The “Full-Stack Startup” and Jiro’s Dreams of Sushi

Five years ago, Chris Dixon coined the “Full-Stack Startup” to describe the new wave of companies like Uber looking to upend entire industries through building a new, vertically-integrated stack.

The basic idea is this. Traditionally, as startup founders we see ourselves as toolmakers because we build software and that’s what software is best suited for. If we thought the experience of hailing taxis were broken, we’d build a better taxi dispatch software and sell that to taxi companies. Software can solve the dispatch problem elegantly because it’s relatively close-ended. Running a taxi company, on the other hand, seemed extremely under-leveraged in terms of technology and a terrible business.

However, Uber not only built dispatch software but also hired drivers to offer rides, allowing them to control the entire production function and eat the taxi industry altogether. That’s a much more expansive role for software, but a truly exciting one because the experiences are much more magical when it works.

Since then, venture capital has poured into all kinds of full-stack startups. Opendoor, Compass, WeWork, Shift, Triplebyte, Gigster, Pilot, Honor, Forward, Atrium, just to name few. At the same time, we’ve seen spectacular failures like Homejoy, Sprig, Munchery, Luxe, HomeHero, and to a lesser extent, Zenefits and Altschool. What explains the differences in outcome?

I think the two most important questions to ask are 1) how variable are the customers expectations and 2) to what extent can software help deliver on those expectations.

A lesson from Jiro

Jiro Ono, the software of sushi-making

Jiro Ono is a three-Michelin sushi chef in Japan and the subject of the documentary, Jiro Dreams of Sushi. At 85, Jiro has mastered every facet of his craft. From knowing the perfect length of time to massage an octopus (40 minutes) to developing a technique to preserve sushi rice at its optimal temperature (body temperature) to only serving each ingredient at “its ideal moment of deliciousness,” Jiro has explored, refined and practiced every painstaking detail to perfection. In a way, Jiro has done to sushi-making what software has done to many human tasks — eliminated variability and refined the quality of the output.

However, here’s the kicker. Three-Michelin Sukiyabashi Jiro has only 4 out of 5 stars after 71 reviews on Yelp. The problem? Even though Jiro has the best sushi-making software, he’s in the full-stack restaurant business where software does not provide enough leverage in providing a consistently positive customer experience.

Some of the two-star reviews on Yelp

First, Jiro’s customers come with a wide variety of expectations beyond great sushi. Some expect a certain level of service for the price while others care more about comfort and ambience. Some may even be looking for the meaning of life in Jiro’s sushi. Obviously, Jiro promises none of these things, but customers expect them nonetheless.

Second, even if Jiro has the most refined process for making sushi, customers are eating the sushi, not the process, and sushi tastes are highly subjective[1]. So in a way, Jiro’s software failed to deliver against even the singular goal of great sushi.

Traditional startups sell sushi-making software. Full-stack startups operate restaurants. Operating a full-stack startup, you live and die by your ability to manage your customer’s expectations while consistently delivering against the expectations leveraging software. Sounds basic but anyone in the service industry would tell you that it’s hard to execute on let alone having to do it at scale.

The bane of variable customer expectations and why services offer “Free Consultation”

When I built Crowdbooster, a social marketing software-as-a-service startup, we would often talk about “landing pages” because our customers knew roughly what they wanted and the landing pages together with a free trial were mostly sufficient in helping them figure out if Crowdbooster was right for them.

Crowdbooster’s landing page. That screenshot of the product was worth a thousand words.

My second startup, Upbeat, was a full-stack, tech-enabled public relations agency. Our product was not something you used, but a service to help you garner media coverage. Our customers did not know how public relations worked nor did they care to. All they knew was that they desired media coverage, and they paid us to help achieve that outcome. However, even when we delivered great media coverage, some of our customers were still dissatisfied.

The problem is that full-stack customers don’t really know what they want beyond the fact that they have a problem, and when the outcome is delivered, that’s when they begin to realize what they were looking for. This is why consultants have offered “free consultation” for ages — it’s the service industry equivalent of a free trial. The free consultation is an opportunity to explore the nature of the customers’ problem, educate them on what to look for, and set expectations on what they can and cannot expect from an engagement. Many full-stack startups like Honor, Atrium, and Pilot take this approach and force you to talk with an expert agent during the sign-up process.

However, a free consultation, like any human conversation, is a lossy process at best. To avoid dealing with the fickleness of humans, you can instead choose a more bounded problem by constraining the customer segment to only customers you know you can deliver for (as long as it doesn’t constrain your market long-term). This is the like running a fast food chain as opposed to Jiro’s restaurant. For example, OpenDoor targets only customers who want to sell their home fast (and fit their many other criteria). If the customer is not in a rush or they prefer to be serviced by a real estate agent for the experience or to feel like they got the best price, then they are not for OpenDoor.

If you qualify for an OpenDoor offer on your house, they still require a “review” with a human because it helps align expectations

How much leverage can you get from software?

Assuming you figured out how to manage your customers’ expectations and filter for the right segment, full-stack startups still have to consistently deliver a great customer experience with a production function that they don’t fully control. Uber, for example, went as far as calling human drivers their existential dependency and the final barrier to a perfectly-controlled customer experience. This is despite having built one of the most successful marketplaces in the history of startups. Traditional marketplace tactics like user ratings, apps to manage workers, offering different levels of service to different customer segments, insurance, etc. will eventually be insufficient for Uber because when you sell the outcome of a ride, any problems caused by drivers along the way is your fault, so you’d want to ultimately subsume that variable.

For a better framework on how to properly leverage software to tackle full-stack opportunities, I’d send you to Andrew Chen’s brilliant essay, “What’s next for marketplace startups? Reinventing the $10 trillion service economy, that’s what.” Notice in his essay that as we move fuller-stack, the leverage you gain from software begin to diminish. This is something to watch out for and you can use the strategies in his essay to mitigate.

From Andrew Chen’s essay

As Arthur C. Clarke once said, “any sufficiently advanced technology is indistinguishable from magic.” To me, full-stack startups are the ultimate magical feat, especially when you can appreciate the complexity of their production functions. As software continues to “eat the world,” full-stack startups will become more of the norm. I’d love to see more discussion from operators about how full-stack startups can better improve their odds of success. Let’s continue the discussion in the comments below or with me on Twitter @rickyyean.

[1] The documentary probably did more to align customer expectations and their subject taste to Jiro’s favor than anything else he’s done.

What startups get wrong about public relations

This article was originally written for MarTech Series in April 2018. I changed the title and I’m re-posting it here. Hope you like it!

If you are looking for media coverage, you’ve come to the right place. Successful PR is simple. Here are the steps.

  1. Generate interesting stories consistently.
  2. Pitch your stories to writers who create content for an audience you’re interested in.
  3. Analyze results, rinse and repeat.

It’s a simple process to follow, like keeping the count when you’re dancing. 1–2–3, 1–2–3, 1–2–3. However, in our experience, this might not be what you’re thinking about when you think about PR. You’re racing to the desired outcome — the gleaming article on a top industry news site trumpeting the latest and greatest about your company. It feels attainable (and it is) because we all consume a ton of content everyday. We read about companies, sometimes in our industry, having seemingly accomplished much less than us, yet they are receiving a glowing profile. Surely you can get the same treatment. PR doesn’t seem like it requires a process. No one expects to make a sale on the first call, rank on Google after a few days of SEO, or publish a few posts to immediately find an audience for your blog, but most people think of PR as an easy transaction — I have a story, it’s the reporters’ job to write it. This is wrong. Yes, if you just raised $50M in venture funding from Bill Gates, you can send an email to any reporter at a business publication and the story will get written. Outside of must-cover stories like that, successful PR requires a process because what is worth covering is, at the end of the day, subjective.

Let’s break down three common misconceptions about PR compared to reality.

Misconception #1: I have news (e.g. launch, milestone reached, etc) that is really significant to us. With the right PR help, we can get someone to write about it.

How it actually works. Journalists are choosing from hundreds of stories to cover everyday for maybe 1–3 slots. First, the sheer volume means that even if your story is perfectly targeted, they may simply miss it or lack the bandwidth to work on it, especially if Trump hijacks the media agenda. They are reading their inbox just like everyone else, without any more sophisticated triage processes. That’s assuming your story is a perfect A+. In reality, most stories we pitch for companies are “B+” stories. They’re interesting, hard news, targeted at reporters who would have a personal or professional interest. However, there are almost always other “A” stories being pitched to the same reporters from other sources who may be bigger and more credible than you, and in the case where we are being evaluated against 50 other “B+” stories, it takes some luck to be selected.

We like to think of PR as closer to playing baseball. A good hitter in baseball succeeds only 30% of the time. The important part is approaching every at-bat with discipline and look for the rare opportunity to really put the bat on the ball.

Misconception #2: I just read a non-news story (e.g. a feature profile, a trend story about the industry, contributed opinion piece, etc) about my competitor. With the right PR help, we can get an article like that about me.

How it actually works. News takes precedent at most publications because they are urgent and sometimes important, yet many reporters spend time (often at nights and weekends) working on non-news stories because of personal interest and potential for impact. However, reporters still have to justify it to their editor, so pegging it to a hard news pitch is still preferred. For example, if your company just raised $200M and became a unicorn, you can pitch a personal profile at the same time so the reporter can better justify doing a profile on you because you just accomplished a rare feat.

But what about the industry trend pieces? You never know when reporters are working on them, and sometimes they get shelved for months and even years because they’re not timely. There isn’t a public database of what reporters are working on (they don’t like to have their ideas stolen). However, you can influence the agenda by 1) pitching a trend piece anchored to some unique data and insight that you can bring to the table. For example, you can pitch a trend piece about how companies are increasingly ditching office spaces for completely remote setups, but you should bring supporting evidence to the table to help the journalist with research and offer help connecting journalists with companies without offices and their remote employees. Alternatively, to score inclusion in these trend pieces, you can 2) pitch frequently high-quality stories so you are constantly top-of-mind. Reporters, like the rest of us, suffer from availability bias. If they have to talk to three sources in your industry, you want to be one of those three sources.

Finally, how do you get a contributed opinion piece? Today, publications are starved for content — especially good, timely content. You have to pitch it to the editors and get them to consider letting you publish. Usually you want your piece to be finished, but not published anywhere else. Alternatively, it could be a piece that you have published already and seen a lot of traction on your own blog, which would help demonstrate that it’s “good” content that should be re-published and shared more widely. You also want it to be timely and insightful. You are competing with hundreds of people who want to write for a brand name publication, in addition to reporters on staff that have been hired, vetted, and has a track record. Why would the editor risk the publication brand to let you publish?

Misconception #3: I need a PR professional with strong relationships to the media in my industry. With strong relationships, we can get any media coverage we want.

How it actually works. Relationships are useful, but they tend to be overvalued and difficult to assess the veracity behind anyone claiming to have strong relationships. Because of that we think it should be discounted most of the time.

However, that’s not giving relationships its proper due. PR-Journalist relationships are like any business relationship: they exist to help everyone do business more effectively. Journalists trade in stories and they want access to high-quality stories. The way PR wins over a journalist in a relationship is by regularly bringing high-quality stories, and once in a while offer something exclusive. Essentially, for a journalist to see a PR pro’s name in the inbox and want to click on it more than any other email, the journalist has to trust that the story contained in this particular email will be high-quality and potentially lead to rare, unique access. PR pros can communicate that by establishing a record of consistently high-quality stories over time. However, PR is a business, and PR firms inevitably start working with less credible companies who are willing to pay. In order to keep existing credible clients, they inevitably start pitching “B+” or lower stories to journalists. From this perspective, the PR agencies that can plausibly have strong relationships are typically agencies that most businesses cannot afford or bully as a client. They’re priced high enough to filter for more credible companies, and even then, they are selective about who they choose to take on as clients and what stories they would pitch for them. It’s no surprise that the agency you paid $20k a month for did not appear to have strong relationships.

#TrustTheProcess

Obsessing about your competitors’ coverage is obsessing over the outcome, not the process. Worrying about PR agencies’ relationships is placing lopsided attention to a tiny (and typically unattainable) lever in the process.

Again, here are the steps to successful PR.

  1. Generate interesting stories consistently.
  2. Pitch your stories to writers who create content for an audience you’re interested in.
  3. Analyze results, rinse and repeat.

This process does not depend on you having to pay to retain a top-tier PR agency and it’s guaranteed to work. Of course, generating interesting stories is hard work, especially if you work on (relatively) boring enterprise procurement software. It’s also hard to find the story that is both interesting to you and the reporter. It pays to understand what drives reporters and their readers, especially when they may be different. Here’s a version of the Eisenhower Matrix from before that also includes a perspective from the average consumer of media. I hope this gives you more tools to think about your public relations efforts.


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