Software is eating the world: this is the title of the last chapter of The Launch Pad by Randall Stross, a book about how Silicon Valley invests in start-ups run by small teams of brilliant software engineers and salespeople that go on to change business as we know it.
It is one of the most gripping business books you could read. It is about the realities of modern entrepreneurship, in which 20-year-old college drop-outs create ideas that can disrupt any industry.
I was reading Peter Blakemore’s remarks on turning 70, reflecting on his very successful career in wholesaling built on a very simple business model: buying well, knowing your staff, giving great customer service and competitive prices. It’s a simple strategy that he executed well.
The scary thing about The Launch Pad is how Y Combinator, the school for start-ups launched by Paul Graham, is enabling digital businesses to find equally simple strategies that can change the world.
Stross followed 64 teams funded through the 2011 Y Combinator summer school. As well as cheap cash, these businesses get access to mentors and angel investors. After three months, they get to pitch to investors.
Chris Steiner of Aisle50 was pitching to a room full of billionaires and celebrity investors (Demi Moore and Ashton Kutcher to name two).
“We will be the premier way for food manufacturers to market their products. The consumer packaged goods industry in the United States is a $2tn business.” It will spend $35bn a year on marketing. “More than half of that money ends up in these things.” He holds up a sheaf of newspaper coupons.
“Freestanding inserts (FSIs). More than 250 million of these go out to newspapers every single week. The problem, of course, is that most people don’t look at these. So there’s this giant pot of money that’s trying to migrate… to digital.”
Steiner says his competitors had had to ‘jam’ all the coupons into a couple of web pages. But Kraft don’t “really want a thumbnail image of their products next to competitors. What they want is a pedestal with the product by itself. That is why they’re still willing to spend $500,000 for a single-page ad in an FSI that goes out across only half the country.”
Aisle50 provides an alternative. “We take these products and put them on a big stage. All alone. With custom copy and great photography. We email the deal out every morning. They buy from us and we load it to their grocery store loyalty card.”
This will mean an end to consumers being forced to flip through the newspaper in search of a good deal.
Aisle50 had launched only the week before, with a grocery chain in North Carolina. Other changes were added swiftly, including a deal signed the previous Friday with SuperValu, the nation’s third-largest grocery conglomerate, with 2,500 retail stores like Albertsons and another 2,500 independent grocers that it supplies.
Steiner says Aisle50 has been fielding unsolicited enquiries from consumer product companies rather than chasing partners itself.
Stross observes that it took Aisle50 one week to be on the verge of attaining a retail partnership extending from coast to coast – visit the Aisle50 website to see the brands that are supporting it now.
But The Launch Pad provides readers with much more than just stories of 25-year-olds backed with lots of cash. Stross records with care how US entrepreneurs structure their business propositions and how they create opportunities.
Reading this book will help you to put together business presentations, win support for your ideas and challenge your team to think about the big picture. It will fuel the fire in any entrepreneur.