Tony Hsieh founded Zappos which sold to Amazon for $1.2bn in 2009. Before that he founded LinkExchange which sold to Microsoft for $265m in 1999.
In between those two businesses, Tony Hsieh played a lot of poker. In Delivering Happiness, he says a lesson he took from poker to business is that picking a good table is more important than how you play once you are at the table.
I spent 2017 looking for a new business venture. Taking Tony Hsieh’s advice to heart, my plan was to take the time to find a good table.
A tour of the tables
The funeral market is horrible. The market leaders charge roughly double what the best new entrants charge. Their service feels like a surly British hotel from the 1970s. Visit a bad branch of a big funeral chain and you might think you’ve stepped into a grim Fawlty Towers.
Two of the big players are private equity backed. Their business model is to buy local firms when their owners retire. The rolled up entity is worth a higher multiple of earnings, so in theory it is easy money for the private equity firm.
There’s one problem with this cunning plan. Once the owner is replaced by a manager, turnover decreases. But that doesn’t dent the private equity business model, as they discovered the decrease in turnover can be offset by increasing the prices. Hooray! The recently bereaved are in no state to shop around!
Basing a business on the price inelasticity of the bereaved is unpleasant. It is particularly galling to see it carried out by private equity firms whose brilliant staff could surely make a more positive contribution to society.
We had a couple of ideas of how to fix this problem. We repeatedly got stuck at marketing. The huge problem for challengers — and huge advantage for incumbents — is that people are so resistant to considering their mortality that they won’t spend two minutes thinking about funerals. The result is most customers spend way over the odds for ‘garbage disposal dressed up with a Victorian charade’.
Software as a Service
Everyone says SAAS is a great business to get into. We are slightly envious of our friends at Pusher who have a lovely SAAS proposition. When the business is working, it is properly magical.
We made a concerted effort to build a tool to improve Elixir deployment. We got discouraged when we realised this would only work if three things happened:
- Elixir had to go mainstream. Much of Mint’s early success came from getting into Ruby on Rails at the right time, but there’s little sign that lightning would strike twice
- Amazon Web Services would need to not improve their deployment solution. Picking up pennies in the path of the AWS steamroller doesn’t look like a great place to build a business.
- We discovered many other good teams working on this problem. At this table, we’d be up against pros.
So we gave up.
One strategy was to reexamine areas where we had many projects and see if we could package our expertise into software. My firm, Mint Digital, has done lots of work in publishing. The work had a common thread: it often helped publishers manage their catalogue data.
So we launched BookEngine, a ‘title manipulation and distribution engine’. It didn’t really fly, for a batch of reasons.
- It targets a minor part of the value chain.
- It is middleware. It requires work to plumb in and is best as part of a bigger project.
- Only a handful of publishers are big enough to benefit.
- Publishing folk give the impression that they‘ve been roughed up by the internet. There’s a lack of enthusiasm for experimental bets on software.
There’s lots of energy at events like InsureTech Meetup. But almost everyone is a lurker, hoping to glimpse the next big thing. On the consumer-facing side, there are precious few novel ideas. And even the ‘novel’ ideas don’t seem all that novel. For this, and other, reasons the incumbents have power and most insurance startups seem merely hoping to get acquired. (There’s probably more room for innovation on the business-to-business side but that requires deep industry experience.)
Where we ended up: Property
We’ve just started a premium flat-sharing service called Restly. While the student market has improved massively in the last decade, the market for young professionals is predominately stuck in the cottage industry of part-time landlords. We’ve got a few ideas how to improve that. I’m not going to argue here that Restly is particularly brilliant (even though it has great promise), just that the broader area is exceptionally promising for tech entrepreneurs.
Here are a few reasons to love PropTech:
It is a huge market. In the UK, we spend roughly 30% of our income on property. Compare this to recipes or local listings or other areas that web entrepreneurs sometimes gravitate towards: property is orders of magnitude bigger.
Even better, it’s a very diverse market and there aren’t really any dominant players who act as gatekeepers to innovation.
Fintech meets marketplaces
Two big elements of property are arranging finance and connecting buyers with sellers. Or to put it in webspeak: fintech and marketplaces. There are lots of ways to recombine the fintech with the marketplace to create new hybrids. WeWork and Nested are two examples, and there are plenty more.
Property people often say PropTech is crowded. I don’t think it is. I mean there are lots of PropTech startups. And most of them will fail. But the range of possible businesses is super wide and the market is huge. In three months of PropTech research, we came across three ideas worth pursuing. Each had a plausible business model and seemed different to anything on the market.
My impression is that the funeral space is considerably more crowded given the market size. There are a handful of startups doing variations on ‘price comparison for funerals’ even though the model doesn’t quite fit and the potential revenue isn’t massive.
Enthusiasm and money
In publishing the best meeting you can hope for is with a senior manager at one of the big firms. She’ll be under lots of pressure, money will be tight and the internet will feel like a threat. In property, you’ll meet lots of people who are masters of their own destiny, have enthusiasm to try something new and have the optimism that comes from running a profitable, growing enterprise.
Some reflections on the process
Most information isn’t on the web. Online every problem seems to have a well-defined, smooth solution. Once you start meeting people, it is the complete opposite: the existing technology doesn’t really work and there are gaping holes where nothing is available. (Don’t get too excited at this moment. A gaping hole is rarely an opportunity. More often you’ve found a corner of the world where business can’t provide a good solution.)
Searching for a new business is tricky. It is easy to get disheartened and think that every opportunity is taken. Part of this is about managing your own psychology. You have to keep your morale up whilst accepting that most avenues lead to dead ends.
Tony Hsieh was right. Opportunities are not evenly spaced at all. There are places where super-smart people are fighting over crumbs. Alas, I didn’t discover anywhere that fools are sharing out gold bars, but there are definitely areas that seem more promising.
Thanks to all the people who helped along the way, offering their perspective and bouncing ideas around. There are too many people to mention, but I’d particularly like to thank Colin Roughan, Alex Edds, Poppy Mardall, Lara Conduit, Matt Robinson and especially the team at Mint Digital, who’ve put up with my eccentric enthusiasms.
With that survey of the floor, I’m back to the Restly table! Hope to see you there.