A fantastic piece of writing by Claire Cain Miller in the New York Times yesterday. If you didn’t have a chance to read it, here are the three core principles that have become religion for Silicon Valley startups:
FIRST: Be a middleman, or in tech-speak, a platform. Find an audience that needs something specific, and provide a way to make that happen online. If it’s a new model, so much the better.
SECOND: Minimize the number of paid on-staff employees. At the point when Instagram was acquired by Facebook, there were 13 people working there. As an earlier reference, Kodak at one point employed roughly 140,000.
THIRD: Automate everything. This or course relates to number two, and is how a brand like Facebook can become so profitable, so quickly.
On paper, these three fundamentals look very enticing. In effect, they’re the basis for many of the incredibly high valuations for business models such as Uber, Airbnb, Whatsapp, Instagram and others. But the point Miller makes is that these ‘tech solution’ business models frequently run into substantial hurdles in real life (meaning offline).
Airbnb is a classic example, where the business is now facing lawsuits in several states regarding the legality of the business premise itself. Likewise, Uber is running into problems with European nations, unionized drivers for other cab companies, as well as insurance and liability concerns.
If you peel the onion back a couple of layers, it becomes apparent that many new Silicon Valley business models are being created by people who’ve spent their entire lives online. They don’t understand the need for customer service, responsiveness or finding a viable way to fit within existing laws and business models. Instead, the key imperative is ‘disruption’.
While this modality certainly creates opportunity, it also neglects a longer-term view of: how is this really going to work? It will be fascinating to see how it all shakes out. Is Uber truly worth $18 billion? Is the premise of ‘share everything for a price’ going to be viable? Time will tell. Meantime, the stampede continues…