This is a sobering look at what it takes to build a business vs a product (vs, even smaller scale, a feature).
You have to be willing to put in the long hours (err, years) and the schlepping to do all the business-y stuff:
* distribution
* monetization
* back end systems for admin users
* sales channels
etc, etc
Or, you can cash out and assimilate, err integrate, with a larger company that has done that hard work and lose control of your destiny. That's OK, most of us don't have full control of our destiny, and building product can be more fun. It's just a choice you should make with your eyes wide open.
I will say that I think he dismisses Snapchat's founders too quickly. Yes, they've been struggling, but they are trying to build a business rather than just integrate with an existing conglomerate.
It will be very interesting to see if Systrom et al can build another product, and if so, if they will try to build a business as well.
I am a daily reader of Stratechery. It's a very "MBA" publication: the emphasis is always on strategy, distribution channels, markets, sales and marketing, etc.
It's a soberingly different worldview than product-obsessed, hacker/maker/developer-centric worldview you get on HN a lot of the time. HN definitely skews toward the entrepreneurial/business end of software, but there's still a real emphasis on building great products, talking to users, and faith in the idea that in the long term, the best product will win. Whereas the Stratechery worldview is more like, "figure out sales and do enough of that engineering mumbo-jumbo, and everything will fall into place". I think there's more truth to this than is commonly acknowledged on HN. Eng/product isn't always the center of the damned universe.
I find both views important. I think the best products do tend to win. But reading stratechery has also given me an appreciation for the difficulties inherent in fighting an entrenched competitor, and bootstrapping distribution (how customers discover/use/buy something) from scratch.
On the other hand, Ben (stratechery author) says almost daily, "It's not the technology that matters, it's the strategy". I don't think that's right. A big talking point that comes up over and over with Instagram was how well-built the app was. There was genuine craftsmanship in terms of usability, performance, and a lot of other things that made it a joy to use. That matters.
Ben also said in today's update that the "relative importance decreases over time as things like network effects and business models come to bear". This is another way of putting Marc Andreesen and Steven Sinofski's point that if you have product / market fit, then you can do almost everything wrong and it won't matter. I think Ben gets that the tech and product are the only thing that matters pre-PMF, but post-PMF, all the grungy business stuff becomes the high order bit in order to build a business.
Very interesting perspective and glad you tied together the disparate lines of thinking. Merit in product is, unfortunately, a variable not predictive of success. The strategy component is critical - that is a beautiful, great product that is solving a non-existent problem is probably doomed. There's no path to riches designing the best roller skate wheel marketplace platform, but even a poorly designed gambling tool could probably find a way to profitability.
The only thing I think is outside both of these elements - product quality and viable strategy - is the component of luck be it right place, right time, or catching an unforeseen wave of buzz. The most well known success stories typically owe a non-insignificant amount of debt to good fortune out of the control of the product or strategy. It's a real elephant in the room and it's difficult for ego to acknowledge either in success or failure, but it's real.
Also a daily subscriber to Stratechery. Ben (Zuck?) under-indexes on the feeling of good will associated with a good product experience. But I agree that we over-index on it here on HN. IG won on speed, usability and UX over early competitors like Hipstamiatic and Flickr. But for sure the network was the addictive glue that brought users back, new users in and made the entire product grow. FB feels like the opposite experience to me - crappy product decisions, bloated UX, bad will. My best guess is FB pushed IGTV on Mike and Kevin. They did their best to implement it, but it feels tacked on, like a FB feature, and it became clear that more and more feature pressure was going to be put on the product until it too became bloated and incomprehensible. I don't think Ben sees this, but the poor product choices (in deference to business and strategy) will pile up and the vein will collapse, just as it is starting to do in FB's main product. IG had a good run, it's hard to imagine a future where it gets better from here.
> "It's not the technology that matters, it's the strategy". I don't think that's right. A big talking point that comes up over and over with Instagram was how well-built the app was.
Yet that wouldn't have mattered if they hadn't pivoted from a location based app to photo sharing. Technology/product matters to get your foot in the door, but it's strategy/execution what ultimately makes it or breaks it.
I think some of these businessy folk see real-world examples of boring enterprise-y companies that most developers aren't passionate about as proof that it really is about sales. And I also think that's how you end up with completely tone deaf business-folk based startups like Juicero.
The incumbent/legacy/first mover advantage is the one thing in tech that allows you to overcome better competition. Yes, as a mature company with a large integrated software suite, sales are extremely important. This does not apply to early stage companies.
> "It's not the technology that matters,
> it's the strategy"
Gross. That's the kind of meaningless ass-covering thing consultants like to say. It's a great claim because nobody can falsify it: "See, you don't get it! The increased clock-speed was part of their over-all strategy!"
You initially lead with a use case, but end up following how people actually use your product, or competitive products, and iterate on them in order to retain and attract users.
--------------
The broader point here though is that, at least with consumer software, you will not be able to compete with Google AND Facebook AND Snap AND Amazon in any category.
Maybe your product can beat Google+ at social networking, you won't beat Facebook and they'll either buy you or siphon your users. You might be able to build a better enterprise messaging system than LinkedIn but Microsoft will bleed you dry with a better enterprise sales team.
Even new categories that are subsets of broad categories eg. Social/Ephemeral Messages have no chance of surviving, as they are features to existing products that have BN of users.
So the best chance you have as a software startup to compete is to sell to the Cartel (Facebook, Google, Apple, Amazon, Microsoft), and hope that you're given enough lattitude to see the product that you're ruddering play out as long as possible.
>I will say that I think he dismisses Snapchat's founders too quickly. Yes, they've been struggling, but they are trying to build a business rather than just integrate with an existing conglomerate.
I am aware this is not the same as acquisition or total assimilation, but I think it speaks directly to your comments about how Snapchat is trying to create it's business side of things.
The Innovator's Dilemma would be my first choice. There's 30 more that would be worth reading after that, but that will change your view of the industry.
Instagram was huge even before Facebook took over. It has gone from strength to strength in the 6 years since but I'm pretty sure that would've been the case without Facebook's involvement (see also: Twitter and Snapchat).
You seem to be doing the founders and the team behind Instagram a huge disservice here by accusing them of not being willing to put in the work and riding on Facebook's coattails.
They definitely did a huge amount of work. But did they have a business model before they sold? I don't know, but the author states that they didn't.
I don't think it is a disservice to say that being acquired and integrated into a larger company means you don't have to focus as much on the business schlep. I think that is the truth.
Just as a thought experiment, do you think without FB the Instagram team would have copied and integrated their version of Snapchat stories to hold the (at the time) rapidly growing Snapchat threat to their business?
They traded their company for hundreds of millions of dollars. Good on them for turning a product into something that was so lucrative for FB and a real enjoyment for so many people the world over. I think it can't be understated how Instagram has become a pillar of so many brands and online businesses today.
But in reality their departure is really part of the business of software, the founders sell out, become exceedingly wealthy. After a few years the disillusionment with being part of a corporate machine (and not in control) sets in and they quit to spend time on their burning man floats. Its always been this way and theres nothing wrong with that.
I think many of us would do exactly the same given the option of struggling for a decade to profitability or a $10m+ exit with a comfortable VP level role.
I find it interesting that Instagram would want to include more adverts, as I find myself drawn to brands/interests without the help of annoying ads.
At the end of the day, as the article correctly points out:
> Letting Facebook build the business may have made Systrom and Krieger rich and freed them to focus on product, but it made Zuckerberg the true CEO
Instagram's decision to include advertisements is best understood from Zuckerberg/Facebook's view. Even if the local view is that IG adverts are negative, they are likely accretive from the perspective of the entire Facebook enterprise.
Seems like they didn't know when to leave. Once they sold it was no longer their baby and should have started working on an exit strategy. It becomes a contest of egos.
On the technical side, FB's methodology with acquisitions seemed the most rational. Rather than sucking the new company in they embedded PE's in there for the purpose of giving the tech teams a fast track to using FB resources.
I've always wondered about this. How much inventive is that? When the person thinks "if I work really hard and this, I'll increase my huge pool of money from an amount I can't easily spend given the rest of my life to an amount almost six times as much!", does that really resonate?
It's not like it's the same as $700 to $4,000, or even from $7,000,000 to $40,000,000. There are things you can buy to spend most of those amounts, but those are things it's not really worth buying multiple of (e.g. houses, super yachts), so at the point you have close to a billion dollars, what does another billion buy you, besides bragging rights?
I imagine there's some impetus to stick around because you want to see what you built succeed, but at some point I imagine you realize it's not really yours anymore, so why not leave and do what you want, instead of what other people want you to do? I mean, you literally have "fuck you" money.
I'm sure. Everyone has to do the 4yr slog, but founders usually write in a parachute clause.
I hope they stuck around to make sure their original team was taken care of, but it's naive to think they'd have C-level control at the parent company after acquisition.
Very hard to second guess such a well written article.
Are there instances where the thesis that “folks who outsource the business side to the acquirer” stay? Salesforce seems good at keeping acquirees but enterprise is different. The acquired companies come with their own revenue and field sales.
> Are there instances where the thesis that “folks who outsource the business side to the acquirer” stay?
Hsieh? I mean, I don't know too much about the inner workings of Zappos but I find it hard to believe that the FB->IG relationship is significantly different from the Amazon->Zappos one.
Then again maybe he's just the exception that proves the rule.
I find it hard to believe that the FB->IG relationship is significantly different from the Amazon->Zappos one
Why? Zappos was minting money and sustainable in their own right well before the acquisition. IG had no datapoints showing they could sustainably make revenue when they were acquired.
It's kind of different for enterprise. The acquisition cycle is often to expose a good product to a more deeply entrenched sales system. Acquired companies have proven they have a product that enterprise companies are willing to buy (and go to some pain to do so), but they don't have the ability to sell anything anywhere that someone like Salesforce, IBM, or Atlassian can do.
If you read more closely, the author is not arguing this. He doesn't touch what the Instagram guys should have done, just what they did, and what they did was give up control of their product.
That has an advantage, which is you can plug into Facebook's monetization model and instantly start making money, but it also has a disadvantage, which is no longer being in total control.
Zuckerberg wanted power, not money, that's the difference. Only a fool turns down a billion dollars. That's live the rest of your life doing whatever the hell you want money. Holding out for more billions won't change that.
Very few people turn that down, and even fewer are capable of running $100B companies. But those who are in the second camp are also probably in the first camp, because being an effective CEO requires the irrational confidence of first believing you are an effective CEO with limited evidence.
It's a little tautological, but the fact that they took it means they probably wouldn't have succeeded.
Ben Thomson is one of the best folks writing about the business of tech. Such lucid writing and even someone who's fairly early on in their careers will be able to understand what's going on.
Usually his essays are information dense, but this was a bit of a let down. It would have been a fine tweet though.
And the constant amazement at the IG founders' extraordinariness is very tiring. (They are obvioulsy not dumb, but they mainly got lucky, as it's not like there were no other apps with photo taking and filters trying to make it big in/on the Apple App Store at the time.)
Giving a single person full control of a company is great when they're on the right track. These have to be warning shots to employees and investors though.
> Facebook had agreed to let it run independently as part of the acquisition deal.
Sounds nice on paper.
> It is about finding and developing a business model that lets you determine your own destiny.
But when you sold the business to Facebook, you ultimately agreed to forfeit your ability determine your own destiny to obtain the ability to use their vast resources.
Readit News
You have to be willing to put in the long hours (err, years) and the schlepping to do all the business-y stuff:
* distribution
* monetization
* back end systems for admin users
* sales channels
etc, etc
Or, you can cash out and assimilate, err integrate, with a larger company that has done that hard work and lose control of your destiny. That's OK, most of us don't have full control of our destiny, and building product can be more fun. It's just a choice you should make with your eyes wide open.
I will say that I think he dismisses Snapchat's founders too quickly. Yes, they've been struggling, but they are trying to build a business rather than just integrate with an existing conglomerate.
It will be very interesting to see if Systrom et al can build another product, and if so, if they will try to build a business as well.
It's a soberingly different worldview than product-obsessed, hacker/maker/developer-centric worldview you get on HN a lot of the time. HN definitely skews toward the entrepreneurial/business end of software, but there's still a real emphasis on building great products, talking to users, and faith in the idea that in the long term, the best product will win. Whereas the Stratechery worldview is more like, "figure out sales and do enough of that engineering mumbo-jumbo, and everything will fall into place". I think there's more truth to this than is commonly acknowledged on HN. Eng/product isn't always the center of the damned universe.
I find both views important. I think the best products do tend to win. But reading stratechery has also given me an appreciation for the difficulties inherent in fighting an entrenched competitor, and bootstrapping distribution (how customers discover/use/buy something) from scratch.
On the other hand, Ben (stratechery author) says almost daily, "It's not the technology that matters, it's the strategy". I don't think that's right. A big talking point that comes up over and over with Instagram was how well-built the app was. There was genuine craftsmanship in terms of usability, performance, and a lot of other things that made it a joy to use. That matters.
The only thing I think is outside both of these elements - product quality and viable strategy - is the component of luck be it right place, right time, or catching an unforeseen wave of buzz. The most well known success stories typically owe a non-insignificant amount of debt to good fortune out of the control of the product or strategy. It's a real elephant in the room and it's difficult for ego to acknowledge either in success or failure, but it's real.
Yet that wouldn't have mattered if they hadn't pivoted from a location based app to photo sharing. Technology/product matters to get your foot in the door, but it's strategy/execution what ultimately makes it or breaks it.
Ah, you optimist, you! :)
I think that if you expand the definition of product to include sales and marketing, the answer is yes.
But if you don't, the world is littered with great products that lost to better competition: betamax to vhs, apple to windows.
Though I can't think of any modern examples, so maybe the world has changed.
The incumbent/legacy/first mover advantage is the one thing in tech that allows you to overcome better competition. Yes, as a mature company with a large integrated software suite, sales are extremely important. This does not apply to early stage companies.
There is a gap in "the best product will win". Where is the revenue come from?
You initially lead with a use case, but end up following how people actually use your product, or competitive products, and iterate on them in order to retain and attract users.
--------------
The broader point here though is that, at least with consumer software, you will not be able to compete with Google AND Facebook AND Snap AND Amazon in any category.
Maybe your product can beat Google+ at social networking, you won't beat Facebook and they'll either buy you or siphon your users. You might be able to build a better enterprise messaging system than LinkedIn but Microsoft will bleed you dry with a better enterprise sales team.
Even new categories that are subsets of broad categories eg. Social/Ephemeral Messages have no chance of surviving, as they are features to existing products that have BN of users.
So the best chance you have as a software startup to compete is to sell to the Cartel (Facebook, Google, Apple, Amazon, Microsoft), and hope that you're given enough lattitude to see the product that you're ruddering play out as long as possible.
From yesterday: https://techcrunch.com/2018/09/24/snapchat-amazon-visual-sea...
I am aware this is not the same as acquisition or total assimilation, but I think it speaks directly to your comments about how Snapchat is trying to create it's business side of things.
You seem to be doing the founders and the team behind Instagram a huge disservice here by accusing them of not being willing to put in the work and riding on Facebook's coattails.
I don't think it is a disservice to say that being acquired and integrated into a larger company means you don't have to focus as much on the business schlep. I think that is the truth.
But in reality their departure is really part of the business of software, the founders sell out, become exceedingly wealthy. After a few years the disillusionment with being part of a corporate machine (and not in control) sets in and they quit to spend time on their burning man floats. Its always been this way and theres nothing wrong with that.
I think many of us would do exactly the same given the option of struggling for a decade to profitability or a $10m+ exit with a comfortable VP level role.
I find it interesting that Instagram would want to include more adverts, as I find myself drawn to brands/interests without the help of annoying ads.
> Letting Facebook build the business may have made Systrom and Krieger rich and freed them to focus on product, but it made Zuckerberg the true CEO
Instagram's decision to include advertisements is best understood from Zuckerberg/Facebook's view. Even if the local view is that IG adverts are negative, they are likely accretive from the perspective of the entire Facebook enterprise.
On the technical side, FB's methodology with acquisitions seemed the most rational. Rather than sucking the new company in they embedded PE's in there for the purpose of giving the tech teams a fast track to using FB resources.
It's not like it's the same as $700 to $4,000, or even from $7,000,000 to $40,000,000. There are things you can buy to spend most of those amounts, but those are things it's not really worth buying multiple of (e.g. houses, super yachts), so at the point you have close to a billion dollars, what does another billion buy you, besides bragging rights?
I imagine there's some impetus to stick around because you want to see what you built succeed, but at some point I imagine you realize it's not really yours anymore, so why not leave and do what you want, instead of what other people want you to do? I mean, you literally have "fuck you" money.
I hope they stuck around to make sure their original team was taken care of, but it's naive to think they'd have C-level control at the parent company after acquisition.
Are there instances where the thesis that “folks who outsource the business side to the acquirer” stay? Salesforce seems good at keeping acquirees but enterprise is different. The acquired companies come with their own revenue and field sales.
Hsieh? I mean, I don't know too much about the inner workings of Zappos but I find it hard to believe that the FB->IG relationship is significantly different from the Amazon->Zappos one.
Then again maybe he's just the exception that proves the rule.
Why? Zappos was minting money and sustainable in their own right well before the acquisition. IG had no datapoints showing they could sustainably make revenue when they were acquired.
https://www.thehindubusinessline.com/companies/how-dentsu-re...
But how many first time entrepreneurs would turn down a $1B offer after 2 years of work?
Guaranteed the writers of these articles have never been in that position.
That has an advantage, which is you can plug into Facebook's monetization model and instantly start making money, but it also has a disadvantage, which is no longer being in total control.
It's a little tautological, but the fact that they took it means they probably wouldn't have succeeded.
And the constant amazement at the IG founders' extraordinariness is very tiring. (They are obvioulsy not dumb, but they mainly got lucky, as it's not like there were no other apps with photo taking and filters trying to make it big in/on the Apple App Store at the time.)
Giving a single person full control of a company is great when they're on the right track. These have to be warning shots to employees and investors though.
Sounds nice on paper.
> It is about finding and developing a business model that lets you determine your own destiny.
But when you sold the business to Facebook, you ultimately agreed to forfeit your ability determine your own destiny to obtain the ability to use their vast resources.