This is James careered and effects. And today we're talking about what startup Founders can learn from the success of uber with all these big IPOs coming along and we should notice that most of them are networks and have Network effects in them. Because 70% of all value created in the tech space over the last 25 years has been around Network effects. So you Founders as you're looking at these IPOs, what are the things you can learn and today we want to talk about five things that Uber really teaches us looking backwards. It's an incredible story.
Re the first lesson that we've all got a notice is that speed and aggressiveness wins. You have to remember that lift actually got to peer-to-peer car-sharing first and Uber was so fast. And so aggressive that they were able to copy the Lyft app into uberX feature on their app within 30 days. So within 30 days of lift launching they had a direct competitor an uberX this type of changing of speed and direction is only going to come about when you have a culture that is committed to that.
Of aggressiveness and its really paid off for them in the long run both in terms of the investors. They got people they were able to hire the markets they were able to enter the experiments over able to try Capital raised its showed in every aspect of their business and you can bring that to the way you operate your business. If you look at chess, I can beat a Grandmaster in chess if I can make two moves to everyone move they make even though they're much better than me speed is the ultimate competitive weapon and Uber has shown that again and again and we can talk about their culture and the long-term impacts of that.
But there's no doubt that the way this company aggressively attack this Market produced a hundred billion dollar company when their competitor lift produced just a 20 billion dollar company and time and again people will poopoo them and say, oh, you know, those guys are bad guys and whatnot that became true at some point, but they still won the market and now they have a chance to do things right going forward now certainly the way they kept evolving in that aggressiveness led to what we might call the asshole.
Personality and that can go too far because as we see a year and a half ago lifts market share was 25% but because so many people defected from Uber because of their culture lifts market shares now 39 percent in the US and that type of impact can happen to your business when you take it too far. So there's clearly a downside to it. But there's no denying that the aggressiveness they've had over the last eight years has been the Hallmark of the company and is produced this incredibly large company that now has
an opportunity to transform
Industries.
So the second point that Founders should take from watching Uber is that you should focus on your defense abilities. So there's about four defense abilities left in the digital world. There's Network effects, which are the greatest and there's actually 13 different types of those there's brand affects their scale and there's embedding embedding your software and other people's work flow. So Uber woke up and had what we call an asymptotic two-sided Market Place Network effect, which is not particularly strong and I'll explain that in a second.
Then rapidly in aggressively added in other defense abilities. It's what we call reinforcing. They added brand by getting an every paper whether it was for positive or negative reasons. They added scale by raising a ton of capital being everywhere. They embedded their app inside of Google Maps and other places where people were finding rides and then they started adding other network effects for instance Uber commute and India, which is really a direct Network Effect one of the strongest types of direct order effects and they haven't rolled it out yet, but they very well could once they nail it. They've got
Ubereats which is actually a three sided marketplace network effect between the restaurants and the drivers and the consumers. This can be a pretty defensible business as well. I mean, they're competing with door - right now, but both of them are sort of leading the market and then they're also going after Uber Freight which is also a two-sided market place that is non asymptoting lady the more trucks. You have the better. It might be interesting to know why is the initial asymptoting Network effect not as strong. Well, it's because you don't really care as a consumer if the car comes to you in two minutes or three and a half minutes if I
A thousand cars in San Francisco. I can get you a car in about three and a half or four minutes. Somebody else can come along and get a thousand cars and get you that car. But if I can get you the car in one minute, ah, you're still putting on your jacket. You're still saying. Goodbye. You still got to go to the bathroom. So I got to come down the elevator from where you are. You don't really care if it comes in a minute versus four minutes. It's not that much better. And since it's the same car because the multi-tenant Inning on the supply side is already so easy for the driver and because you can flip over to lift so easily by flipping over on the
Tap the multitasking on the consumer side is also very easy doesn't really matter. So this is the definition of an asymptote inning marketplace network effect, and we really see it with Hooper and lift and it's not particularly strong. So what they did was focus on their defense abilities, they looked at all the different things they could do with their product with the features to add more defense abilities reinforce the one they started with and make a truly defensible business so that when Juno raise 50 million dollars to go after Uber and Lyft and Manhattan and be the third ride-sharing opportunity, they
No problem getting on the supply side. They were able to get hundreds and hundreds of drivers to provide a supply network to the Riders. The problem was they couldn't get the Riders. They couldn't get enough consumers to use their app because there was a brand effect. There was a scale effect. There was a habit that had been formed with the consumers just to punch that Uber app or that Lyft app and they weren't going to add a third in their mind. So Juno ended up selling for a small amount of money. So that's how Luber has shown us the way to focus on your defense abilities and be very clear about that and
And move toward reinforcements to build a truly defensible business and this isn't something that I made up. They are actually saying in there s one these days every new service. They had basically reinforces the original ones that they had so they've actually known this from the beginning they've been executing on this and this is something that most Founders don't know about and don't think about but it's a key to building a truly important business. The third point that Founders can take from Uber is really that Capital can be a competitive weapon. You have to be good at fundraising if you're going to be doing
A start-up in a competitive space if you're going to be trying to build something of scale and its speed can have your competitors out raise you it's going to make it very hard for you. If you're not great at fundraising today, you need to get excellent at it really quickly. And if you can't maybe the CEO role isn't for you. And if you're working with someone who's the CEO and they're not graded it helped them get excellent at fundraising because if you can't get them there then they probably shouldn't be in that seat. It's such a critical skill today particularly because there are so many venture.
Firms, there's so much Capital out there that the people who are really good at fundraising are going to find their Capital. They're going to get more market share. They going to get more employees are getting more noise and they're just going to get ahead of you and it just makes it really difficult to play from behind. So you look at Uber they've raised 24 billion dollars to date which is multiples of what lift has raised now at their IPO because they're already ahead. They can raise 10 billion dollars in their IPO versus lift, which just raise two billion dollars and in addition Ubers losses are now less than two x's lifts their
Faster, they're losing more money faster than lift has but it's not even 2x even though they're raising five times as much money. So the runways longer they got ahead at the beginning because of their aggressiveness and because of their ability to raise a lot of capital which they needed to do and relatively non defensible business. And now the further they got a head the further they got ahead. So Capital isn't a defense ability, but it is a competitive weapon and its advantage and it compounds on itself and it allows you to entrench yourself in the market and in this world where there's so much Capital you
You've got to expect that anyone is going to compete with you is not just going to grow through profits. They're going to grow through aggressively bringing on new capital and taking market share and if they're going to do it you need to do it faster. That's just the nature of where we are in 2019 and maybe 40 years ago. We weren't there but we're there
now.
So the fourth point out of five that I want to make today about what we can learn from Uber for startup Founders is to make your vision as big as you can from the beginning once they realize what they had in their hand Uber understood the vast opportunity that
They could access after starting with just black cars then going to peer to peer and then growing the business. They've been saying this all along in their fundraising but now even in there s one they're saying we are not even one percent done with our work. We are addressing the twelve trillion dollars of world global economic activity that is transportation. And that is addressable by us. It's 15% of all the economic activity on the planet and we can go after that when you have that type of span of your
Ian when you articulate it that clearly it gets investors excited it gets the most talented employees excited. It gets the Press excited and that compounds your advantage in winning and taking these markets and an expanding these markets in creating the markets that you want to be the dominant player and Uber is done this brilliantly over the last many years. So make your vision as big as you can and find phrases that get people excited like we're not even one percent done with our work. It's great and the fifth and final point will make here is that
Uber has done a wonderful job with language and naming first of all, the name Uber itself is memorable it short it sounds strong. It sounds appealing and it's shared easily among people. The second thing. Is that that name they injected it into our vernacular it became a word. I'm going to Uber over there or I'm going to grab an Uber. It's either a noun or a verb when the name of your company and your brand name become shorthand for the entire Market category like Google did was search and now Uber.
ER is for ride sharing. It becomes an incredibly powerful defensive weapon and a growth mechanism for you. And so language is very powerful and can actually create its own network effects. It's quite rare, but when we see it happen usually see a hundred plus billion dollar companies and so pay attention to it. See if you can't do that in your marketplaces and focus on that language and the naming now having the right name won't get you to a hundred billion dollars by any means but it's certainly a helpful leverage and Uber the name itself actually understands this.
Ecology of the consumer here Uber is a word for Supreme or better or higher status. And as we know from Eugene ways wonderful blog essay about status seeking monkeys, we all want to feel as if we're getting the very best the very Supreme and so the name itself connotes you're getting the best you willingness to pay goes up your willingness to tell your friends about it. You willingness to share it goes up your willingness to be loyal to it. Why would I come down from the very best and use a lift or something else? So the name itself is a very subtle
Edge on it are very powerful Edge that drives consumer Behavior around this brand. So these are the five lessons that we think founder should take away from the Uber IPO. Number one speed and aggressiveness wins number to focus on your defense abilities. Number three capital is a competitive weapon and get good at fundraising number four make your vision as big as you can and number five language and naming matters. If you want to read more about this go to NF x.com essays. We've got it
an article along article about over there and a number of other articles about Marketplace Dynamics Network effects defense
abilities.
