary tech executive and coach, Bill Campbell. Authors Eric Schmidt, Jonathan Rosenberg & Alan Eagle chronicle a time in 2001, early in their days building Google, when Bill suggested they “get some managers around here.” Google founders Larry Page and Sergey Brin disagreed, confident their employees were better without them. Bill suggested they ask some engineers, who responded:
“I want someone I can learn from, and someone to break ties.”
They chatted with several software engineers that night, and most of the responses were similar. These engineers liked being managed, as long as their manager was someone from whom they could learn something, and someone who helped make decisions.”
Amazon Third Party Seller Ecosystem
Ali Hamed (Partner @ CoVenture)
The “Platform Risk” on Amazon exists, but so does “scaffolding risk” of a NYC store’s storefront. Are you kidding me? Would you rather finance or own some little store on a random street than a high margin, variable cost, compounding moat business on Amazon?
Amazon Third Party Sellers (TPS) have superpowers that most small business lack, two of which are below:
Compounding Comment & Review Moat: Business move up Amazon’s ranks as they receive positive comments and reviews. The higher a business moves up the ranks, the more comments and reviews the account will get. Ali suggests this is a competitive advantage for companies and on a much larger scale than many business can achieve off of amazon.
They have variable cost P&Ls: TPLs outsource functions like shipping, returns, and inventory management to Amazon, making their business and expenses so much easier to manage that they’re willing to give up 15-30% per transaction.
Ali makes a compelling case that the Amazon TPL ecosystem reduces risk for small businesses and that these businesses may actually be more stable than traditional small businesses. He’s very bullish on the ecosystem. One industry that could see many more TPLs is furniture. There are nearly 11,000 furniture wholesalers in the U.S. that accounted for ~$44B in spend, and no one wholesaler has more than 1% market share. Further, much of this industry is dependent on brick and mortar sales and must now make the transition to eCommerce for the first time.
Lastly, in the quote above Ali compares Platform risk for TPLs on Amazon to the risk of scaffolding collapsing and ruining a brick and mortar business’s store front. There’s certainly truth to this comparison, but the scaffolding company won’t set up a competing product line outside the brick and mortar business’s store front like Amazon is known to do to 3rd party brands.
Quick break for some personal news… excited to share that I’ll be joining the Motivate Ventures team in January! Motivate Ventures is a Chicago-based pre-seed/seed firm — check out the fund announcement here.
Companies in the Motivate portfolio include Klover (improving payroll advance for millions of consumers), Fulcrum (device agnostic manufacturing ERP), Zoro Card (first debit card that builds credit history), New Era ADR (moving the dispute resolution process fully online), to name a few.
<stuff> Weekly
LOL Weekly: Airbnb’s Founding Story
lolllll
Funding Weekly: Iris Automation
Iris Automation is developing computer vision products that can help simplify the regulatory challenges involved in setting standards for pilotless flight, thanks to its detect-and-avoid technology that can run using a wide range of camera hardware.
Iris Automation raised $13M Series B funding from Bee Partners, OCA Ventures, Verizon Ventures, and the Sony Innovation Fund.
The “picks and shovels” approach to drone flight is likely a promising one. Just as the optimal way to build a car is with products from many different specialized vendors, the optimal approach to building drones likely involves multiple specialized vendors. If drones end up as ubiquitous as Amazon leads us to believe, the pick and shovel providers will do quite well!
Baseball Weekly: Final Offer Arbitration
Evan Demchick, Reboot Motion
This is the best place to start if you’re looking to learn about MLB arbitration, a critical component of team building and talent development. This process is riddled with inefficiencies, most of which are symptoms of larger issues between MLB and MLBPA.
One glaring issue is that only past performance is considered to determine player value in arbitration hearings. The arbiter is not allowed to consider future performance when ruling on fair compensation. Sorry, what? Further, players in arbitration can be compared only to players in their same service year — 1st year player with all other 1st year players, 2nd year with 2nd, and so on..
Art Weekly: Nowhere
Nick Doyle
Here, the land we behold is the American west: the aspirational horizon of the American dream, brimming with optimism and even nationalism, for what is art that celebrates the land? A blue moon waxes full over cacti with contours so prototypical they recall the set of a Road Runner cartoon. Refreshingly, Doyle’s work deals in pop cultural references more so than art historical precedents though here he also summons the tradition of American landscape painting (i.e. the Hudson River School) with its propensity towards the picturesque at its worst and towards the sublime at its most pompous. This otherwise idyllic desertscape, however, is undercut by the prominent placement of a trash bag in the composition. Doyle’s American landscape is the truer one: one that includes what has up until now been left out of the frame. The spell has been broken and we are better for it.
Solid read.