DEA’s Reading Digest (07/21/2019)

Cool forest pic, courtesy of https://www.pexels.com/photo/daylight-environment-forest-idyllic-459225/

A. Stories, strategies & expert opinions

Shopify and the power of platforms

Shopify and the Power of Platforms

• This is ultimately the most important distinction between platforms and Aggregators: platforms are powerful because they facilitate a relationship between 3rd-party suppliers and end users; Aggregators, on the other hand, intermediate and control it.
• Platforms are Aggregators’ most effective competition.
• When Amazon started, the company followed a traditional retail model, just online. That is, Amazon bought products at wholesale, then sold them to customers.

• This growth allowed Amazon to build out its fulfillment network, and by 1999 the company had seven fulfillment centers across the U.S. and three more in Europe.
• Ten may not seem like a lot — Amazon has well over 500 fulfillment centers today, plus many more distribution and sortation centers — but for reference Walmart has only 20.
• In 2006 Amazon announced Fulfillment by Amazon, wherein 3rd-party merchants could use those fulfillment centers too. Their products would not only be listed on Amazon.com, they would also be held, packaged, and shipped by Amazon.
• In short, Amazon.com effectively bifurcated itself into a retail unit and a fulfillment unit.

• The old value chain is still there — nearly half of the products on Amazon.com are still bought by Amazon at wholesale and sold to customers — but 3rd parties can sell directly to consumers as well, by passing Amazon’s retail arm and leveraging only Amazon’s fulfillment arm, which was growing rapidly.
• Despite the fact that Amazon had effectively split itself in two in order to incorporate 3rd-party merchants, this division is barely noticeable to customers. They still go to Amazon.com, they still use the same shopping cart, they still get the boxes with the smile logo. Basically, Amazon has managed to incorporate 3rd-party merchants while still owning the entire experience from an end-user perspective.

• This should sound familiar: as I noted at the top, Aggregators tend to internalize their network effects and commoditize their suppliers, which is exactly what Amazon has done. Amazon benefits from more 3rd-party merchants being on its platform because it can offer more products to consumers and justify the buildout of that extensive fulfillment network; 3rd-party merchants are mostly reduced to competing on price.
• That, though, suggests there is a platform alternative — that is, a company that succeeds by enabling its suppliers to differentiate and externalizing network effects to create a mutually beneficial ecosystem. That alternative is Shopify.
• At first glance, Shopify isn’t an Amazon competitor at all: after all, there is nothing to buy on Shopify.com. And yet, there were 218 million people that bought products from Shopify without even knowing the company existed.
• The difference is that Shopify is a platform: instead of interfacing with customers directly, 820,000 3rd-party merchants sit on top of Shopify and are responsible for acquiring all of those customers on their own.

• That is the beauty of being a platform: you succeed (or fail) in the aggregate.
• This is how Shopify can both in the long run be the biggest competitor to Amazon even as it is a company that Amazon can’t compete with: Amazon is pursuing customers and bringing suppliers and merchants onto its platform on its own terms; Shopify is giving merchants an opportunity to differentiate themselves while bearing no risk if they fail.
• The first paragraph explains why the Shopify Fulfillment Network was a necessary step for Shopify: Amazon may commoditize suppliers, hiding their brand from website to box, but if its offering is truly superior, suppliers don’t have much choice.
• Notice, though, that Shopify is not doing everything on their own: there is an entire world of third-party logistics companies (known as “3PLs”) that offer warehousing and shipping services. What Shopify is doing is what platforms do best: act as an interface between two modularized pieces of a value chain.

• This is the only way to take on an integrated Aggregator like Amazon: trying to replicate what Amazon has built up over decades, as Walmart has attempted, is madness. Amazon has the advantage in every part of the stack, from more customers to more suppliers to lower fulfillment costs to faster delivery.

What successful founders focus on

What makes a strong startup CEO

What Makes a Strong Startup CEO

• In all the companies I founded and invested in, one thing was always clear about leading a startup — it’s hard. Really hard.
• The first step in developing your leadership skills is to understand that as a startup CEO, you have two different tasks that may seem like one but are actually different — being a manager and being a leader. And you must excel at both to succeed.
• The CEO as manager
• The CEO role as manager can be represented by a cycle with five stages:
• 1. Defining a strategy — setting the vector (direction) for your company.
• 2. Recruiting the right team that is best positioned to execute the strategy.
• 3. Setting goals that steer your team in the right direction and then letting them “run”.
• 4. Assisting where needed when your team runs into challenges; or, where the goals show they are off course, setting them back on track.
• 5. Monitoring progress and periodically reassessing the two initial building blocks — your strategy and your team — to make sure they still make sense. And having the perseverance to adjust accordingly & begin the cycle again.
• Probably weekly. That’s the pace you want to aim for as a CEO.
• The CEO as a leader
• I see the big-picture leadership responsibilities — driving people, vision, and culture — as ‘orbiting’ the core CEO role as manager.
• And it should be said that leading a startup is 10X tougher than leading a standard company given uncertainty and the need to change your direction often.
• Leadership is harder to master than management. It takes soft skills and big-picture thinking. But it’s also harder because the best leaders lead by example. It all starts with you.
• Hiring is one of your most important jobs in leading a startup, especially early on when the DNA of your company culture is at stake. Choosing who to add to your team at this stage has long-term compounding effects for your company. The mantra of the startup world is speed, but hiring is the one area where it pays to take it slower because the cost of mistakes in hiring is much greater than running a failed experiment.
• Top leaders understand that if they care and their team feels it, they’re going to love their work and company.
• Here are two simple, high-leverage things you can do right away to lead people better.
• 1. Spend time with people. Carve time out for 1-on-1s.
• 2. Listen to your team. As a leader, it’s often best to let your team speak first and listen to what they have to say, because once you’ve stated your own view, it’s difficult for people to challenge you.
• My colleague Pete has previously written about the need to have a clear and compelling vision for investors when you’re fundraising, but it’s just as important — if not a lot more important — to have it internally for your team.
• And that’s something you have to articulate as a leader, often and clearly. Typically you have to repeat it many more times that you intuitively think you need to. Not only do you want to tell and retell the story and vision of your company, but you want to paint a picture to your team how they fit into that bigger vision as individuals.
• As a leader, there are several things you can focus on to promote a culture of speed and excellence:
• Encourage collaboration. A collaborative team is fast. A team of individuals working alone is slow.
• Push communication & transparency.
• Fight complacency. It’s human nature to start getting complacent the minute you start succeeding and growing. Celebrate success but stay paranoid, knowing that complacent startups usually fail.
• Promote self-awareness. Lack of self-awareness is the parent of poor decision-making. You’ve got to create an environment where challenging you (up to a point) is a great thing.
• Be optimistic. Be optimistic about your team, about yourself, about your chances to win.

How to manage a board

How to Manage a Board

• The main role of a board is to help guide the company through major decisions, such as hiring and firing senior management; approving corporate actions (e.g. compensation, stock options, and budget); and offering guidance on strategic decisions that impact the business longer term. As a legal matter, every Delaware corporation must have a board once it starts operating. At the start, this consists of the founders and the board functions mostly just as the technical body for approving corporate actions that must follow certain formalities (e.g. option grants).
• But in terms of how to pick the right board members — for an early stage company — the #1 attribute you need is trust. And the only way you build trust is with time. We recommend getting to know partners at VC firms on your list at least 6 to 9 months before your fundraise.
• Meeting Schedule. At the Series A stage, most meetings tend to be informal (like 1:1s), ranging anywhere from bi-weekly to even bi-monthly. By the time you reach the Series B stage, however, you should establish a regular meeting cadence: Every quarter, with all meetings scheduled a year in advance to ensure all board members can attend. Ideally, only in person!
• Agenda and length. As the CEO it is your job to set and own the agenda for the board meeting, which can last about 3 hours. Be careful not to treat board meetings as a status update meeting, but rather as a meeting where you can openly discuss strategic or tough topics. That’s why the best CEOs tend to allot only the first 45 mins for sharing highlights/lowlights and KPIs (Key Performance Indicators), and then use the rest of the time to deep dive on no more than 1–2 strategic topics. What really allows Gusto to pull off their strategic focus within their board meeting, however, happens outside the board meeting: (1) They do a lot of prep work on the areas where they’re seeking input; (2) They send out a pre-read version of their board deck at least a week in advance, collecting questions from each board member in a Google Doc three days before the meeting. The Gusto team then answers all those questions in the Google Doc by the morning of the board meeting.
• Board deck. The board deck is just a tool for discussion, not an end in and of itself.
• Preparation. Companies usually start planning a month in advance for the board meeting.
• Exec team involvement. Post-Series B, most companies will have an executive leadership team that helps the CEO scale and grow the company. Since the board is tasked with scaling and governance, it is important for execs to get to know the board (and vice versa). There are two approaches here: (1) Ask your leadership team to attend the entire board meeting; or (2) Ask only those executives who have a section to present to the board join the meeting for a particular agenda item, for about 45 minutes. I prefer the latter approach, where specific execs join just for that agenda item (usually about 45 minutes). This approach achieves three things: a meatier discussion on the strategic issue at hand; the executives hear the board’s feedback directly; and more time at the end of the meeting for the CEO and the board to discuss other sensitive matters on their own. Remember: The board meeting is not about selling to your board members. Of course, you want to show off great work and celebrate milestones. But, your board is already bought in, and the highest leverage on their time — and yours! — is in helping you get to the next milestone.
• Monthly updates. In addition to quarterly in-person board meetings, it’s a good practice to send a 2-page monthly update email to the board at the beginning of every month. The email usually includes a summary of last month’s performance; a hiring update; a section outlining burning issues; and a section with specific asks for help. Brex always makes two specific asks in their monthly emails: potential introductions to business partners/customers, and help with key roles they are looking to fill. Getting into a good rhythm of sending monthly updates accomplishes three things: (1) Board members will go above and beyond to help you with your specific asks; (2) The board is better prepared for the in-person board meetings; and (3) It is a great way for you as the CEO to take a step back and reflect on the most important elements of your business and objectively measure how well you are doing as a company.
• Mixed messages. Conflicting viewpoints are a good thing! The job of the board is to push you on your strategy and to ask questions that help you sharpen your thinking. As a CEO you should welcome conflicting opinions and should not feel pressure to get the board to come to a consensus decision. However, if the conflict reaches a point where it is hard to move the conversation forward, offer to take the conversation offline and set up 1:1’s or small group meetings to understand the conflicting views. A YC CEO recently shared how two board members had strong, directly conflicting opinions about the order in which they should pursue new products. The CEO took the discussion offline and came up with a decision-making framework (e.g. economic value, resources, cash needs, and competitive threat) to decide which path they were going to take. Also with time if you are more right than wrong about your decisions, the board will be willing to disagree and commit to the path forward.
• Asking for help. Many CEOs seem to think it’s important to update every board member 1:1 on every topic. To which I say: NO! Not every board member needs to be in the loop on every topic or issue; it’s an ineffective use of everyone’s time, including yours. I also think it is a poor use of time to update every board member 1:1 before every board meeting.
• Helpfulness vs. control. Be cautious of board members who are trying to make decisions for you. A board member’s job is to help you think through the issues by offering tools or decision frameworks — not to give you all the answers on how to run your business. In fact, great board members will often refrain from stating opinions; instead, they ask questions to help flesh out a CEO’s thinking. My fellow board member at Brex, Micky Malka of Ribbit Capital, does this: Even if the CEO asks for his opinion on, say, “What should our typical credit loss rate be?”, Micky would respond with examples of 10 startups in Ribbit’s portfolio and their trajectory along credit loss rates; share pros and cons of each approach; yet refrain from giving one definitive answer. In doing so, he empowers the founders to make the decision.
• Use every challenging situation as an opportunity to improve your existing processes.
• Board members have the right intent — their job and their incentives are aligned to set the company up for success. If all your board members are echoing the same feedback and you are not listening, then the problem is likely you.

The AI technique that could imbue machines with the ability to reason

The AI technique that could imbue machines with the ability to reason

• Deep learning, the category of AI algorithms that kick-started the field’s most recent revolution, has made immense strides in giving machines perceptual abilities like vision. But it has fallen short in imbuing them with sophisticated reasoning, grounded in a conceptual model of reality.
• While algorithms based on supervised and reinforcement learning are taught to achieve an objective through human input, unsupervised ones extract patterns in data entirely on their own. LeCun prefers the term “self-supervised learning” because it essentially uses part of the training data to predict the rest of the training data.
• “Everything we learn as humans — almost everything — is learned through self-supervised learning. There’s a thin layer we learn through supervised learning, and a tiny amount we learn through reinforcement learning,” he said. “If machine learning, or AI, is a cake, the vast majority of the cake is self-supervised learning.”
• What does this look like in practice? Researchers should begin by focusing on temporal prediction. In other words, train large neural networks to predict the second half of a video when given the first.
• Ultimately, unsupervised learning will help machines develop a model of the world that can then predict future states of the world.
• “The next revolution of AI will not be supervised.”

India1, avocado startups & product-market fit

India1, Avocado Startups & Product-Market Fit

• A good way to see India is thus as a four-tier market, with each tier being able to support a set of native startups, which struggle to expand beyond their market. Each market has its distinct audience profile, pricing sensitivity, cultural attributes and competitive dynamics. Product market fit in one market doesn’t automatically translate to the possibility of a fit in another. If anything product market fit in one market makes it tougher to succeed in another. There are just a handful of products, typically with universal uses cases (Youtube, Whatsapp, Flipkart etc) that have succeeded in both India1 and India2.
• Most startups start in India1 and then attempt to move into India2. Few succeed.
• Thus the ground rule: PMF in India2 is possible only when there is a large enough market for what your product is trying to solve for, and your product is the best way to meet the market’s need.
• Getting your product to fit in India1:
• 1. Moving some elements of the product offline. For ecommerce, transacting especially paying is the highest friction part and if you could move it out of online and get it solved offline, such as with Storeking (enabled ecommerce) or Cash on Delivery, despite the relatively higher cost, it made sense, for it spiked conversions up dramatically. Move parts of your app offline, typically those with relative higher friction for India2 consumers, such as customer acquisition, or conversion (payment).
• 2. Using local language instead of English and modifying the UI to suit.
• 3. Enabling apps to work offline.
• 4. Making apps lite by reducing feature sets, to help spur usage.

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B. Startups & market trends

How Ninjacart built a tech-enabled supply chain for fresh produce, delivering 500 tonnes daily

How Ninjacart built a tech-enabled supply chain for fresh farm produce, delivering 500 tonnes daily

• Every day, around 500 tonnes of vegetables and fruits are delivered to thousands of shops and retail stores across multiple cities in India in just two and a half hours. And this is done by agritech startup Ninjacart with a delivery accuracy rate of 99.88 percent all year-round, without a single day off.
• The four-year-old Bengaluru-headquartered startup began by focussing on the retail-consumer segment (B2C) but realized that this was not viable in the long run from a business point of view. It then pivoted to a B2B model to create a seamless link between farmers’ produce and retail stores. The goal was to ensure a fair price for everyone involved.
• “The customer orders today for delivery tomorrow so the purchase and selling happens on the same day.”
• The first step was to acquire and understand the ‘farmer harvest calendar’, which would give the team an overview of the fruits and vegetables available in each season. This made Ninjacart aware of the demand and supply, and gives farmers a week’s notice of what is expected of them. Next, it needed a fairly good idea of what to expect. For this, the company gained complete past buying data of customers — what they ordered and the frequency of order to figure out a pattern and to know which items to procure.
• Ninjacart educates its farmers on the desired quality and once this is sorted, all produce is put into crates at collection centres. In Bengaluru alone, it has 22 collection centres.
• The startup has close to 7,000 farmers on its platform but on average, 2,000 transact on a monthly basis.
• “Once the produce is weighed and tagged, a message goes out through an app on the supplied quantity and the price so that the amount is credited to the farmers’ bank account the next day.”
• Then, Ninjacart moves the crates to fulfillment centres.
• The entire process is monitored through an app that the company built in-house.
• Unlike other logistics businesses, Ninjacart’s does not have a typical sorting and segregation system.
• After this, these crates are loaded onto vehicles at the distribution centres for delivery, which starts at 2.00 am daily. There are no names on the crates as everything is enabled through the app. Every crate has a radio frequency identification (RFID) tag so that the company can know exactly which vegetables and fruits have been delivered.
• In 2016, it was handling only seven tonnes a day, and a year ago, this was around 100 tonnes. Today, it manages 500 tonnes daily, and this is only going to increase as the startup is now present in Bengaluru, Chennai, Hyderabad, Delhi, and Mumbai.
• Ninjacart had to overcome many challenges to improve its operational efficiency like ensuring they receive their payments from shop owners, finding the best routes, and also putting adequate safeguards against pilferage and financial misappropriation.
• Earlier, Ninjacart used to lose Rs 2 per kg in a place like Bengaluru, but now, they make a profit of Rs 1 per kg all due to the tech-enabled supply chain.
• Its customer base has also grown from 150 in 2016 to 8,500 today, with around 5,000 daily deliveries. As the founders wistfully put, “It is very easy to fill a big truck for a large retailer but very challenging when you do it for thousands of small shops. It needs a lot of minute-level of detailing.”
• Ninjacart also maps the best routes for drivers to reach their destinations with clearly identified points. Thgis is in the backdrop on the number of vehicles handled, which has grown from 20 to over 500 today.
• “It will take around two years for anybody who plans to build something like this. It is very tough.”
• And all this is being done by a 30-member tech team.
• From a business point of view, it makes sense as this a $180 billion plus market growing at 9 percent annually. Also, the market is very stable as it an essential commodity.
• For Ninjacart, it is a 36-hour cycle from the time it collects produce from the farmers, reaches the shops and the empty crates goes back to the villages.

Curve, the ‘over-the-top’ banking platform, raises $55M at a $250M valuation

Curve, the 'over-the-top' banking platform, raises $55M at a $250M valuation

• Curve, the London-based “over-the-top banking platform,” has raised $55 million in new funding. The startup lets you consolidate all of your bank cards into a single Curve card and app to make it easier to manage your spending and access other benefits.
• The company claims 500,000 users and says it is on track to reach 1 million by the end of the year.
• Curve is currently available in 31 countries across Europe, with around 30% of its customer base coming from outside the U.K.
• Like a plethora of fintech startups, Curve is building a platform that essentially turns your mobile phone into a financial control centre that re-bundles disparate financial products or functionality to offer a single app to help you manage “all things money.”
• However, rather than building a new current account — as is the case with the challenger banks such as Monzo, Starling and Revolut — Curve’s “attack vector” is a card and app that lets you connect all of your other debit and credit cards (sans Amex) so you only ever have to carry a single card.
• In other words, Curve isn’t asking to replace your existing bank accounts but is pitched as a cloud-based platform that runs “over-the-top” of existing banking and payments infrastructure.
• Alongside Curve’s all-your-cards-in-one functionality, the Curve app lets you lock your Curve card at a touch of a button, provides instant spend notifications, “zero FX fees” when spending abroad or in a foreign currency and the ability to switch payment sources retroactively.

China startup deals shrink as fundraising for investors plummets

China startup deals shrink as fundraising for investors plummets

• Chinese startups continue to weather tough times as private investors, caught in a cash crunch, are concentrating money into fewer deals.
• The amount invested in domestic startups during the first half of 2019 plummeted 54% to $23.2 billion.

Peer-to-peer car-sharing marketplace Turo raises $250M at over $1B valuation from IAC

Peer-to-peer car-sharing marketplace Turo raises $250M at over $1B valuation from IAC

• Car-sharing startup Turo has raised $250 million in a Series E round of funding from IAC.
• The company now has almost 400,000 vehicles available on the platform, with over 10 million users across both those listing their cars and those renting. Turo says its growth rate overall has been at around 2x over the past two years, and at 8x in its burgeoning international markets, including the U.K. and Germany.

Haus, the real estate startup founded by Garrett Camp, raises $7.1M

Haus, the real estate startup founded by Garrett Camp, raises $7.1M

• Haus, a startup aiming to make home ownership more affordable and flexible, is announcing that it has raised $7.1 million in new funding.
• Haus was created by Uber co-founder Garrett Camp as part of his startup studio Expa.
• The idea is that instead of taking on debt, the homeowner is sharing both the risks and the rewards of changing home values with Haus. And instead of paying off a mortgage, the homeowner makes monthly payments to Haus that both purchase more equity and pay the startup and its investors.
• The company estimates that these payments are, on average, 30% lower than a traditional mortgage payment.

Mylk Guys wants to be the online vegan grocery store that non-vegans can love

Mylk Guys wants to be the online vegan grocery store that non-vegans can love

• The company has raised $2.5 million in support of that vision from investors including Khosla Ventures, Pear Ventures, and Fifty Years.
• “Our audience is an educated consumer who wants to have less of an impact from their diet…They’re just folks trying to do better with their eating habits.”
• “You can build brands that are successful that are $1 million brands or $5 million brands and the reason why you haven’t is because they haven’t had the platform to provide national distribution to be successful.”
• Los Angeles-based Thrive Market raised $111 million in a 2016 round of funding for its online sustainable product-focused grocery store.
• As recent reports indicate, the sustainable food business is only growing.

A new way to grow crops in marginal soils could help feed the world

A new way to grow crops in marginal soils could help feed the world

• The global population is expected to reach 9.7 billion in 2050 — but how will we feed all these people?
• Roughly one-third of the world’s arable land suffers from lack of accessible iron, rendering it inhospitable to staple crops like maize and soybeans.
• Last year, a Stanford research team led by associate professor of chemical engineering Elizabeth Sattely discovered a genetic adaptation that allows one hardy plant to thrive on these marginal soils.
• Sattely believes this avenue of research will one day enable scientists to splice this adaptive mechanism into the genomes of staple crops, thus opening up more farmland for food production and leading to a new, eco-friendly form of plant genetic engineering.
• Sattely’s lab studies soil microbiomes — the community of bacteria that live around the roots of plants to help them process nutrients in much the same way gut bacteria help people digest food. Her research in this area focuses on one form of plant indigestion: an inability to absorb enough iron, which stunts crop growth and depresses yields.
• Instead of engineering man-made traits into plants, scientists will gain the ability to move naturally evolved traits from one plant to another.