The ‘full stack’ startup: Lessons for incumbents

The concept of being a ‘full stack’ startup is not new. In fact many prominent examples of these startups exist including Tesla, Uber, Warby Parker, Nest, Buzzfeed, Harry’s and Netflix. What ‘full stack’ refers to is building the complete end-to-end product and service by-passing most existing systems or assets in the industry value chain. This is opposed to traditional technology approaches which are to sell or license the technology to existing companies in that industry.

Let’s explore two examples to give you a picture:

Tesla

The model for electric engines in the automobile industry was focused on selling this new technology to the likes of Ford, GM and Toyota – incumbents in the Automobile market. What Tesla does is not only produce the engines but also designs and builds the car, markets it, manages the software and the infrastructure to support the car and consumer. This is effectively the whole operating model. Tesla does this in order to innovate, completely control the customer experience (which at this stage is for high end users) and most importantly capture a greater portion of the economic benefit in the value chain.

Über/Airbnb

Über’s taxi platform started off as a ‘full stack’ startup. In the beginning not only did Uber provide the marketplace for cars but it also screened drivers, bought some cars and/or paid drivers to standby in popular areas to keep the wait times low. It has since expanded beyond Uber Black offerings and where it has lost control of assets has suffered some bad publicity. The point though is that it owned the end to end offering at least initially instead of selling the platform to existing taxi companies which many offerings did prior.

This is not too dissimilar to Airbnb, who at initial startup stages employed staff go to dwellings, inspect them and take the pictures to make them as consistent as possible. It now also defines very tightly the expectations for landlords as well as tenants.

What can incumbents learn from the end to end approach?

1) ‘Full Stack’ approaches an industry using a combination of design, analytics and systems thinking

The ‘full stack’ start up is a combination of these three approaches. Designing for the user experiences, using data between operating model layers (through APIs) to improve the offering and the operating model and identifying the parts of the system that are most profitable. As incumbents evolve and innovate existing offerings these approaches should help to inform their where to play and how to win choices.

2) A ‘Full Stack’ approach is best suited to ‘information based industries’ or those that have resisted technology

Obvious industries for this approach include health, education, food, transportation and financial services. These are mostly industries where prices have outpaced inflation due to lack of technology facilitation. They are also not as reliant on large asset holdings for the most part. Space X may be the only exception to this rule.

3) A ‘Full Stack’ approach requires organisations to be good at many things, a silo approach won’t work

This is the major challenge for this approach. A start up needs to be able to operate up and down the operating model which requires many different skills which may be hard to find in one spot – everything from software, hardware, design to supply chain management, sales and partnerships. Incumbents may be able to defend or evolve their position in the value chain if they have skills and coordination between operating layers as opposed to silos.

I think we are at the start of this end to end movement an approach which avoids bad product experience, cultural resistance to new technologies and unfavorable economics. Those who have succeeded to date (e.g. Netflix, Nest, Buzzfeed) will take on other industries with the very same approach. Incumbents need to learn for this approach and evolve/innovate their offering end to end.

 

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