Data Startups

Startups that rely on data models and AI/data science algorithms for running their business will only get better with time. Moreover, as time passes they have leverage over newcomers. Making it really hard to overthrow a leader in a vertical. In this space I think there can be 2 strategies. Either the company can choose to niche down or expand to other verticals. If they niche down, over time they will collect niche specific data and develop models that are effective in that small space. One way such a company can be overthrown is if there is a new technology that doesn’t require as much data to predict consumer behaviour or whatever. While it sounds possible that still seems quite hard. Even if models get efficient and computers become more powerful and be cloud-first. There is a bottleneck in available data. There is only so much real world data that you can harvest. Out of that only so much that you can label and sanitize it so it can be used for training purposes.

Product Studios

Product studios is a 21st century ecosystem that supports creativity and innovation. They could be the next step for the startup world. With apps available now that makes it easy to build applications, websites and services using intuitive and graphical tools the cost for trying something out has gone down. A product studio formalizes this loop of trying something out from an idea to a product or service delivered to a customer. Studio’s like this will become key in democratizing and spreading the word that it has become so easy to do something on your own now.

Big companies that still innovate on every level of it’s organisation knowingly or unknowingly have built product studios into it. Some companies call this “culture”. Building fast, testing fast, learning fast. When these principles become a part of the company’s DNA, you are not stuck in long meetings trying to convince managers and executives.

4 Stages of a Business

  1. Achieve productivity : A team that can work together and make progress. And all the basic roles of a leader, coordinator, worker etc. are met within the small group.
  2. Product market fit : The product that the group is building is wanted by a market. And the market is willing to pay for the product in exchange for the value that it gives them. This stage corresponds to the ability of the team to create value in a niche or given product market combination.
  3. Scaling : As the customer base increases, they would need more recruiting and more throughput in the group to meet customer demands. These demands can change over time and the technology/industry can also evolve over the time.
  4. Institution building : After reaching a certain size both within the company and market share, most of the business processes needs to be standardized and repeated. For example, creating good legal and finance departments etc. This stage corresponds to the ability of the business to create future value. This is probably also why, VC firms bring in more matured CEO and managers in to the firm after the startup has grown beyond a size.

Of course, this is generalized and over-simplified but it gives a framework on how to think about early stage businesses.

Product Market Fit

Product-Market fit is a stage during the initial days of a startup when the product and users align. Sam Altman characterizes it as when the user start talking about your product to others on their own. Paul Graham’s definition: Product market fit is when you build something that people want.

Startups take different time to achieve this depending on the problem it is trying to solve and the industry that it’s in. Before a startup reaches product market fit, it will iterate through multiple solutions based on the feedback from different stakeholders. Shorter this feedback loop is, the “leaner” it is. The tricky part of achieving product-market fit is that it is a 2 dimensional problem. Each time you tweak the product, that in turn also shift the market for that new solution.

The Peter Thiel Questions

Peter Thiel in his book Zero to One, listed 7 questions a startup must answer in order to make it big.

  1. The Engineering Question: Can the technology create a 10x improvement rather than an incremental improvement? Is the superiority in technology going to be obvious to the customer?
  2. The Timing Question : Why “now” is the right time for your startup and why is the problem you are solving important now? Is it a space that is trending up now? If yes, is it trending up slowly or fast?
  3. The Monopoly Question : Is the startup going to be a monopoly? Will it have a very very big market share in a small market that is growing? Will it be hard for new entrants to replicate what you have done?
  4. The People Question : Do you have the right people in your team? A team with a culture and conviction that can drive them to innovate such a solution into existence.
  5. The Distribution Question : Do you have a way to reach your customers efficiently?
  6. The Durability Question : How can you dominate the market for the next 20+ years? What can fuel the consistent demand and supply? What will stop new entrants from putting you out of business over a long period of time?
  7. The Secret Question : Do you know something that others don’t?

How TransferWise Works?

TransferWise is an online money transfer service. TransferWise offers transfers at the mid-market rate, i.e. the rate that you would find on Google. Other banks and transfer services usually offer a higher rate and make a profit out of it. TransferWise uses smart matching to match your transaction to another one that is happening the other way round. This avoid currency conversion and enables them to make a profit even at a mid market rate. In addition to that, they have a network of local banks around the world to facilitate these transactions locally.

Borderless Account

This is a free-of-charge account that users can use to hold, receive and send money in different currencies. This also works on the network of local bank accounts around the world.

How they make money

  1. Fee on transaction: The markup that they set on each transaction dependent on the amount being transferred.

  2. Borderless Account: Even though the account itself is free-of-charge, the transactions are subject to a fee.

  3. TransferWise for business: Companies can use their account to accept and make payments for their global business. This eliminates the hassle for managing different currencies.

  4. TransferWise for banks: They provide an API for banks to use the TransferWise network to make payments, enabling them to provide cheap rates and faster money transfers.

References

TransferWise Business Model

How TransferWise works

How Flexport Works?

Flexport provides a digital solution for businesses to transport and store goods globally. The freight forwarding industry has been scattered and subject to regulations that are specific to the country. Customs handling is also an arduous task around the world. And to top it all off, the mammoth effort required to orchestrate a shipping activity end to end takes multiple entities in different time zones collaborating and communicating to make it work.


Traditionally, freight forwarders take up all these work, but even then the process still used to rely a lot on emails, telephone calls etc. This was an opportunity for disruption. Introducing software to this process and streamlining the processes enable flexport to become more efficient than traditional freight forwarders. Flexport successfully abstracts all that from the businesses and that is where the actual value is created in the value chain. Flexport then goes on into activities with their local partners and existing expertise to fulfill orders from their customers.

References

The Flexport Business Model