‘The consumer internet is turning upside down’

I can’t shake this phase.

It came from my friend David Semeria in a comment on avc this past weekend.

On one level it’s something that has been brewing for a while and self-evident as we watch the jostling and ongoing category spread of Amazon, Google, Facebook and Uber.

On the other, it’s an aha to startups and potential game changer raising questions about how we build companies and market our innovations.

The idea is powerful in its simplicity.

We think of innovations bubbling up from the bottom.

The very promise of the web itself is about giving voice to the authentic, empowering the few and the small to change the world for the many and reshufle the global status quo.

Today we have a culture of bottoms up innovation, an economics of disruption that is spewing a cross-generation of quite brilliant entrepreneurs. Out of incubators and accelerators. Out of seed funds. Out of personal capital.

Out of a societal belief that disruption is a business model and entrepreneurship a job description.

David’s phrase speaks to this turned on its head, to where the innovations are not coming bottom up, but top down. Not from the mass of small innovators but from the advantages of the platform incumbents. The core polarity of innovation shifting its axis.

The big platforms have a soft lock on our behaviors, a hard lock on our data and as creatures of habit, a solid spot in the premium brand positions on our phones.

Trickle down innovation meeting attention deficit and market complacency on the consumer side.

People in general don’t appear to be less curious, they do appear to have a higher threshold to change.

Download numbers on apps stays high, usage and replacing the incumbents on the first and second screens on our phones, has flattened.

How often do you change your messaging, commerce, social, transportation, financial and entertainment apps on the first few screens on your phone? Mine are locked in.

The idea of platform creep or in marketing terms, leveraging your brand cross category, is of course nothing new.

What is happening today though is different as it is about data ownership as key to brand dominance. About the breadth of these brands to leverage the depth of their data sets cross the pieces of our lives that matter the most to us.

If this is idea is true (and I think it is), if the innovation pipeline has shifted its access point and the consumer their propensity to adopt new brands, we are definitely in a brand new world. Literally.

And it raises a bunch of questions.

Will it stifle innovation? It will most certainly change the odds.

Can interesting products like Door Dash really take a chunk of the on demand local delivery market when there is Uber Rush?

Can they get us to install another app tied to our credit card when everyone already has Uber installed? Can they be that much better to give them a spot on our front screen in transportation row?

How does this dynamic change the core promise of the web that it is indeed possible for an individual to change the world?

I’m just not sure.

No one is too big to fail and the market is the greatest democratiser.

We all know that human behavior invariably proves spreadsheet logic wrong. Why Amazon is failing for the third time to own the $20B direct to consumer wine market or Google invariably swallowing its foot from G+ to G TV on anything consumer oriented are cases in point.

Truth be told though while my gut knew that this was happening I hadn’t thought about it in these terms. I look at analytics all the time see downloads without requisite engagement, engagement without transactions and sweat changes to test the why of it.

I now have a new viewpoint. I was ignorant as David states (and I paraphrase) that in AI driven models more data trumps a better algorithm. I didn’t have the language to understand the entrepreneurial disadvantage.

Take a look at the thread and the discussion. It’s worth it.

Share with me whether this is impacting how you are configuring your model today.

And mostly, as you iterate your brand forward how to play in a world where the odds are stacked against you.

That’s the most important piece to wrap our marketing heads around.

Netflix’s day & date bombshell

The future of entertainment is changing in front of us—yet again.

Netflix’s announcement of a day and date, streaming and in-theater feature film release is a big deal with some far reaching implications for all of us.

Day & date is the dream of all movie lovers.

This is the idea that you can stream first release movies at home, or anywhere, at the same time they are in the theater.

Day & date is the nightmare, possibly the demise, of the theater chains themselves.

Theaters as a business lives on popcorn and soda margins.

We go to the movies because the system itself is built on timed exclusivity of feature releases that harks back to when the studios themselves owned the theaters as marketing platforms.

Films get made, released to the theaters to market them. We either go, pay for tickets, eat popcorn or we wait till we can stream them at home.

We are at the cusp of change here that has been generations in the coming.

Just as Netflix disrupted the video store culture, they may be the wrecking ball that forces theaters to either change or be gone.

To be honest, I’ve loved the movie theater experience most of my life.

From double feature dates and  skipping school and hiding out in matinees as a teen. To staging my own underground film festivals while at University. To work in bringing stereoscopic 3d as an in-theater advantage to the industry.

But there are few films that I go to see today that I don’t wish I could see out of the theater.

We may love a connected world for search or cat videos, but little  has changed my leisure life as much as streaming movies at home.

A huge screen and a comfortable couch. Unfettered access to most titles with a click. Hanging out in sweats, alone when I can’t sleep with samthecat on my lap. With friends and wine. Over dinner with family.

The theater experience has gone from romance and pleasure to mostly legacy habit. While I love special places like the Sunshine Theater in New York, the allure has frayed along with the theaters themselves.

Whenever an indie film is available day and date, I opt to watch at home.

I’ve been wanting this to happen for a long time.

The lock on the relationship of the studios and the distribution chain seemed impenetrable.  I didn’t see the disruption coming not from within the system but from without—or more so– the new system.

I never thought that Netflix, the company that killed Blockbuster and created the economic model around high production binge viewing of episodic TV would be it.

Read the link but basically Netflix is releasing a full-length feature online and through some theater chains.

The chatter is that Netflix doesn’t care about the theaters and is using them for marketing. I’m sure they are right.

The smart chatter is saying that this is simply a trojan horse strategy to qualify for the Academy Awards that requires theatrical or simo-theatrical release. Sounds like a smart move to me.

What’s interesting is that the balance of power has tilted here. Hollywood and the theater chains are tied at the hip. Netflix is doing what they couldn’t and while the success of Beast itself is irrelevant, this I think may be the pebble in the pond that breaks the dam.

So what is going to happen?

Five years from today will the theater chains be gone?

What’s clear is that the time for change is right now.

Theaters as physical environments all basically suck. The locked distribution system between the studios and forced exclusivity windows is a legacy system closing on itself. Feels out of touch and a tad stupid.

It’s time to reinvent this.

Maybe Netflix should buy Landmark theaters and re-imagine what a theater means and own both sides of the equation. Creating an on the street experience that is completely unique and suited as a marketing tool for its releases.

Maybe the studios themselves will be forced to embrace a new date & day release strategy themselves, reacquiring theater spaces as they own their own online distribution.

Maybe someone will understand that even though people want to stay home as a choice, impromptu environments like the explosion of movies in parks as a social events is very much part of today’s urban culture.

Maybe with technology we can stage showings in a more impromptu and fun ways.

I’m not rooting for Netflix, I’m rooting for the consumer. For myself.

I’m not rooting against the studios, I’m rooting for a creative way to reincorporate the magic of group viewing possibly in the dynamics of an event in a new definition of a smart city.

I’m rooting for free choice.

It’s Saturday morning as I write this.

My plan for the day is you guessed it—off to see the new Spielberg/Tom Hanks film. All the choices of where and when are sub optimal.

I’d rather watch at home or maybe over an extended brunch at one of my favorite venues.

Or somewhere creative that inspires me to get up and go and meet friends there.

Today I’m stuck with a theater chain and bad popcorn.

Not for long as the first shoe with Netflix has definitely dropped.

Why raising more capital, not less is often the smart move

I’m on the opposite side of common knowledge on this topic.

The argument for raising the least amount of capital needed is the gist of the lean funding paradigm.

It keeps the entrepreneur focused, instills creativity and grass roots street smarts. It forces iteration as the backbone of both market discovery and product development. Less is more is the net of it.

It also let’s the funder stay close to their investment, managing it by objectives in a sense, creating a perpetual funding cycle. You fund what the entrepreneur needs to get to the next stage of product or market proof.

It also means that the entrepreneur is always raising funds, always on a tight leash from the sources of capital, always on the stressful watch of cash flow.

The upside of this is the lean startup concept in a nutshell.

A brilliant mashup of ideas that the best startups use to harness the market itself as a catapult not as a chasm to cross.

It works well as an operational principal, but jumps the shark as a funding paradigm in most all instances.

My counter argument to why raising more, not less is often the smart move:

1. There has never been a plan or a budget that didn’t prove absolutely essential and invariably incorrect.

If you raise to a plan you will come up short. Plan for a smoother runway into what neither neither you nor anyone can imagine in detail.

2. Being cash poor drives poor decisions, keeps you in blinders to objectives and invariably stifles openness to market opportunities.

Focus is essential but having the creative freedom to consider change and opportunities is where great things happen.

3. Lean funding by definition puts the directional control in the hands of the funders not the entrepreneur.

It is equally incorrect to assume that the funder is always the source of wisdom and guidance and that entrepreneurs are children who will put their hands in the cookie jar and glut out if left to their own devices.

I believe that the best chances for success come from raising capital in a partnership paradigm. From people who are in it for the long haul and where a small group of them can provide guidance and operational expertise.

I also believe that winning happens because the entrepreneur just nails it.

When a leap into the void, often counter intuitive happens. When you push everything off the table, and rethink market connections in bold new strokes.

To do that you need a runway. You can’t be backed into the disrupting cycle of always raising funds and always heads down to a plan.

If you have to give away a bit more of the company to create that security, so be it.

You need guidance and oversight but as much, you need the freedom to move and follow you gut.

Cashflow is king. Make sure you have it.

The entrepreneurial anomaly

There is a core anomaly between the ease of starting businesses today and the challenges around funding their growth and discovering market fit.

There is almost no friction to start something.

From tools to build with and pay as you go services to host on. From a plethora of early stage capital.  And most important, a culture that has embraced entrepreneurship as a legitimate occupation.

It has never been easier to run with a hobby and see where it goes. Never been more possible that your tiny niche could become a global game changer.

The flip side is that while it certainly easier to start something it has become increasing difficult, and much more expensive, to find true market fit if not scale something to a success.

This has turned 360 degrees in my career.

When I first started raising capital it was a challenge to raise your initial funds. There was less funding available as the cascade of capital from successful startups was just beginning to trickle down. The idea of seed funding was in a neonatal state.

It’s much better now, just very different dynamics that have resorted the challenges.

The truth of course is that entrepreneurs are chasing the impossible.

Creating something new from an idea that could become a household brand is the work of the wonderfully obsessed and the unflinchingly unrealistic.

Then as now both.

To change how we as a society work, play, connect and share our lives brings amazing satisfaction—and sometimes wealth–but the odds of winning are not great.

The very framework that this happens against has changed dramatically.

The thresholds for market proof today are as ambiguous as they are stratospheric in most cases.

The attention spans of the consumer for trying new things has diminished to a nanosecond. Capital needed to get started is everywhere. The capital needed to grow it, more and more challenging to get.

You can simplify this to say that there is just so much noise that makes it harder to break through, the odds of success less and less, and the cost to get there increasing all the time.

That sounds to me like an excuse.

My takeaway after a career of doing this is that it has always been hard, damn near impossible actually.

I just see it as uniquely different today on three fronts:

The number of failed companies and emotionally exhausted entrepreneurs will dramatically increase.

This is the exhaust of the process and it will fall on the culture of today to mollify. We give lip service to the acceptability of failure but this is an emotional scar that foreshadowed the emergence of the entrepreneurial psychologist.

Those with capital to invest will become both more powerful and formative as they doll out funding in controlled pieces.

The upside is that from the best investor, the ability to mentor their investments increases. But the innate discordance between the portfolio view of an investor at the top of the funnel, and the single focus of an entrepreneur at the bottom will inevitably increase.

The net of these moving pieces is that the truly impossible is becoming possible to a broad population of entrepreneurs.

A founder with a big idea can truly believe that they can change the world. Not as an isolated instance but part of a culture, with strange analogs to the old Hollywood system that supports this.

We all see the obvious—the issues of creating more accessibility to this funnel to all economic classes, the recent awareness of the emotional toll of failure and the rising tide of wealth creating more for itself.

All this is true but whether it is easier or not, less expensive or not, doesn’t really matter.

What matters is that the impossible has become simply more possible.

That’s a truth that overshadows everything else and makes it worthwhile.

Is ‘lifestyle’ really a business model?

Words matter.

How we think about what we do, with what words, in many ways informs who we are and stylizes the businesses we create.

‘Lifestyle’ as a term is a case in point of this.

A word I rarely use to describe what a business does or its model, but just can’t seem to avoid when out looking for capital.

It’s an interesting conundrum, layered and ambiguous.

I keep wanting to reject the moniker but it sticks around in interesting ways.

Think of it this way.

There are ideas that change our world.

Reinventing how we educate our children, crowd sourcing innovation or rewiring transportation changes our very culture and stylizes how we live. When they succeed, they create enormous wealth that trickles down and reinvigorates the cities where they happen and the ecosystems they touch.

There is no question that what Uber has done for getting around, and what a rock star chef and restaurateur has done to an evening out over an astounding pizza with an approachable wine list are at different ends of the spectrum.

Culturally and financial obviously.

But life and business and intent are more grey, especially early on.

At inception, at a seed stage, what became AirBnB or Kickstarter and a drive to productize your grandmothers Kugel or your mother’s cookies are really starting at the same place.

Not so crazy as you may think.

Did they ever think Shake Shack was going to be a spun off as public company on its own? Or even Etsy?

We dance around this all the time.

We start projects today as we used to have hobbies.

We follow our passions and toil to find structures that platform them, communities that connect them, and invariably capital to support them.

I run into this divide often on the funding front—between concepts of tech and consumer, between future platforms and present satisfactions, between causes that are just damn right to do and things to make money.

What’s interesting is that while it is trivial to start anything today, it is more capital intensive to be successful and grow at any scale.

Sure, some things are by definition go big or go home.

Huge bets, huge wins by design. But even those, often at the first seed stage are so embryonic that it is unclear what they are about.

Some things are by definition, especially around hard goods, all about brand and figuring out how on a small scale they make business sense from a cash flow perspective, but at scale can be game changing home runs.

As a businessperson, I certainly understand that multiples matters and depending on your investment strategy, you determine how big a bet you need to take to make it pay back. As there are obviously markets that scale and cross sectors with more ease.

But this is breaking down quickly both in tech and out of it.

Within tech—or within an explosive network growth reality–the odds of any idea becoming the next Facebook is about the same as winning the lottery.

The belief and the possibility of creating something of value that can become an acquisition target and fit into one of the infrastructure giants that layer out our world—not as crazy.

Some investors, the most successful ones I know, approach this with a theory. Focusing on possibility more that the how of it.

For others, especially at seed stage, it’s just gut feel, looking for the cool and interesting. Invariably and counter intuitively, this group seems to force a model on the idea from the outset. An unnatural act in most circumstances.

On the consumer side, I’m discovering the same bias, the idea that disruption comes from a distribution strategy rather than a brand perspective.

Just not so, tech thinking on consumer realities is a bad mashup.

Are there more or less brands on the consumer side then on the tech side? Does selling pickles by definition create a limitation what with co-packing, franchising and geo distribution possibilities?

Sure—building something that captures human behavior where the users themselves are the content is more explosive than creating something that needs to get made and distributed.

But the maker revolution is cross sectors.

From consumer hard goods to green city guides to software that is a piece of the stack. The odds and the size of success are equal in my mind.

The power of a consumer brand surfacing above the massive din of social noise, an entity that has value equal if not more than many software solutions.

This to me is food for thought, not data for conclusions.

About the reality that capital is needed for the hard goods startup as much as the software company or a community platform.

The fact that solving problems is only a relevant piece of a plan for a very small, often a very limiting approach, to tackling a market.

The truth that bootstrapping is becoming more and more impossible, and I think often, the wrong way to start a business.

And mostly, the idea of defining and finding market traction that speaks to a future model, more and more aspirational if not stifling.

Where does lifestyle play into this?

Lifestyle in our mind’s eye, speaks to the idea dog friendly offices, sushi on Friday, and fully funded insurance plans.

Interestingly, I surfed over to a hot, well funded, huge-burn research start up job page this morning.

They are in SF, but the job page read like the ad copy for leasing a high end condo in the Meat Packing district in NY. All lifestyle and poise and to the P & L, lots of burn.

Light years away from most early startups and small companies living off credit cards and family support, scraping for the first deal to cover cash flow.

This is the take away thought about dangers of encapsulating ideas and possibilities before they are fully market formed.

Worth thinking about when we pitch for funds. Something for investors to ponder as well.