How You Know You’ve Got the Right Startup Model?

Posted on Apr 1, 2014 | 0 comments


If you’ve watched any industry in the last 20 years where technology has begun to transform how the industry works the results are always predictable driven by what Clay Christensen appropriately called “The Innovator’s Dilemma” (one of the most influential books that changed my thinking about markets).

Young startups claim they are going to change the world, large companies that dominate that sector scoff at how low quality these new entrants are, until like frogs boiling in water they come to the realization that “this shit is real.” The next step is the industry tries to fight back.

TrueCar is the first ever Internet service that tells you exactly how much other people in your area paid for the car you want to buy. You enter your make, model, trim & year and out pops a price curve of purchases in your area and in most states you will then be offered a fixed price to purchase that car. More Americans buy cars through TrueCar (Upfront is a large investor through my partner Steven Dietz) than any other place by a long shot. I can’t imagine buying a car any other way.

So what could be wrong with price transparency in the auto sector? Apparently everything. As soon as TrueCar started growing at a phenomenal pace and dealers who understood it was an amazing channel to acquire customers (they only pay a fee if TrueCar sells a the car) a few dealers in every area started sucking up all of the sales. Luddite dealers started petitioning state governments to make TrueCar illegal. And given how large the auto industry is as a percentage of the economy these people have clout (but no Klout ;-))

TrueCar had to spend nearly 2 years working with state legislatures in nearly every state in America to prove that its business model – again, to be clear “price transparency so you know how much others paid for cars” – was legal. The entire team had a hell of a couple of years and I lived this through the stress I saw my partner Steven going through with the team. At the time I remember telling him

“This is how we know TrueCar is going to be a huge success. Industry luddites happily let you exist until they figure out that you might actually change their industry. When the giants fight back – and HARD – that’s when you know we’re really making an impact.”

I’m sure you’ve all read about similar stories like Uber and Lyft being banned by cities for providing a transportation service consumers finally love or Airbnb for low-cost, more homey alternatives to hotels. Or when Viacom sued YouTube, the music industry sued Napster or even when Hulu was created (I think I was the first to publicly call out that Hulu was really formed like OPEC.)

Turkey or China? Twitter. Even governments don’t like losing their monopoly – control of the media.

If the industry you seek to disrupt isn’t fighting you back yet it’s just because you haven’t yet made a dent in their consciousness or pockets. No 800-pound-gorilla gives up control easily without a fight.

So I really had to chuckle yesterday when I saw this YouTube video of Public Storage making fun of “cloud storage” as a concept. It’s only one minute long

Cloud Storage

Public Storage is trying to make the case that “cloud storage” isn’t safe in response to companies like MakeSpace who are reinventing the way physical storage works.

It’s the funniest thing I’ve seen in a while. It felt to me like a typewriter company running an ad talking about how computers were just a fad and might lose your information on a floppy disk.

I spoke with CEO Sam Rosen right after (we’re an investor in MakeSpace) and told him how awesome I found the video. If Public Storage is trying to fight us early like this it validates our model. Local NY storage companies have started also marketing against us. Yet MakeSpace is growing very fast.

Why?

You tell me:

  • Traditional storage requires you to pack your stuff and schlep it to a physical location usually 20-30 minutes away in an unseemly part of town
  • MakeSpace will pick up your stuff (for free) which you pack into green uniform size boxes that we can catalog through barcodes and eventually RFID to track their location but it is truly stored “in the cloud” under much better security than your local storage outlet
  • And because MakeSpace can store your stuff in a remote location (yet ship it to you at a moment’s notice) we have huge scale advantages to the archaic physical storage infrastructure. It’s like a reverse Amazon. It’s a classic Innovator’s Dilemma
  • With local storage you have no idea 8 months later what was in your unit, with MakeSpace we photograph your inventory and provide you access to these photos via a private secure space on our app.
  • And with “local” storage if you need something in storage you still need to drive to that unit, rummage through your stuff, and then bring home your winter sweaters, skis or whatever.
  • With MakeSpace? You tell us which individual unit you want shipped to you and for $30 dollars we’ll have it back to you in a jiffy

And while traditional companies will make cute videos trying to scare you about our service, MakeSpace will continue innovating like this new Beta product MakeSpace Air allowing anybody in the US to access our service even before we’re in your local area.

So, yeah. I feel pretty good today. If the giants are fighting us this early it tells me … we are REALLY on to something. And our rapid growth is proving that customers like what they’re seeing.