Hack, Hustle, and Bundle: Potent Teams in Vulnerable Markets
Team and market are often cited as the two most important ingredients of outlier startup success. What do these really mean? What kind of team? And what kinds of markets?
Stories of successful distribution by upstarts are stories of exploited vulnerabilities in market incumbents. So it makes sense that growth specialists are called hackers.
Hackers & Painters, Paul Graham’s seminal tome of the Web 2.0 era, drilled the importance of the hacker ethos into early 2000’s startup founders. In short, at the core of hacking is rule-breaking.
The hacker label appealed to programmer lore, but its technical connotations belied the fact that the successful penetration of market defenses calls for more than programming prowess. It also requires grey-hat (rule-breaking) sales acumen, i.e. hustle.
Ergo, later in the evolution of the startup landscape, tech leaders were eager to underscore the importance of something else: hustle. Because technical hacking — “rule breaking that is brilliantly imaginative” (Graham) manifests itself in tangible products, hustle, a soft skill manifested by persuasion that guides the future, is easier to misidentify.
Hacking without hustle is brute force. Hustle without hacking is an ambush without ammunition. With both, a team is capable of achieving greatness.
Sometimes hustle is confused with ambition. Hard-working, ambitious people are often high-achievers, but rather than gain power through accretive trades up the social ladder, they are granted increased authority and rewards by pleasing the powers that be. In other words, their deft persuasion gets them promoted to a larger sphere of influence, but those boundaries are nonetheless drawn by their superiors. By definition, this is not rule-breaking.
Hustle is also mistaken for sales success. Sales typically occur along a value chain — a process or series of well-defined, structured interactions where getting value (paid) requires paying your fair share for that value upfront. In enterprise sales, this looks like an RFP (request for proposal) being issued by the potential buyer, followed by many hours that span weeks or even months of evaluation. Regardless of whether the process is well-orchestrated, it remains tightly controlled, with lots of taxes and tolls installed along the way. Following the rules is mission critical. Therefore, sales success is a necessary but insufficient indicator of the presence of hustle.
Hustle looks at sales process obliquely. While it’s important to jump through the required hoops to avoid disqualification, hustle looks for advantages outside the intended boundaries of the process. Similar to hackers exploiting HTML forms with buffer overflow attacks and SQL injection, hustle presses the boundaries on social constructs, testing the use of informalities that signal openness while remaining skeptical of the supposed absence of shortcuts, a young Link placing bombs against dungeon walls. This explains why enterprise sales happen at cocktail bars and golf courses: deals always happen between people, outside the formal process. Hustle knows that if all you have is formality, you still have nothing.
This applies to fundraising as well, since fundraising is enterprise sales (of equity, rather than product). For a great example of informality appearing to trounce professionalism, check out Andrew Chen’s recent signing of a napkin-based term sheet at a California burger joint:
Note that this wasn’t an isolated incident of hustle on the Sandbox’s team’s part, nor does it take away from the hacking required to bring their VR to life. Rather, it’s the visible symptom of a team that has both, the combination of which is essential: hacking without hustle is brute force; hustle without hacking is an ambush without ammunition. With both, a team is capable of achieving greatness in-market. How?
Bundling & Unbundling
There are only two ways to make money in business: One is to bundle; the other is unbundle.
— Jim Barksdale
The dual threat of hack and hustle are best applied in markets where there’s an opportunity to bundle or unbundle. To bundle is to fuse links in a value chain in order to remove friction and improve consumer experience. To unbundle is to decouple fused links in a value chain to create choice.
Bundling. Take, for example, the challenge of publishing digital photos with your phone in 2010. There was a way, but it was hard, messy, and poorly managed by Apple/Android, your Photo app, Dropbox/GDrive, and Facebook. The value flowed through a series of disorganized steps (a value chain), from photographer to viewer, like so:
The UX of any given link was likely fine. The more important strategic observation — the one that the hustler sees, is that no one company owned the end-to-end flow. Instead, the value is flowing through many different hands, as evidenced by the number of logos involved. Any time value changes hands, it is open to consumer choice — a vulnerability along the daisy chain of expectations.
With bundling, this has all changed. Consumers have exchanged choice that wasn’t adding value to their mission for a deeply-ingrained habit of tapping the Instagram icon with every feature embedded (even the Camera!). Instagram has transformed what was previously an unstructured mess of value cascading left-to-right into a tight loop of events all contained within a single fortress (Facebook, Inc.):
Because none of the incumbents had an accurate appreciation of the end-to-end hassle, this bundling ended up being worth far more than any of the incumbents knew. As a result of this tight integration, the cost of publishing engaging photos has fallen exponentially. And when the means of production get exponentially cheaper, value creation explodes too. Behold: a unicorn.
Generalizing this, bundling opportunities emerge when the value flowing between two members of the ecosystem is poorly managed, i.e. unsecured. These are value chains within which multiple companies operate but the connections are loose, fuzzy, or klunky. If many people are attempting to traverse these clumsy links, hustle spies an opportunity to break convention and re-draw the boundaries of the market by putting a lasso around the entire chain. The hacker fulfills this vision by delivering the integrated app experience. Consumers, frustrated with the difficulty of performing actions along the old world chain, gladly forsake choice and flock to the new walled garden. [1]
Unbundling. By contrast, consider the bundling of Google’s search engine with its advertisements (AdWords). These are tightly bound, and users do not have a choice of whether or not to participate in Google’s advertising business separate from their search results.
This lack of choice over advertising engines doesn’t look like a pain point, but privacy increasingly is. To capitalize on this forced loss of confidentiality, in late 2008, Gabriel Weinberg set out to create DuckDuckGo. Unlike Google, DuckDuckGo is the “search engine that doesn’t track you.”
How successful is DDG? This graph shows their climb upward since 2010, along with annotations of notable events:
While bundling typically delivers instant gratification (as users say goodbye to aggravating experiences), unbundling often delivers an accretive benefit in the form of savings: financial, physical, or mental, as users exercise their newfound choice to make smarter, healthier decisions. The annotations in this graph — where DDG’s growth rate gets a boost — mark moments in time when the value of privacy got underscored by the media. Each time this happens, the value of the choice enabled by DDG’s unbundling of search and identity becomes more apparent.
The hacking required to build a search engine is impressive (understatement), but the hustle came in Gabriel’s clarity of vision to see that this lack of choice was going to become increasingly difficult for incumbents to sustain. Splitting search and identity was a bold move that broke from the convention that Google had established, i.e. the way to make money as a search engine is highly-targeted, personalized ads. [2]
Spotting Incumbent Vulnerabilities in the Wild
What if you’re a hack-hustle team without a market insight?
For bundling, look for spaces where the steps in a value transfer between two parties is unclear, unmapped or unknown, accompanied by frustration. These are incumbent vulnerabilities, hiding in plain sight. In security, holes like these are sometimes found through fuzzing, a penetration testing technique that plays with input (through randomness) to attempt to gain access to systems. And it makes sense that a void would get discovered through undirected play, rather than following any clear signs — there simply aren’t any.
Another ready-to-be-bundled clue: a vulnerable bundling implies a breach in trust. Flickr and Google Photos trusted that people’s digital snapshots would somehow make it to their services, but they underestimated the number of hops between mobile camera lenses and their clouds, and what these hops cost the consumer in terms of time. Time for which they would gladly surrender choice.
For unbundling, look for tightly-coupled experiences where you lack choice, and ask yourself why, and what if you did? Would you be free to benefit in a way that’s at least vaguely measurable? The easier to measure, the faster the growth opportunity for an unbundled experience.
What opportunities do you see now?
Discussion on Hacker News.
Thanks for reading. You can follow me here on Medium or on twitter at mattwensing.
NOTES:
[1] Another POV on bundling: when bundling is successful, it’s because incumbents misunderstood the job-to-be-done. It was never “post a photo to Facebook.” That was only the final step. The job was “express myself online”, which begins with opening the Camera app and ends with posting online. Because the job was certainly not “upload to cloud,” the acquirer of startups that bundle are usually the owners of the last step in the value chain. While not a disruptive threat, the startup is a valuable customer acquisition channel, reaching earlier into the chain than the incumbent can solo.
[2] The bundling of business model components is usually core to incumbents, so successful unbundlings are existential threats. Ergo, if DDG succeeds, it likely cannot be acquired by Google, just as matter can’t swallow anti-matter (without very bad things happening). More likely is DDG stays independent for a very long time or gets acquired by someone that wants to compete with Google using an unbundled offering.
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