The first task of a revolutionary is figuring out which buildings to burn down.
In that same sense, the first task of an entrepreneurial firm is to figure out what of the existing order to keep, and what to challenge. This is first in a long series of posts (possibly as many as two) riffing on the analogy of entrepreneur as insurgent and traditional big company as the corrupt regime in power. This will eventually be turned into a book, which you can pre-pre-order by sending me $100 right now. i take Paypal, Facebook credits, Zipmark, Dwolla, Venmo, Waspit, etc.
In the event that anyone is offended by the analogy or glib tone of this essay, and feels inclined to point out that it is an insult to liken an entrepreneur, who risks merely her time and treasure, to an Egyptian, Tunisian or Libyan revolutionary, who risks everything … mea culpa. As to tone, I am a dealer in snark, and when all you have is a hammer, the whole world looks like a nail. As to the analogy, I am gobsmacked by the courage of these young iconoclasts in the middle east, and thrilled by the way they take courage from each other; I can’t help but be reminded of the daring entrepreneurs I am lucky enough to work with.
The essential triumvirate in any insurgency includes the insurgent (entrepreneur), the regime (incumbent big company competitor) and the people (customers/users). The goal of the insurgent is build a movement that leverages his own strength against the regime’s weakness, all in the context of the hopes, dreams, wants and needs of the people. There are many stages to this thing, but the first stage involves getting into the fray and becoming relevant. that inevitably entails some mayhem, and hence this post: if you’re a revolutionary, out on the streets in the early days of an insurgency, which buildings do you burn down?
The initial temptation is to tear it all down, and build a utopia unconstrained by the baggage of the past. This is almost always a mistake. In particular, it’s a mistake not to at least dig deep into the current structure of how things are done, and then when rejecting elements of it, do so from an informed perspective. Even companies that represent radical new ideas leverage existing behaviors and habits. Think of twitter, a company i think we can all agree asked users to engage in a brand new human activity. What are the options you have when you “receive” a tweet? Basically, you can reply, reply all, forward, ignore or delete. Twitter uses its own vernacular, and certainly the fact that it is semi-public is a departure, but it fundamentally builds on heuristics that are deeply familiar from email (and, before that, corporate voicemail). Where possible, don’t destroy or take on those conventions and institutions that you can co-opt and leverage. You may damage the regime, but you’ll also damage yourself, in that you will certainly not delight the people. You don’t burn down the hospitals.
The second category of institution that you can choose to destroy are those that do represent a chance to win favor with the users, but will engender negative consequences from outside the immediate ecosystem. One of the portfolio companies we are very excited about is BankSimple. This is a company that operates in a heavily regulated industry, and is therefore properly cautious to remain within the bounds of what is considered kosher by the regulators. It would be enormously liberating to ignore these constraints, and in fact you could build a retail banking experience that would be absolutely kick-ass if you dispensed with things like Know Your Customer, fraud management and NACHA compliance (I won’t go into it but it’s not something you want at a Superbowl party). You can’t, and shouldn’t. You would hurt the incumbent competitors in the short term, and the customers would be wildly in favor, but forces larger than you would come down hard. You don’t burn down the US Embassy.
Next come the special interests, which exist any society … the privileged classes, the industrialists and landed families who own the factories and the real estate. These are people who have done well by the old regime, and will probably root against you, but who you need, as they control the means of production and have legitimacy (at least some) in the eyes of the people. The answer here depends how radical you want to be. One of our companies, Quirky.com, is clearly revolutionary. Quirky permits designers and investors to collaborate to create products, which Quirky then manufactures and sells. This type of crowdsourced innovation is new to the world and incredibly exciting, and is destined to disrupt the traditional relationships between consumer goods manufacturers and their distribution channels. Why, then, is Quirky also working with traditional retailers like Bed, Bath & Beyond? There is some good analysis here, but the basic answer is that it doesn’t usually make sense to try to innovate all the way up and down the chain when you can leverage some parts of the existing infrastructure. Quirky, at least, has decided not to burn down the office buildings.
Then you have the hard choice regarding the existing justice system. Do you set everybody free? “Free” is kind of a magic word these days, in entrepreneurial circles. The prevailing wisdom is to charge nothing, build a user base, and then “monetize” them. Similarly, when a society’s jails contain both real criminals and good people deemed enemies of the state, it is tempting to let them all free, and figure you can sort out the criminals later. But both of these things are very dangerous to the market dynamics. “Free” is a tough genie to put back in the bottle (also works if you substitute “hardened criminal” for “free” and “jail” for “bottle”.) One of our most exciting companies is called Extreme Reach, which is taking on a dominant incumbent in the video distribution business. It was tempting, at the outset, to compete on price. Instead, Extreme Reach built a technology that let them compete on quality, service and flexibility, maintaining the prevailing price structure. As they now rapidly take share, I can tell you that it’s awfully nice to be getting paid while doing so. There are many, many compelling counter-examples on the consumer side, all of which have built massive audiences by starting out, and largely staying, free. I would say, in general, that revolutionaries do burn down the prisons.
What do you do about the state controlled media? This, after all, is where the people have been getting their information for decades. Can you afford to destroy it, rather than co-opt it and use it for your own purposes? I think this one is increasingly clear. New movements demand new media, and can leverage the hell out of it. Examples here are too numerous to name, both in the insurgency world and the entrepreneurial world, but suffice it to say that getting a seat on Oprah’s couch is now less valuable, for most companies, than a retweet by Chris Sacca. Definitely burn down that state-run TV station.
Finally, there are those elements of the ideology that aren’t just wrong, they are representative of all that is wrong, the root of all evil. They may be lovely, or useful, or valuable, but they just must go, if the revolution is to have any legitimacy. One of our companies, On Deck Capital, has built a platform to enable lending to small businesses. In the last 3 years, they have lent over $100MM to Main St small businesses, with exceptional credit performance. The thing I love most about their model is that they basically ignore the FICO score, that antiquated and creaky credit scoring methodology that was one of the prime causes of the credit crisis. Both in reality, and in the realm of perception, you can’t build a “new” system that relies on emblematic elements of the old. Down with FICO; Up with On Deck! You burn down the secret police building, you burn down the torture chambers, and you burn down the presidential palaces!