Keith Rabois outlines his formula for startup success: find fragmented industries where customers are unhappy, simplify the value proposition, and vertically integrate to eliminate friction. He argues vertically integrated businesses are harder to build but more likely to win, pointing to Apple as the model.
Chapters
Yeah, you know, it's actually interesting. This pinned tweet was from like 2017, I think. And I was just sitting on vacation, which is a luxury to have as a VC that I never had as a founder, truthfully. But I was sitting on vacation and I was thinking about a Constellation Commodore frame across multiple companies that I'd been involved in, maybe some funded ones and maybe some in the ether that I just watched. And I said, it just occurred to me as it's like sitting on this proverbial beach that there's a set of common traits like a fragmented industry. Think square or something like that. There's merchant processors to the left, to the right, think Uber taxi drivers or Lyft if you prefer. Tax drivers, bad mps, definitely taxi drivers, terrible mps, Merchant processors, terrible mps. And that if you had a fragmented industry, there's structural reasons why usually. And then B bad NPS means customers are not delighted. If you could simplify the value proposition, stitch it together in a vertically integrated way, which is usually how almost surely the only way to really simplify is you have to vertically integrate everything so there are no sort of loose ends and rough edges, then you could actually succeed. And so I sort of said, you know what, there's like 10 or so companies I can think of that are like this. Maybe there's a common formula here that people can apply. And so I just tweeted it out and did pretty well. Do you still believe it? Yeah, it definitely works. I love vertically, just to start, I've always loved vertically integrated businesses. Businesses, they are more difficult to build, but they're more successful when they work. Think Apple. So I'm also a, whatever, 30, 40 year old, a 40 year Apple fanboy. And so to me, one of the other lessons of technology that's somewhat counterintuitive is Apple's the most successful company. What I learned in any industry when I was growing up is if you want to be successful, you emulate the people who are successful. So to me it's always been shocking that most founders do not emulate alpha people. It's like duh, like wait, I'd rather be Apple than anything else. Why am I not trying to replicate what worked for Apple? So anyway, so I've been Apple fanboy forever and Apple obviously has been vertically integrated, which is the secret. There's a reason why, like it doesn't matter what Google does not going to affect Apple, doesn't really matter what Microsoft does not going to affect Apple. It doesn't matter what Oracle or Salesforce does not going to affect Apple because they're not vertically integrated, so they have no chance of competing.
