Tech Caucus 3/9: Slack, SXSW, the Dual-Class Economy, and What Industries Should Entrepreneurs Avoid?

Ben Parr
Ben Parr
Mar 10, 2016 · 13 min read
Image courtesy of GIPHY

(Adapted from this week’s Tech Caucus newsletter. Subscribe to get the Tech Caucus in your inbox first. Or get this newsletter in audio form!)

Friends,

I’m a bit out of it (I had a 10:30 PM meeting that lasted a while), so I’ll keep it brief.

Speaking of which, I’m thinking about the best way to pay the bills (and the time) for this newsletter, since people seem to like it. Should I stick with sponsors? Should I offer job postings? Should I launch a Patreon page so you can directly support the Caucus newsletter? I’d love to hear you ideas.

Finally, check out the Interesting Links section this week. There are a lot of good things from the Caucus members you should read.

Here’s this week’s content:

  • SXSW: Why Should Techies Go?
  • Should Microsoft Have Acquired Slack?
  • Industries New Entrepreneurs should AVOID
  • Is the on-demand economy creating a dual-class economy?
  • Interesting Links of the Week
  • Commentary from the Peanut Gallery
  • Caucus Jobs (New Section)
  • Sleeping (Sponsor)
Tech Caucus in audio form, powered by SpokenLayer!

1) SXSW: Why Should Techies Go?

People love to say the SXSW — the annual conference, festival, and giant party for people in tech, music, and film — has “jumped the shark” on a yearly basis, but they’re always wrong. SXSW is bigger than ever — the President AND the First Lady will be this year’s keynotes. There’s only one way to go YUUGER.

But SXSW is not for everyone, and not everyone needs to or should attend. I asked the Tech Caucus to explain the main reasons why an entrepreneur, investor, or member of the tech industry should make the pilgrimage. Their advice fell into four key categories.

1. Networking. “Go if you want to network,” summarizes one member. “That’s the primary reason… It’s really about filling your ‘Rolodex’ for the season.” This member also notes the new technology in the showrooms and around town are also sometimes worth the trip.

Other members expressed the same sentiment. SXSW benefits from the network effects of having thousands of people in tech in the same place at the same time. If you’re savvy, you can network your way to success at SXSW.

A fair warning though — it’s hard to do anything without a plan and a few connections. “The signal to noise ratio can be very low for those who aren’t connected to the right people already,” reminds a member.

From another: “It used to be that there was a lot of co-mingling between attendees and up-and-coming tech celebrities, and you could have really significant, chance encounters with them at 4:00 in the morning. But as the conference grows in size, so has the separation grown between the tech celebs and the rest of us, making serendipitous encounters far less likely.”

2. Partnerships. “Too much noise,” begins on member. “[But] worth it for strategic partnerships or if you have a strategy that allows you to be seen and heard.” Another members cautions that deals don’t close at SXSW, but many deals and sales start there.

3. Fun! SXSW is known for its big parties, so if you can snag invites, that alone can be worth it. “You’ll find an eclectic mix of people and ideas,” notes one member.

4. Winning your weekly Fitbit challenge. “SXSW can be an awesome way to get your 10k steps per day, guaranteed.”

Some members also elaborated on why techies should NOT go to SXSW:

  1. Seed funding. “Do not go for seed funding. Do go for Series A, Series B, etc. If you’re good at networking, almost every VC is there and captive for several days.”
  2. Talent. “It used to be that it was a productive venue for finding developer talent, as well as making connections with bigger companies like Google and Facebook, but now it seems it’s completely driven by media and entertainment.”
  3. Launching an app. Many members expressed that there simply is “too much noise” at SXSW to be the next Foursquare, Twitter, Highlight, and Meerkat. (All of which “won” SXSW, and all of which have pivoted or are experiencing troubles of their own.)

Here’s the summary from one member: “SXSW is a place to meet lots of industry people in a very short period of time. I rarely go to conference sessions, the real deals happen in the lobbies and at parties.”

In my opinion, this is true about every high-level conference.


2) Should Microsoft Have Acquired Slack for $8 Billion?

So I asked the Caucus a simple question: should Microsoft have acquired Slack for the $8B price tag? To my surprise, the Caucus was pretty split:

55.6% of the Caucus says Microsoft made the right call, while 38.9% of the members say Microsoft should have added Slack to its family of products. 5.6% said “Maybe”.

Let’s divide the anonymous quotes up. First, from the “No” side:

  • “Way overvalued. Not supported by business fundamentals.”
  • “Churn rates are increasing. It’s an enterprise messaging app, and the market is making corrections.”
  • “It’s a terrible fit for all, particularly Slack users who don’t strike me as the types who want Microsoft fudging with the characteristically un-Microsoft nature of the service.”
  • “Slack was not really for sale. And Microsoft already screwed up Yammer.” (Microsoft acquired David Sacks’ Yammer for $1.2 billion)
  • “I am not sure what a fair price is, but damn, $8 billion is pretty damn high.”

From the “Yes” side:

  • “Slack has won the heart of small businesses everywhere. That is incredibly value to Microsoft, not just in terms of the money Slack makes, but in the value of being able to co-market and co-integrate with their other products. Not to mention the combination of Slack and Skype together would be incredibly useful.”
  • “[Slack is] valued just right. I think Slack will be a defining platform across all enterprises. It’s the epitome of the ‘consumerization of enterprise’. More importantly I think it will usher in its own ecosystem of apps, stand-alone companies that ride these new channels and possibly a disruptor to Linkedin” This member uses some swear words about Microsoft.
  • “It makes sense that Microsoft would have had to offer a premium. It seems analogous to Google’s acquisition of YouTube or Facebook’s acquisition of Instagram, although in the enterprise landscape.”

I didn’t have room for all the quotes, but all of them had the same themes. The “No” side thought Slack is either overvalued or that Microsoft would screw up Slack. The “Yes” side thinks Slack is perfectly valued or undervalued and think Microsoft would have benefitted from acquiring the hottest product in enterprise. Sadly, we’ll never fully know who was right, but Slack has earned its place as one of the shining beacons of the tech world.


3) Dear Entrepreneurs: Don’t Build Products in These Industries!

Some of these you may already have a business in. Others you may disagree with. Others you might have a revolutionary product that’ll change the game (think Slack in enterprise communication). But this list is a helpful guide all the same, because you can expect resistance from investors if you pitch any products in these spaces (myself included).

Here are the industries the Tech Caucus singled out as ones to avoid, starting with the ones that received multiple votes:

  • Food Delivery. One member is so fed up with it, s/he put his/her response in all caps: “NO MORE FOOD DELIVERY SERVICES PLEASE GOD”
  • Ad Tech.
  • E-commerce.
  • Social Media.
  • On-demand services. “There are so many, and if a vertical isn’t covered, go work at one of the existing companies and build it out there.” Laundry especially got called out by the Caucus as a no-go.
  • Messaging Apps.
  • Any Industry with Lots of Government Bureaucracy, Including Healthcare, Education, Energy, and Government. “These markets are bad for startups because they are highly regulated, unionized, have very long sales cycles, and are slow to adopt new technology.” From another member: “It’s a paradox. While these markets are SCREAMING for disruption, the time frame and the cost do most small companies in.”

And a few others mentioned by individual mentioned by the Caucus:

  • Car Sharing.
  • Dating.
  • Subscription Boxes.
  • Two-sided Marketplaces.
  • Search Engines.
  • Social CRM.
  • Blog Platforms.

Some members don’t believe there are “no-touch” industries or verticals, but warn that you need to be passionate about the vertical and have pre-existing domain expertise. It reminds me of something YC’s Paul Graham once told me — if you were to put together an all-star team to work on this startup idea, would it be he team in front of you? If the answer is no, pass.

And finally, I want to end with a message from one Caucus member to the entrepreneurs out there:

“Let me caution young entrepreneurs that might be women or minorities tempted to solve for problems for which we are perceived as uniquely qualified. Fundraising for it remains a bitch. You will be forced to explain not only what you do and why, but also be forced to constantly justify the size of the addressable market and your solution for it (because VCs are not actually very numbers driven).”


4) Is The On-Demand Economy Creating a Dual-Class Economy?

Some people have argued that apps like Lyft, Uber, Postmates, Taskrabbit, Instacart, etc. are creating a dual-class economy — the class of service providers, and the class who receive services. And with a greater focus in recent months on income inequality (thanks to the Bernie Sanders campaign), it’s a fair question to ask whether these products are contributing to that inequality gap, or whether the sharing economy has nothing to do with this.

I polled the Caucus on this specific question: “Are on-demand services like Lyft, Uber, Postmates and Instacart creating a dual-class economy of service providers and service receivers?”

Here are the results:

Let’s dissect. 55% of the Caucus said “Absolutely Yes” or “Somewhat Yes”, while just 22% of the Caucus said “Somewhat No” or “Absolutely No”. 1/5 of the Caucus thought it was complicated.

Let’s start with the dissenters. “Haven’t we always had a duel class economy of service providers and receivers,” ponder one member, “or did I get that from watching too much Downton Abbey?”

“This dichotomy has always existed,” affirms another member. “[On-demand companies] have just created an easy way for people who can do this kind of work part-time to enter the market in their own terms. There’s a third group of people — those who take part in both the sell side when it’s convenient for them and in the buy side when they need something.”

“We have always had providers and receivers — whether it is your retail associate helping you with a purchase at Bloomingdale’s or your hair stylist, this is similar. Some people make efforts to build relationships with the service providers in their lives and some don’t. The rise of on-demand services just creates a new flavor of this.” The agreement on this point was almost unanimous from those who said no.

One member made a different argument, saying that on-demand is responsible for “creative destruction” that will free people and capital to invest in more productive activities.

On the other side, Caucus members argued that there is a correlation between on-demand services and an increasing gap between service providers and receivers. “This is an oversimplification of the matter, but the on-demand economy creates a divide where the haves become increasingly out of touch with the impact of their choices on the have nots,” argues one member. “Better, faster, and cheaper for on-demand consumers often translates to the opposite for workers, who pick up the slack with longer hours at reduced rates. These workers are also afforded little to no employment protections or benefits.”

“Clearly there are executives and ‘doers’ for each of these companies,” says another member who takes a more nuanced view. “Although there is a divide, there is also an opportunity. If you think of it as executive, employed, and unemployed, these companies have helped many move from the unemployed category to the employed category, frequently on a flexible schedule. As a result, it isn’t all bad.”

From another member: “ There’s a form of digital feudalism emerging where the investors and VCs are the royalty, the entrepreneurs are the Lords of the Manors, and everyone else are serfs. The promise of a socialist or communal marketplace is a falsehood this is really hyper capitalism.”

And one member put it more directly: “ You don’t understand it until you use these services. There is nothing wrong with them per se, but it just feels icky.”

I wish I had more time and space to put all the quotes, because the members put a lot of thought into this. But the point is that many members feel like there is a new socioeconomic norm solidifying due to the on-demand economy, and many of in tech are the beneficiaries. And yet we’ve always a dual-class society, and the on-demand economy simply puts a bigger spotlight on that fact.

I want to close with a quote from a member who said “It’s Complicated”, that I think puts this discussion into context:

“For these companies to succeed, they need to think through [socio-economic] issues more so than just retaining users and having more drivers, deliverers, etc. Those people at some point will lash back, because as you have seen through the industrial revolution, they do revolt, strike, and make their voices heard. It’s still pretty early to determine exactly how it will play out. But one thing that truly needs to happen is for these companies to take employment issues, global scaling issues much more seriously than they are today.”


Interesting Links of the Week:


Commentary From the Peanut Gallery:

Agreed, Josh. It’s depressing and stupid we have so few women VCs and VCs of non-traditional backgrounds. And second, from my friend Davey Jose in the U.K. — he sent me two articles he wrote I’d like to share on encryption and PGP:


Caucus Jobs:

  1. VINA (co-founded by Caucus member Olivia Poole) could really use some senior back-end engineers to help scale, because they’re growing so fast from all their positive media coverage.
  2. A senior developer is looking for his next thing after his last company was acquired. He’s especially adept at ActionScript 3, JavaScript, Python, Ruby, Java, Git, Gerrit, and C.

This week’s Tech Caucus is sponsored by sleeping, which is what I’m going to do after I click “Publish” on this. We have a real sponsor next week though!


Have a question you want me to ask the Tech Caucus? Have a suggestion for a new member of the Tech Caucus or an Interesting Link of the Week? Reply to this email or email me directly: ben@benparr.com


The Tech Caucus: Mark Achler, Jason L. Baptiste, Megan Berry, Niko Bonatsos, Sarah Buhr, Jason Calacanis, Vanessa Camones, Tracy Chou, Julie Crabill, Paige Craig, Don Dodge, Adam Draper, Josh Elman, Julie Fredrickson, Erin Griffith, Troy Henikoff, Daire Hickey, Ryan Hoover, David Hornik, Charles Hudson, Leila Janah, Olivia June, Richard Kerby, Aileen Lee, Loic Le Meur, Doug MacMillian, Jessica Mah, Jesse Middleton, Miyuki Matsumoto, Danielle Morrill, Nathaniel McNamara, Nathalie Nuta, Jeremiah Owyang, Chris Saad, Juan Scarlett, Matt Schlicht, Robert Scoble, Marcy Simon, Jon Swartz, Jana Trantow, Jennifer Van Grove, Kurt Wagner, Robin Wauters, Mike Weiksner, Brian Wong, Michelle Zatlyn.

The Tech Caucus

A weekly newsletter that polls tech’s leaders on important issues. Curated by Ben Parr. http://TechCauc.us

Ben Parr

Written by

Ben Parr

President & Co-Founder of Octane AI | Author of Captivology | BoD of Samasource | Formerly CNET, Mashable | Forbes 30 Under 30

The Tech Caucus

A weekly newsletter that polls tech’s leaders on important issues. Curated by Ben Parr. http://TechCauc.us

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