Bad Startups, Part 2 (Good in Hindsight)

I’ve previously written about some objectively bad startups. This time, I want to highlight some startups whose models were unintuitive at best, and how they overcame status quo perceptions in their journey to success.

Cam Boys

Here’s the investor pitch: we’re going to create a 24/7 livestream of one of our founders, who’s not particularly popular or well-known right now. Don’t worry though, he’s going to become so popular that we’ll be able to sell sponsorships and other ads. Are you in?

What if I told you our founder’s name was Justin?

Well, that’s exactly what Justin.tv did: co-founder Justin Kan broadcast his life 24/7 starting in early March 2007 as the one and only “channel” on the platform. Fast forward a few years, however, and the platform was now host to various creators, particularly in gaming. This lead the team to create a separate entity under Justin.tv’s parent company umbrella dedicated to gaming, which they called Twitch. In 2014, Twitch was bought by Amazon for close to $1 billion.

Justin Kan, co-founder of Justin.tv and Twitch

Twitch made live content accessible to everyday people (both creators and viewers), particularly to the nascent e-gaming space. At the time, the other accessible platform was YouTube, but content had to be pre-recorded and published. Thanks to Justin’s zany idea (and publicity that followed), more of the public was exposed to the idea of livestreamed content beyond live TV broadcasts. On the creator supply side, Twitch offered a path to monetization via ads and a subscription model, both built directly into the site. It also didn’t hurt that the childhood promise of “playing video games to make money” could actually become a reality for top creators.

Really, another one?

Yes, we know phones and email are ubiquitous, but we still want to build an entire company that directly competes with those methods of communication. And people will have to download our software and make a separate account to use it.

Slack grew into a massively successful business from its simple origins, selling to Salesforce for $27.7 Billion in 2021. To get there, it fulfilled a niche gap in communications, provided powerful integrations, and added an element of fun.

The classic Slack channel design

Although phone and email still dominate communication (plus videoconferencing), Slack and other similar chat communication platforms create spaces where streamlined, asynchronous group communication can occur. Slack’s #[channel] design provides a simple, tabular format to communication, and reaction emojis, gifs, and other rich media adds a level of play (party parrot, anyone?).

Finally, Slack really shines for engineering teams because of all the integrations it provides. It’s fairly simple to integrate with other tools, software, and apis; combined with the ability to add bot scripts, Slack becomes a vibrant playground for engineers to streamline their work.

Candy from Strangers

It’s 2010. “Stranger danger” is a common rhyme repeated to young kids to make sure they don’t hop into a “free candy” van and get kidnapped. But what if a stranger pulled to the side of the curb, unlocked the door, and shouted “hop in”? We can go a step further — the stranger’s going to take you to an address you’ve never visited in person before, another stranger’s house, where you’re going to spend the next couple days.

Fast forward a decade, and what seemed like crazy ideas at the time now make up the backbone of the “sharing economy”. Ridesharing companies, like Lyft and Uber, are still essentially “hop into a stranger’s car and pay them money to take you somewhere”. Bed & home rental companies, like Airbnb and Vrbo, are still “walk into a stranger’s house and pay them money to stay the night (or longer)”.

One of the big things that these startups solved was the trust gap. There are buyers (riders/renters) and sellers (car owners/home owners) in the two-sided marketplaces set up by companies, and both can be skeptical of the other. With time and with mechanisms built into the marketplace, trust can be built. For example, a car with a big “Lyft” sticker (and perhaps a bright pink mustache), a license plate matching the one shown on your app, and a driver who looks like the headshot provided, all help a rider feel more comfortable with trusting a stranger. Likewise, even if you haven’t visited the address before, seeing extensive photos of a home and reviews from past renters on Airbnb all add trust into the market.

Buy before you Try

If you’re buying a car, new or used, your process is normally something like this: go to the dealer, look around at car models and years you might be interested in, test drive a couple, and then go to the salesman’s office to haggle over the details. You might do this at a few locations, but at the end of the day you’re walking out with a new key and a newly purchased car.

What if, instead of exploring cars in person, you just bought one online without testing it or negotiating beforehand?

Carvana does just that, and has grown tremendously by focusing on two key areas: trust and experience.

Trust is certainly one component that matters here, and it’s a tricky problem compounded by trust issues already existing in the used car market. Fortunately, there’s been a lot of growth of third-party verification of cars and titles, which helps ensure quality to both parties involved in a car sale. Carvana also uses images to help assuage potential buyers, and, unlike the sharing economy startups, is the car owner and seller (so they don’t have to worry about building the two-sided marketplace as directly as others have to).

A Carvana “car vending machine”

Experience is important when someone’s buying what’s commonly the second-most-expensive purchase they will ever make. Carvana’s model cleverly lends itself to two categories of buyers and what they may want from the car-buying experience. First, there’s the local pickup model, where customers can arrive at a Carvana “car vending machine”, put a token into a slot, and have the car they’re purchasing arrive and pop out. By adding an aspect of play (plus a 20-minute test drive period), Carvana integrates the exciting parts of the car-buying experience while skipping less-desirable parts (e.g. an overly-aggressive car salesman). For those who don’t live close enough to a vending machine, or more heavily prefer convenience above all, Carvana will also ship cars directly to customers. This option is great for people who don’t care for the status quo car buying experience at all, and just want a decent car to use.

No one takes it, why should I?

Instead of cash, I’m going to tell you a code. If you send my bank a letter in the mail with this code and the receipt, they will give you money a couple weeks later. No, I’m not a millionaire, just a middle-class worker.

Even if the bank was local, the concept still sounds crazy — why would I give all my goods away for free now and wait a couple weeks to (maybe) get the money I’m owed? Despite all that, this is how Bank of America created the first successful credit card.

The BankAmeriCard, as it was called, was sent to 60,000 Bank of America customers in Fresno, CA in 1958, all unsolicited. Because close to 50% of residents use BofA at the time, and they all had a card, the bank was able to convince merchants to start taking the card for transactions. People who used the card could enjoy ease of buying things now and paying for it layer (they could even delay a big payment further, as long as they paid a fee). Businesses that began accepting the cards realized that it presented a good opportunity for them as well: reducing barriers to purchases (big payments that someone might spend a year saving up to buy could now be purchased immediately, and the business would get the money a couple weeks later instead of a year later).

A BankAmeriCard from the late 1970s

But Bank of America was its own company before the invention. As BofA began to lend out this model to other companies, what was once a wacky idea eventually consolidated the disparate banks’ programs and spun off into a company itself: Visa.


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